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STUDY NOTES

Operations Management
MBA/114 (MBA 2nd Sem.)

Department of Management
SHRI RAM COLLEGE OF ENGINEERING AND MANAGEMENT
SRCEM, Palwal

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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UNIT - I
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.
Operation Management /Production is the process by which raw materials and other
inputs are converted in to finished products
Production management refers to the application of management principles to th
e production function in a factory. In other words, production management invol
vesapplication of planning, organizing directing and controlling to the production process.
Operations management is the process in which resorurces/inputs are converted into more useful
products
Production management and operations management are differentiated bas
e d o n tangibilities of finished goods/services

Operation Management

Production is the process by which raw materials and other inputs are converted
intofinished products
Production management refers to the application of management principles to th
e production function in a factory. In other words, production management invol
vesapplication of planning, organising, directing and controlling to the production process.

Operations management is the process in which resorurces/inputs are converted into moreuseful
products
Production management and operations management are differentiated bas
e d o n tangibilities of finished goods/services
Operation managers are required to make a series of decisions in the production function.

The decisions made by operation managers about the activities of production

systemstend to fall into three general categories, viz.,
1.Strategic decisions
2.Operating decisions
3.Control decision

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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The Transformation Role of Operations Management

We say that operations management performs a transformation role in the process of converting
inputs such as raw materials into finished goods and services. These inputs include human
resources, such as workers, staff, and managers; facilities and processes, such as buildings and
equipment; they also include materials, technology, and information. In the traditional
transformation model outputs are the goods and services a company produces. This is shown in
Figure 1-2.

At a manufacturing plant the transformation is the physical change of raw materials into
products, such as transforming steel into automobiles, cloth into jackets, or plastic into toys. This
is equally true of service organizations. At a university OM is involved in organizing resources,
such as faculty, curriculum, and facilities, to transform high school students into college
graduates. At an airline it involves transporting passengers and their luggage from one location
to another
Based on the aspects mentioned above, the scope of operations management is defined to be
ten important decisions in operations management are as follows:
1. The design of products and services
2. manage the quality
3. the strategy process
4. strategic location
5. Layout strategy
6. Human resources
7. Supply chain management
8. inventory management
9. scheduling
10. Maintenance

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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Objectives of Production/Operations Management:

Some of the important objectives of production/operations management are :
(i) Maximum customer satisfaction through quality, reliability, cost and delivery time.
(ii) Minimum scrap/rework resulting in better product quality.
(iii) Minimum possible inventory levels (i.e.,optimum inventory levels).
(iv) Maximum utilisation of all kinds of resources needed.
(v) Minimum cash outflow.
(vi) Maximum employee satisfaction.
(vii) Maximum possible production (i.e., outputs).
(viii) Higher operating efficiency.
(ix) Minimum production cycle time.
(x) Maximum possible profit or return on investment.
(xi) Concern for protection of environment.
(xii) Maximum possible productive

NATURE OF PRODUCTION/OPERATIONS:

The nature of production or operations can be better understood by viewing the manufacturing
function as :
(i) Production/operations as a system,
(ii) Production/operations as an organisational function,
(iii) Production/operations as a conversion or transformation process and
(iv) Production/operations as a means of creating utility.
These four distinct views are discussed in the following section.
Production/Operations as a System
This view is also known as "systems concept of production". A system is defined as the
collection of interrelated entities. The systems approach views any organisation or entity as an
arrangement of interrelated parts that interact in ways that can be specified and to some extent
predicted. Production is viewed as a system which converts a set of inputs into a set of desired
outputs.
A production system has the following elements or parts :
(i) Inputs,
(ii) Conversion process or transformation process,
(iii) Outputs
(iv) Transportation subsystem,
(v) Communication subsystem and
(vi) Control or decision making subsystem.

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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Production/Operations as a Conversion/Transformation Process

The conversion or transformation sub-system is the core of a production system because it
consists of processes or activities wherein workers, materials, machines and equipment are used
to convert inputs into outputs. The conversion process may include manufacturing processes
such as cutting, drilling, machining, welding, painting, etc., and other processes such as packing,
selling, etc.
Any conversion process consists of several small activities referred to as "operations" which are
some steps in the overall process of producing a product or service that leads to the final output.
Production/Operations as a Means of Creating Utility:
Production is defined as the process of adding to the value of outputs or the process of creating
utility in outputs. "Utility" is the power of satisfying human needs. During the process of
converting the raw materials into finished goods, various types of utilities are created while
adding value to the outputs. These

Types of utilities are :

(i) Form utility: which is created by changing the size, shape, form, weight, colour, smell of
inputs in order to make the outputs more useful to the customers. For example, iron ore is
changed to steel, wood is changed to furniture, etc.
(ii) Place utility: which is created by changing the places of inputs or transporting the inputs from
the source of their availability to the place of their use to be converted into outputs. For example
the iron ore and coal are transported from the mines to the steel plant to be used in the
conversion process.
(iii) Time utility: which is created by storage or preservation of raw materials or finished goods
which are in abundance sometime, so that the same can be used at a later time when they become
scarce due to higher demand exceeding the quantity available.
(iv) Possession utility: which is created by transferring the possession or ownership of an item
from one person to another person. For example, when a firm purchases materials from a
supplier, the possession utility of the materials will increase when they are delivered to the
buying firm.
(v) Service utility: which is the utility created by rendering some service to the customer. For
example, a doctor or a lawyer or an engineer creates service utility to a client/customer by
rendering service directly to the client/customer.
(vi) Knowledge utility: which is created by imparting knowledge to a person. For example, a
sales presentation or an advertisement about some product communicates some information
about the product to the customer, thereby imparting knowledge.

Challenges in Operations Management

Challenges in Operations management arise as a result of need of efficient and effective systems.
Efficient systems are required for making cost effective and sustainable processes. Effective
systems are required to support customer requirements. Rising customer expectations,
technological developments, and growing awareness about environmental issues have given new
challenges to the field of operations management. Some of the possible future challenges that
operations management may have to face are as follows :
(a) Challenges Due to Marketplace Development
Marketplace is now demanding customized products in place of mass marketed products.
This has created a challenge for operations management to develop systems which are
capable to produce wide varity of products at low cost. Secondly, specially in service
industry, customer is becoming partner - often unwillingly. For example in a self serving

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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restaurant customer has to pick his order on a beep. This trend is coming to manufacturing
also giving pressure to operations management.
(b) Challenges Due to Economic Reforms
This is particularly applicable in Indian Scenario after 1991's economic reforms. Before
the economic reforms, Indian Industry enjoyed undue advantage due to high import
tariffs. In some cases tariff rates were as high as 350 percent. Among the manychanges
effected, tariff reductions demanded a basic shift in the approach of business. "Cost plus
some margin is the price" was approach before economic reforms. After reforms prices
are guided by market forces. Subtract some margin from this price to get that cost under
which a business has to deliver the products. To match the offerings of overseas players,
Indian companies were also expected to improve their performance with respect to cost,
delivery, quality and service.
(c) Challenges Due to Factors of Production
(d) Factors of production such as managing an increasingly diverse workforce, shortage of
skilled workers, availability of raw materials from sustainable sources are challenges to
modern systems of operations management.
(d) Challenges Due to Technological
Environment Information technology is one of the most important enabler for developing
and easy implementation of tools such as ERP, computer aided manufacturing, Flexible
manufacturing system etc. Now the challenge is investing in right technology and mastering
it. It is difficult for any small and medium company to implement regularly changing
technology.
(e) Challenges Due to Regulatory
Environment Global pressure of intellectual property rights protection has created a pressure
on developing nation to keep their systems in alignment of requirement of these legal
provisions. Similarly new financial reporting systems, environmental protection laws are
giving challenge to operation managers which are new to this field.
(f) Challenges Due to Innovative Business Models With the advent of new technology,
particularly IT and related e-commerce, new business models are emerging. These new
business models such as e - choupal of ITC, flipkart have posed new challenges to operation
managers with respect to supply chain management.

*SCOPE OF PRODUCTION AND OPERATION MANAGEMENT

Production and operations management concern with the conversion of inputs into outputs, using
physical resources, so as to provide the desired utilities to the customer while meeting the other
organizational objectives of effectiveness, efficiency and adaptability. It distinguishes itself from
other functions such as personnel, marketing, finance, etc., by its primary concern for
‘conversion by using physical resources.’ Following are the activities which are listed under
production and operations management functions:
1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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OTHER SCOPE OF OPERATIONS MANAGEMENT

The scope of operations management ranges across the organization. Operations management
people are involved in product and service design, process selection, selection and management
of technology, design of work systems, location planning, facilities planning, and quality
improvement of the organization’s products or services. The operations function includes many
interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories,
assuring quality, motivating employees, deciding where to locate facilities, and more. We can
use an airline company to illustrate a service organization’s operations system. The system
consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over
a wide territory. The activities include:
Forecasting such things as weather and landing conditions, seat demand for flights, and the
growth in air travel.
Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit.
(Too few or too many planes, or even the right number of planes but in the wrong places, will
hurt profits.)
Facilities and layout, important in achieving effective use of workers and equipment.
Scheduling of planes for flights and for routine maintenance;

scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and
baggage handlers. Managing inventories of such items as foods and beverages, first-aid
equipment, inflight magazines, pillows and blankets, and life preservers.

Assuring quality, essential in flying and maintenance operations, where the emphasis is on
safety, and important in dealing with customers at ticket counters, check-in, telephone and
electronic reservations, and curb service, where the emphasis is on efficiency and courtesy.

Motivating and training employees in all phases of operations.

Locating facilities according to managers’ decisions on which cities to provide service for,
where to locate maintenance facilities, and where to locate major and minor hubs.

A number of other areas are part of, or support, the operations function.

They include

1) purchasing,

2) industrial engineering,

3) distribution, and

4)maintenance.

Purchasing has responsibility for procurement of materials, supplies, and equipment. Close
contact with operations is necessary to ensure correct quantities and timing of purchases. The
purchasing department is often called on to evaluate vendors for quality, reliability, service,
price, and ability to adjust to changing demand. Purchasing is also involved in receiving and
inspecting the purchased goods.

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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Industrial engineering is often concerned with scheduling, performance standards, work

methods, quality control, and material handling.

Distribution involves the shipping of goods to warehouses, retail outlets, or final customers.

Maintenance is responsible for general upkeep and repair of equipment, buildings and grounds,
heating and air-conditioning; removing toxic wastes; parking; and perhaps security.

WHY LEARN ABOUT OPERATIONS MANAGEMENT?

There are many career-related reasons for wanting to learn about operations management,
whether you plan to work in the field of operations or not. This is because every aspect of
business affects or is affected by operations. Operations and sales are the two line functions in a
business organization. All other functions—accounting, finance, marketing, IT, and so on—
support the two line functions.

Among the service jobs that are closely related to opera tions are financial services (e.g., stock
market analyst, broker, investment banker, and loan officer), marketing services (e.g., market
analyst, marketing researcher, advertising manager, and product manager), accounting services
(e.g., corporate accountant, public accountant, and budget analyst), and information services
(e.g., corporate intelligence, library services, management information systems design services).
Apart from the career-related reasons is a not so obvious one:

Through learning about operations and supply chains, you will have a much better understanding
of the world you live in, the global dependencies of companies and nations, some of the reasons
that companies succeed or fail, and the importance of working with others. Working together
successfully means that all members of the organization understand not only their own role, but
they also understand the roles of others.

This is precisely why all business students, regardless of their particular major, are required to
take a common core of courses that will enable them to learn about all aspects of business.

Because operations management is central to the functioning of every business organization, it

is included in the core of courses business students are required to take. And even though
individual courses have a narrow focus (e.g., accounting, marketing), in practice, there is
significant interfacing and collaboration among the various functional areas, involving exchange
of information and cooperative decision making. For example, although the three primary
functions in business organizations perform different activities, many of their decisions impact
the other areas of the organization. Consequently, these functions have numerous interactions, as
depicted by the overlapping circles

Benefits of Operation Management

Operations management focuses on the tools and techniques a manufacturing firm uses to ensure
a smooth, effective production process. If the company provides services, operations
administration indicates to top leadership the factors that can prop up customer loyalty and sales.

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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The discipline offers various benefits, including better profitability tracking, manufacturing
expertise and regulatory compliance.

1)Profitability Management
Sound operations management causes corporate leadership to challenge conventional wisdom or
employees’ sense of what's operationally correct. Simply put, senior executives rely on this
activity to question existing processes and ask personnel to come up with new ideas to do
business and increase sales. In fact, companies with experienced, competent operations managers
are generally adept at monitoring their revenues and expenses. They do so by delving into
corporate statements of income, profitability trends and budget reports, to name a few.

2)Competitive Advantage
Businesses adequately manage their operations to get a handle on key internal and external
factors. Internal factors include operating policies, intellectual capital and the average attrition
rate. This reflects the number of employees leaving as a result of resignations, retirements and
deaths. Forced workforce reductions, such as terminations, do not count as attrition-rate
components. Intellectual capital represents various abilities, expertise and knowledge that a firm
has gathered over time. External factors that operations managers heed include the state of the
economy and rivals’ strategies. By helping a firm understand its internal and external conditions,
operations management improves the company’s competitive standing. This is because the
business gets a better understanding of its operating environment and can adapt its tactics more
effectively to changing conditions. Marketing specialists use the SWOT concept -- strengths,
weaknesses, opportunities, threats -- to describe this analytical process.

3)Manufacturing Edge
Operations management allows a manufacturing firm to change or improve the way it produces
goods, as well as how it stores items such as raw materials, work-in process merchandise and
completely finished products. This important benefit helps the manufacturer prevent a
deterioration in debt affordability, which may happen if the firm incurs losses and cannot repay
its existing liabilities. Manufacturing tools used in operations management include computer-
aided production software, defect-tracking programs, warehouse management software and
process re-engineering applications.

4)Regulatory Compliance
By studiously analyzing operating activities, corporate management waves goodbye to the days
of hefty government fines and adverse regulatory decisions. Department heads and segment
chiefs set adequate internal controls to make sure rank-and-file personnel perform tasks in
accordance with the law. For example, adequate operations management helps improve
workplace safety, a key criterion that the U.S. Occupational Safety and Health Administration
watches closely.

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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* System perspectives of operation management

A System is a group of interrelated items in which no item studied in isolation will act in the
same way as it would in the system. A system is divided into a series of parts or subsystems, and
any system is a part of a larger system. The system’s boundary defines what is inside the system
and what is outside. A system’s environment is everything outside the system boundary that may
have an impact on the behaviour of the system. A system’s inputs are the physical objects of
information that enter it from the environment and its outputs are the same which leave it for the
environment.

Systems view of operations management states that activities in an operations system can be
classified as inputs, transformation process and output. Inputs are classified into three general
categories-external, market and primary resources.

Transformation resources are the elements that act on, or carry out, the transformation process on
other elements. These include such elements as labour, equipment/plant and energy. The nature
and mix of these resources will differ between operations. The transformed resources are the
elements which give the operations system its purpose and goal. The operations system is
concerned with converting the transformed resources from inputs into outputs in the form of
goods and services. There are three main types of transformed resource of materials which can
be transformed either physically(e.g. manufacturing),by location (e.g. transportation),by
ownership(e.g. retail) or by storage(e.g. Warehousing)

For our study of systems view of an organization we chose, Vedanta Resources Pvt.Ltd.We
concentrated on its Goa unit, which is called Vedanta Aluminium ManufacturingUnit.The unit
produces aluminium from aluminium oxide through electrolytic reduction. We consider the
factory as a systems compromising of various subsystems. As we defined earlier, a system
consists of these major components:
A)Input– Input into an operation systems can be classified into these categories.:
External- Legal inputs (the Companies Act etc), Economic, Social, Technological (Electrolytic
cells, power generation machinery etc )

Market — Competition (HINDALCO, NALCO,BALCO etc), Customer Desires, Product info

Primary resources— Material (Alumina, raw aluminium ore ), personnel, capital, utilities Here
the input is Al2 O3 or Alumina. This is the aluminium ore which is extracted from earth

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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 Conversion Subsystems

– The ore is transformed into pure aluminium. The transformation process is carried out mainly
through electrolytic reduction.
B)Output – The output consists of pure aluminium.

Direct

Products : Pure Aluminium

 Services : Aluminium Manufacturing
Indirect
 Waste
 Pollution
 Technological Advances

 Carbon Section —This section basically deals with the preparation and maintenance of
Carbon anode. The electrolytic process used for reducing Alumina (Al 2 O3) to pure
aluminium. For carrying out this process the anode used is made up of carbon mainly
graphite. This section deals with the construction and maintenance of Carbon anodes.

 Pot Room Cell— This is the section where the process of electrolysis actually takes
place. Here the raw aluminium ore is reduced to aluminium by electrolysis with the help of
carbon anodes. This section deals with the complete process. The electrolytic cells are
called Pot and thus the department is called Pot Room Cell

 Cast House— This section deals with processing of pure aluminium. Once the
aluminium has been extracted from the ore, it needs to be converted into more suitable
forms which can be further sold in the markets. The extracted aluminium is casted into
ingots and plates which are more suitable for selling in the market.

 Captive Power Plant — This section of the plant deals with generation of electricity for
running the whole plant. The electricity generated here is used by all the other departments.

Each section can be treated as a system in its own and can be divide into following general parts
 Human Resource
 Finance
 Production and Operation
 Logistics
 Information Technology

These sub systems are present in all the 4 major sections. They are centrally controlled by the
Plant Management Office(PMO).

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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These sub systems are present in all the 4 major sections. They are centrally controlled by the
Plant Management Office(PMO).The PMO controls the central decision making and is
responsible for running all the departments in sync. The PMO ensures that the decisions made by
the departments do not contradict and a healthy harmony is maintained so that all of them work
together as a part of a system.

*Operations as a competitive strategy

Introduction :
A long-range plan for the operations function that specifies the design and use of resources to
support the business strategy.
The role of operations strategy is to provide a plan for the operations function so that it can make
the best use of its resources. Operations strategy specifies the policies and plans for using the
organization’s resources to support its long-term competitive strategy
Figure 2-1 shows this relationship. Remember that the operations function is responsible for
managing the resources needed to produce the company’s products or services.
Operations strategy is the plan that specifies the design and use of these resources to support the
business strategy.

This includes the location, size, and type of facilities available; worker skills and talents
required; use of technology, special processes needed, special equipment; and quality control
methods. It is the role of operations strategy to provide an overall plan for the use of all these
resources. The operations strategy must be aligned with

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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Operations Management is present in many occupations as well as those of manufacturing and

service industries. I believe it to be present in daily duties of any person although they may never
notice. With this in mind I see operations management as a skill anyone has with an aim of
achieving an outcome of something they are working towards in a logical process with thought
of awareness of a system structure.

Operations management has been around for some time yet it was Christopher Polhelm
(Sweden) first recognised a skill and recorded that 'Nothing increases demand so much as low
prices. Therefore there is a great need of machines and appliances which will diminish the
amount or intensity of heavy work' (Extract from text book Operations Management - supplied
by DMU for open learning please see bibliography) this was around 1700. There are cases in
many history books and stories passed down that operations management was present before this
yet not identified as operations management. From 1700 business development has grew
significantly and seems to have been a notable point of operations management to present day.
Operation management is depending upon five performance objectives i.e. Quality,
Flexibility, Cost, Speed and dependability.

Quality: Quality means doing things right. An operation needs to be spotless and in order, have
appropriate and attractive furnishings and make sure that the staffs are friendly and helpful.
Quality reduces costs and increases dependability.

Flexibility: The Flexibility facilitate to any changes. Different products and services need to be
available, for example the opening times need to be varied as the main customers (students) have
varying timetables. Â

Cost: The membership prices need to be a suitable price to facilitate students and people with
different financial situations. The cost of hiring employment needs to be considered as well as
the cost of the equipment. The lower the cost of producing their services, the lower the cost to
the customer will be. This is a very attractive attribute, especially to students.

Speed: The speed of the internal processes can reduce inventories and reduce risks.

Dependability: The staffs want to be able to do things in time for the customers to receive their
services. Being reliable causes the customers to become more loyal over time. Dependability can
save time, save money and give support throughout the operation, internally and externally.

In this assignment I try to focus on above all objectives and how manufacturing process is going?
How much time taking each Department for their work? Why occur delay for delivery to
Customer? What's role of Human Resources in maintain Quality, Cost and Time? Why storage
is create scarcity of space? Why quality is going down?

Product value and Customer satisfaction Etc. Operation management find out best solution
before arise problem. Operation Management is helpful for Decision making, Developing a
process strategy, managing effective project, process analysing, Demand Forecasting, managing
Quality, planning Capacity, managing Inventories etc. In this assignment I researched on Rama
Newsprint & Papers Ltd, India, which is largest private paper Production Company. It is running
by more than 2000 workforce. This is manufacturing Cream Wove, Super printing, base paper
for coating, map litho; SS map litho, Copier paper and newsprint etc. It has $ 50 million equity
or spread over in 400 acres land. RNPL has also own 23 mw Power plants. This company is huge

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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in paper industry sector and I am sure it will be increase my knowledge in Operation

management and its systems.

Core Operational Strategies

Operational strategies refers to the methods companies use to reach their objectives. By
developing operational strategies, a company can examine and implement effective and efficient
systems for using resources, personnel and the work process. Service-oriented companies also
use basic operational strategies to link long- and short-term corporate decisions and create an
effective management team.
Corporate Strategy
Corporate strategies involve seeing a company as a system of interconnected parts. Just as the
muscles of the heart depend on brain functions in a human body, each department in a company
depends on the others to stay healthy and achieve desired outcomes. The additional core
strategies that a company uses should support the corporate strategy and use cross-functional
interactions.
Customer-driven Strategies
Operational strategies should include customer-driven approaches to meet the needs and desires
of a target market. To do so, a company must develop strategies that evaluate and adapt to
changing environments, continuously enhance core competencies and develop new strengths on
an ongoing basis. When evaluating environments, a company should monitor market trends to
take advantage of new opportunities and avoid possible threats.
Developing Core Competencies
Core competencies are the strengths and resources within a company. While core competencies
can vary by industry and business, they can include having well-trained staff, optimal business
locations and marketing and financial expertise. By identifying core competencies, a company
can develop processes such as customer satisfaction, product development and building
professional relationships with stakeholders.
Competitive Priorities
The development of competitive priorities comes from the creation of a corporate strategy,
market analysis, defining core processes and conducting a needs analysis. To create competitive
priorities, an organization evaluates operational costs, the quality of a product or service, the
time it takes to develop and deliver a good or service and the flexibility of a good or service with
regard to variety, volume and customization. Competitive priorities should include being able to
provide a quality product or service at a fair cost that consistently meets the needs of a customer.
Product and Service Development
Strategies behind the development of products and services should consider design, innovation
and added values. When developing new customer products, a company can decide to be a leader
in introducing a new product or service, wait for the introduction of innovations on the market to
improve upon them or wait to see if a company's innovation is successful before moving
forward. When developing a service, companies should consider packaging it with immediately
observable and psychological benefits and support services. When developing a good or service,
a company should consider the wants of its customers, how its stands against the competition and
how its technical measures relate to its customers' needs.

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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*Facility Location - Factors Influencing the Location

INTRODUCATION

Facility Location is the right location for the manufacturing facility, it will have sufficient access
to the customers, workers, transportation, etc. For commercial success, and competitive
advantage following are the critical factors:
Overall objective of an organization is to satisfy and delight customers with its product and
services. Therefore, for an organization it becomes important to have strategy formulated around
its manufacturing unit. A manufacturing unit is the place where all inputs such as raw material,
equipment, skilled labors, etc. come together and manufacture products for customers. One of
the most critical factors determining the success of the manufacturing unit is the location.
Facility location determination is a business critical strategic decision. There are several
factors, which determine the location of facility among them competition, cost and
corresponding associated effects

. Facility location is a scientific process utilizing various techniques.

Location Selection Factors
For a company which operates in a global environment; cost, available infrastructure, labor skill,
government policies and environment are very important factors. A right location provides
adequate access to customers, skilled labors, transportation, etc. A right location ensures success
of the organization in current global competitive environment.
Industrialization
A geographic area becomes a focal point for various facility locations based on many factors,
parameters and issues. These factors are can be divided into primary factors and secondary
factors. A primary factor which leads to industrialization of a particular area for particular
manufacturing of products is material, labor and presence of similar manufacturing facilities.
Secondary factors are available of credit finance, communication infrastructure and insurance.

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal

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Errors in Location Selection

Facility location is critical for business continuity and success of the organization. So it is
important to avoid mistakes while making selection for a location. Errors in selection can be
divided into two broad categories behavioral and non-behavioral. Behavioral errors are decision
made by executives of the company where personal factors are considered before success of
location, for example, movement of personal establishment from hometown to new location
facility. Non-behavioral errors include lack of proper investigative practice and analysis,
ignoring critical factors and characteristics of the industry.
Location Strategy
The goal of an organization is customer delight for that it needs access to the customers at
minimum possible cost. This is achieved by developing location strategy. Location strategy helps
the company in determining product offering, market, demand forecast in different markets, best
location to access customers and best manufacturing and service location.
Factors Influencing Facility Location
If the organization can configure the right location for the manufacturing facility, it will have
sufficient access to the customers, workers, transportation, etc. For commercial success, and
competitive advantage following are the critical factors:
1)Customer Proximity: Facility locations are selected closer to the customer as to reduce
transportation cost and decrease time in reaching the customer.
2)Business Area: Presence of other similar manufacturing units around makes business area
conducive for facility establishment.
3)Availability of Skill Labor: Education, experience and skill of available labor are another
important, which determines facility location.
4)Free Trade Zone/Agreement: Free-trade zones promote the establishment of manufacturing
facility by providing incentives in custom duties and levies. On another hand free trade
agreement is among countries providing an incentive to establish business, in particular, country.
5)Suppliers: Continuous and quality supply of the raw materials is another critical factor in
determining the location of manufacturing facility.
6)Environmental Policy: In current globalized world pollution, control is very important,
therefore understanding of environmental policy for the facility location is another critical factor.
Seven Key Factors to a Facility Location

Layout
The physical layout of the facility location will determine whether future expansion can include
adding more facility buildings and enlarging manufacturing space within the site. Whether
buildings and manufacturing lines must be created by scratch or they are already exist on-site
with minimal renovations is also a consideration.
Cost
The cost of relocating facilities to the site is a major factor in determining the acceptability of a
location. Cost can involve tailoring existing buildings to fit your operations or building an
operation from scratch. Land may be cheap, but to make it workable might be expensive.

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Logistics
The site must have adequate transportation routes to get goods to and from the site. The facility
itself must come equipped with adequate electrical and plumbing to run an effective operation; if
they don't yet exist they must be cheap enough to install at the site.
Labor
A facility requires labor to run. Management staff might relocate from other areas, but on the
ground workers are sourced locally. A facility close enough to a municipality with a healthy
supply of labor to operate it is a must.
Political Stability
Companies that locate facilities in international locations might benefit from a cost perspective;
however, an unstable local government that puts smooth operations at risk are a deterrent to
choosing to locate there. Some international locales, however, benefit from a free trade zone with
the U.S., saving companies duties on the goods they import back to the U.S.
Regulations
Stringent local environmental regulations that limit the nature of business operations can deter a
company from choosing a particular location. In addition, government regulations and taxes of
various kinds can prove costly down the line. On the flip side, government tax incentives that
encourage corporate development can prove a benefit to certain locales.
Community
Facility locations are not temporary; the choice you make will stick with your company for the
long haul. It's therefore key that your company fits with the community it's associated with.
Although the municipality might appreciate your company's facility because it creates jobs, some
might resent your presence because of aesthetics or environmental factors. Maintaining a hassle-
free relationship with the locals helps ensure your licenses and permits are easier to obtain and
maintain over the life of the

*TYPES OF MANUFACTURING SERVICE SYSTEMS

We use a wide variety of products from sugar, salt, petrol, diesel, power to jewelry, pizza, mobile
phones, bikes and cars. With this large variety of products, it is unreasonable that the production
systems that manufacture these products could have common characteristics – the materials vary
widely; the sizes, shapes, and weights are diverse; and the applications and uses are equally
variegated. But if there were no common characteristics among systems for diverse products- if

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each system were entirely unique- we could learn nothing transferable by studying productions
management, and such is not the case.
By examining the nature of the product demand in its growth from introduction to maturity and
by relating it to the competitive criteria of cost, quality, on-time delivery, and flexibility we can
develop logical types of manufacturing systems that match marketplace needs. This discusses
different types of production systems for manufacturing organizations as well as different types
of service organizations.

Classification of Manufacturing (Production) System

. Continuous Production- In this system the item are produced for the stocks and not for
specific orders. In this system the inputs are standardized and a standard set of process and
sequence of process can be adopted.

Features of Continuous Production

 Continuity in demand
 Standardize production
 Appropriate plant and equipment
 Specific material
 Balanced process

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

Characteristics of Mass Production

1. Standardization of product and process.
3. Larger volume of products.
4. Shorter production cycle time.
5. Low process inventory.
6. Production lines are perfectly balanced.
7. Flow of materials, components and parts is continuous
8. Easy production planning and control

Advantages of Mass Production

1. Higher rate of production
2. Reduced production cycle time.
2. line balancing lead to higher capacity utilization
3. Requirement of less skill operator
4. Lower process inventory.
5. Low manufacturing cost per unit

Limitations of Mass Production

1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.

PROCESS PRODUCTION
A production process, that runs for very long periods without the start-and-stop behavior
associated with intermittent production such as those used by chemical plants or refineries. High
capital investments are required for highly automated facilities that use special-purpose
equipment designed for high volumes of production and little or no variation in the type of
outputs.

Characteristics of Process Production

1. Extended form of mass production system
2. More automatic machines
3. One basic raw material is transferred into several products at several stages.
4. Less highly skilled workers required
5. More human problems foreseen
6. Highly standardized system

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Intermittent Production System - Production is performed on a start-and-stop basis, such as for

the manufacture of made-to-order products. The goods are manufacture especially to full fill
order by customer rather than for keeping stock.

Characteristics of Intermittent Production System

 Production in smaller quantities

 Machine and equipment are aligned as requirement of process
 High skill labor required

 Larger in-process inventory

 Flexible

JOB SHOP PRODUCTION

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

Characteristics
1. High variety of products and low volume.
2. Highly skilled operators required.
3. Large inventory of materials, tools, parts.
4. High capital investment
5. High per unit cost of production
5. Detailed planning is for required of each product, capacities for each work center and order
priorities.

Advantages
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for creative methods and innovative ideas.

Limitations
1. Higher cost because of regular changes
2. Higher inventory cost due to higher level of inventory at all levels
3. Production planning is difficult
4. Larger space requirements.

BATCH PRODUCTION
It is a form of manufacturing in which the job passes through the functional departments in lots
or batches and each batch may have a different routing. It is characterized by the manufacture of
limited number of products produced at regular intervals and stocked awaiting sales.

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Characteristics
•Highly specialized Human resource is required
•Highly specialized multitasking machines
•Machines are shared.
•Production in batches
•Production lots are based on customer demand or order.
•No single sequence of operation
•Finished goods are heterogeneous

Advantages
1. Plant and machinery are better utilized
2. Functional specialization.
3. Lower cost per unit of production as compare to job production
4. Lower investment required
5. Flexibility in process

Limitations
1. Material handling is complex due to irregular an larger flow of material
2. Production planning and control is difficult

Here is the Comparative study of different production systems

*Line Balancing
The scope of this study is to explore the understanding of Production-line Manufacturing
and Balancing, Types of Line Balancing, Equipment Balancing and its Failure and
Analysis. A production line is said to be in balance when every worker’s task takes the
same amount of time. Line balancing is a manufacturing-engineering function in which
whole collection of production-line tasks are divided into equal portions. Well-balanced
lines avoid labour idealness and improve productivity.

Production Line Balancing

Line-balancing strategy is to make production lines flexible enough to absorb external and
internal irregularities. There are two types of line balancing, which we have explained as –

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 Static Balance – Refers to long-term differences in capacity over a period of several

hours or longer. Static imbalance results in underutilization of workstations, machines
and people.
 Dynamic Balance – Refers to short-term differences in capacity, like, over a period of
minutes, hours at most. Dynamic imbalance arises from product mix changes and
variations in work time unrelated to product mix.

Labour Balancing and Assignments

Strategy of production line stability is the tendency for labour assignments to be fixed. Labour
feasibility is an important feature in the strategy of production line flexibility linked to individual
skills and capabilities –

 When one worker is having problem in performing his assigned task and experiencing
delay due to technical problem(s), other worker(s) should move into help.
 The management practice of deliberately pulling worker’s of the line when the line is
running smoothly.
 The movement of whole crews from one dedicated line to another as the model mix
changes.
 Group Technology – In which one worker can handle variety of tasks (automation) in a
single work centre.

Equipment Balancing
While balancing equipment, attempt to ensure that each piece of equipment in the work cell has
the same amount of work. Now days every manufacturer is attempting to maximize the
utilization of all available equipments. Such high utilization is often counterproductive and may
be the wrong goal because; high utilization is usually accompanied by high inventory.

Equipment Failure
An equipment failure is a major serious matter, with the potential to shut down a production line.
To avoid such failures one should not overload the equipments, and workers should be trained to
perform a daily machine checking (preventive maintenance) and following standard operating
procedures. The advantage for Maintenance and Engineering Department does not lye in running
late shifts, hence calculate the preventive maintenance time and schedule the activity.

Analysis
Analysis is generally performed by Competent Technical Staff. Begin the analysis with division
of production-line work into small tasks, determination of task time standards, specification of
required task sequencing and notation of constraints. If bottle neck task is in the way of good
balance, the Competent Technical Staff should analyze the task to reduce the time it takes to
perform.

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Line Balancing Leadership

Workmen should lead the production line balancing effort, so that they can react quickly when
line imbalances (static and dynamic) crop up as a result of changeover to make a different item
or changes in the output rate.

Conclusion
Production-line balancing study tends to employ thought and ingenuity to change conditions.
Production-line design and operation is more art than science. Labour flexibility is the key to
effective resource management. The idea of worker’s checking and doing minor repair work on
their own equipment possibly decreases the risk of equipment failure. Selecting an appropriate
set of balancing mechanism is a part of work cell design and it must be linked with many other
decisions for the system to function well.

*Industrial Plant Layout: Meaning, Definition, Need and Importance!

Meaning:

Plant layout is the most effective physical arrangement, either existing or in plans of industrial
facilities i.e. arrangement of machines, processing equipment and service departments to achieve
greatest co-ordination and efficiency of 4 M’s (Men, Materials, Machines and Methods) in a
plant.

Layout problems are fundamental to every type of organization/enterprise and are experienced in
all kinds of concerns/undertakings. The adequacy of layout affects the efficiency of subsequent
operations.

ADVERTISEMENTS:

It is an important pre-requisite for efficient operations and also has a great deal in common with
many problems. Once the site of the plant has been decided, the next important problem before
the management of the enterprise is to plan suitable layout for the plant.

Definitions:

According to James Lundy, “Layout identically involves the allocation of space and the
arrangement of equipment in such a manner that overall operating costs are minimized”. In the
words of Mallick and Gandreau, “Plant layout is a floor plan for determining and arranging the
designed machinery and equipment of a plant, whether established or contemplated, in the best
place, to permit the quickest flow of material, at the lowest cost and with the minimum handling
in processing the product, from the receipt of raw material to the shipment of finished product”.

According to Apple, “Plant layout is planning the path each component/ part of the product is to
follow through the plant, coordinating the various parts so that the manufacturing processes may

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be carried out in the most economical manner, then preparing drawing or other representation of
the arrangement and finally seeing that the plan is properly put into effect.” (Plant Layout and
Material by Apple).

In the words of Sansonneti and Malilick (Factory management Vol. 103) “It is planning the right
equipment, coupled with right place, to permit the processing of a product unit in the most
effective manner, through the shortest possible distance and in the shortest possible time.” The
last definition seems to be most appropriate.

Objectives of Plant layout:

A properly planned plant layout aims at achieving the following objectives:

1. To achieve economies in handling of raw materials, work in- progress and finished goods.

2. To reduce the quantum of work-in-progress.

3. To have most effective and optimum utilisation of available floor space.

4. To minimise bottlenecks and obstacles in various production processes thereby avoiding the
accumulation of work at important points.

5. To introduce system of production control.

6. To ensure means of safety and provision of amenities to the workers.

7. To provide better quality products at lesser costs to the consumers.

8. To ensure loyalty of workers and improving their morale.

9. To minimise the possibility of accidents.

10. To provide for adequate storage and packing facilities.

11. To workout possibilities of future expansion of the plant.

12. To provide such a layout which permits meeting of competitive costs

Factors Considered for Plant Layout:

Layout for a factory must be decided by considering the following factors:

i. Organisation.

ii. Location of departments.

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ii. Type of product, method of production, production process.

iv. Production capacity.

v. Type of industry, like synthetic, analytic, conditioning or extractive.

vi. Grouping of machines.

vii. Material flow pattern.

viii. Space requirement for machines, work area, material handling, storage, and other facilities.

ix. Safety factors.

x. Health and other factors, like ventilation, natural light, removal of smoke, and fumes etc.

xi. Provision for future expansion.

xii. Flexibility for future modifications due to diversification, technology, or product design
changes.

xiii. Storage system i.e., centralised or decentralised or a combination of both.

Need of Plant layout:

Many situations give rise to the problem of plant layout. Two plants having similar operations
may not have identical layout. This may be due to size of the plant, nature of the process and
management’s caliber. The necessity of plant layout may be feel and the problem may arise
when.

(i) There are design changes in the product.

(ii) There is an expansion of the enterprise.

(iii) There is proposed variation in the size of the departments.

(iv) Some new product is to be added to the existing line.

(v) Some new department is to be added to enterprise and there is reallocation of the existing
department.

(vi) A new plant is to be set up.

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Importance of Plant Layout:

The layout of a plant is quite important in view of the above definition but the importance of a
layout may greatly vary from industry to industry.

The possibility of attaining the best possible layout is directly proportional to following
factors:
The Weight, Volume or Mobility of the Product:
If the final product is quite heavy or difficult to handle involving costly material handling
equipment or a large amount of labour, important consideration will be to amount the product
minimum possible e.g. boiler, turbines, locomotive industries and hip building companies etc.

1)Complexity of the Final Product:

If the product is made up of a very large number of components and parts i.e. large number of
people may be employed for handling the movement of these parts from shop to shop or from
machine to machine or one assembly point to another e.g. automobile industry.

2)The Length of the Process in relation to Handling Time:

If the material handling time represents an appreciable proportion of the total time of
manufacturing, any reduction in handling time of the product may result in great productivity
improvement of the industrial unit e.g. Steam Turbine Industry.

3)The Extent to which the Process Tends towards Mass Production:

With the use of automatic machines in industries for adopting mass production system of
manufacturing the volume of production will increase. In view of high production output, larger
percentage of manual labour will be engaged in transporting the output unless the layout is good.

The various tools and techniques used for the preparation of plant layout are described in
short below:
(a) Flow process chart,

(b) Process flow diagram,

(c) Machine data card,

(d) Templates, and

(e) Scale models.

(a) Flow Process Chart:

This is a graphic representation of sequence of operation, transportation, inspection, delays and
storage occurring during manufacture. This gives the information regarding distance moved and
time required for various activities such as transportation, delay, inspection etc. This chart helps
in determining hidden efficiencies in the processes and may suggest rearrangement of layout.

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This also points out elimination of unnecessary movement and processes.

(b) Process Flow Diagram:

It is the diagram of building plan representing graphically the movement of materials on the
drawing. With its help proper material handling arrangements can be made and it indicates long
material hauls and back tracking of present layout, which thereby helps in improving the layout.

(c) Machine Data Cards:

These cards give complete specification of each machine to be installed such as output capacity,
foundations, space needed, method of operation, maintenance and handling devices of machines
etc.

(d) Templates:
After studying the flow process chart, process flow diagram and machine data cards, a floor plan
is prepared by fixing the area occupied by each item to be erected in the shops. This floor plan is
prepared at certain scale say 1 cm2 = 1 m2.
Now from thick sheets of paper or card board pieces are cut (known as templates) to represent
various items which are to be housed in the plants, and are placed on the floor plans at suitable
places. These templates are so arranged as to give best layout. The changes if any, required are
made before making the actual layout drawing.

(e) Scale Models:

It is an improvement over the template method. In this tool, instead of templates, use of three
dimensional scale models is made. These models may be of wood or metal and when used on a
layout, series of additional information about the height and of the projected parts of the
machines are obtained. This is similar to a child’s doll house.

This technique is useful for complex layout, requiring initially huge investment.

In conclusion, plant layout is an important consideration. Hence various experts such as

production engineer, materials handling engineer, safety engineer and work study engineer etc.
should all sit together to arrive for final best shape of layout.

4. Advantages of Scientific Layout:

A scientific layout has got the following important advantages:

1. It reduces internal transport to a minimum.

2. It minimises accidents and makes supervision easy and quick.

3. It makes repairs and maintenance easy.

4. It yields higher profits. Therefore, higher wages can be paid to workers.

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5. It reduces labour turn-over.

6. It reduces production delays to a large extent.

7. It keeps the shops neat and clean.

8. It minimises changes in the layout to a large extent every time.

9. It keeps control over production.

10. It eliminates waste effort and thus speeds of production increases.

11. Back tracking is reduced.

12. Less capital is spent on machinery.

13. It reduces set up and total operation time.

14. It reduces wastage and spoiled work.

15. Time and motion study can be easily and accurately performed.

16. Better utilisation of manpower.

17. Improvement in methods of production can be made.

5. Layout of Services:

The tool rooms, store rooms, water, power, transportations, cafeteria, wash rooms, lavatories etc.
include the service centres of a plant. The shorter the distance from the operations to these
centres, the less time will be consumed by workers in using these services.

Generally the service centres are located where the space is available after planning for
manufacturing. The exact location is determined by its nature, number of persons to avail such
services and how much this service is made use of.

The factors affecting the layout of most important service centres such as store room,
transportation, water, and power fire protection are as under:
1. Store Room:
Store room layout, as far as possible, should satisfy the following essential requirements:
(i) It should provide an easy receipt, storage, issue and inspection of materials etc.

(ii) It should have enough storage capacities and facilities.

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(iii) It should have proper protection against wastage, damage deterioration and thefts.

(iv) It should permit easy and clear identification and location of materials.

(v) It should be simple and serviceable.

(vi) It should have bins of proper width for handling the materials.

2. Transportation:
Transportation required in the factory premises is for different purposes, such as transportation of
materials and equipment, transportation of labourers and other employees and transportation of
products; proper consideration is essential so that the layout is economical and convenient.

3. Water:
The layout of the water service is very necessary consideration. For this purpose, certain
provisions are given in the “FACTORY ACT”, those must be strictly followed. According to
Factory Act, in every factory in which more than 250 workers are employed, water coolers
should be installed at suitable places.

The water centres should be marked by the word “DRINKING WATER”. Water centres should
be located at least 6 m from latrines, urinals and washrooms. There should be one water centre
for first 150 workers to 500 workers and one centre for every additional 500 workers.

4. Power:
The electrical energy required for running the plants may be purchased from an outside source or
generated itself.

The electric energy is transformed into mechanical power and is supplied to the machines
and equipment’s in the following two ways:
(a) Group Drive.

(b) Individual Drive.

Today individual drive is generally adopted. So in the layout, it is to be seen that from where
electrical cables will pass and where protecting devices, switches, starters and control panels are
to be fixed.

5. Fire Protection:
For this, suitable places must be allotted in the shop for locating water buckets, sand buckets and
fire extinguishers. Inflammable materials must be kept in separate store at a safe distance,
minimum 15 m from the general storage.

Provision to escape in case of fire must be kept. A factory employing more than 20 persons and
storing, inflammable materials and explosives must arrange for training of persons in the routine
to be adopted in case of fire.

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Objectives of Plant Layout and Material Handling:

Objectives of plant layout and corresponding objectives of material handling are indicated
in the following table:

Inter-Relationship between Plant Layout and Material Handling:

Foregoing discussions emphasize the extreme importance of relationship between them and also
with other by both these departments. The success of a factory largely depends on the
relationship of these departments.

Some of such fields are mentioned hereunder:

1. Production:
For production function, utmost cooperation is required between plant layout engineers, material
handling engineers, and production engineers.

2. Plant Engineering:
For maintenance etc., cooperation between these two departments is necessary.

3. Quality Control:
In order to avoid damages in the path during handling, cooperation between them is essential.

4. Safety:

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Since large number of accidents occur during handling, both these departments must work
closely with the safety engineer to design the layout and handling methods, equipment etc.

5. Sales and Distribution:

For packaging, loading system cooperation of these two departments with marketing and sales
department is essential.

7. Types of Plant Layout Problems:

It is not necessary that layout engineer deals with only new layout i.e., layout problems of new
facilities. Such problems are faced only once; however he is mostly involved in problems related
to the re-layout of an existing process or an alteration in the existing arrangement.

Some of the examples of re-layout problems are:

1. Change in the design of part. This calls for the change in the process and may require some
alterations in the existing layout.

2. Layout change due to the change in method of production.

3. Expansion in production capacity.

4. Reduction in production capacity.

5. Diversification i.e., addition of a new product.

6. Planning a new facility or a new department.

7. Shifting a department.

8. Replacing equipment with advanced technology.

Symptoms of Bad Layout:

1. Some machines heavily loaded and some remain idle for long periods.

2. Excessive handling by skilled workers.

3. Long production cycles.

4. Stock control difficulties.

5. Bottlenecks in production.

6. Poor utilisation of available space.

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7. Delays in delivery.

8. Excessive fatigue on workers.

9. Backtracking.

10. Excessive temporary storage.

11. Poor house-keeping.

12. Difficulty in supervision and control.

13. Idle workers and equipment.

14. Obstacles in material flow.

*Material Handling
Manual material handling ranges from movement of raw material, work in progress, finished
goods, rejected, scraps, packing material, etc. These materials are of different shape and sizes as
well as weight. Material handling is a systematic and scientific method of moving, packing and
storing of material in appropriate and suitable location. The main objectives of material handling
are as follows:

 It should be able determine appropriate distance to be covered.

 Facilitate the reduction in material damage as to improve quality.
 Reducing overall manufacturing time by designing efficient material movement
 Improve material flow control
 Creation and encouragement of safe and hazard-free work condition
 Improve productivity and efficiency
 Better utilization of time and equipment

OTHER OBJECTIVES OF MATERIAL HANDLING

The primary objective of a material handling system is to reduce the unit cost of production. The
other subordinate objectives are:

1. Reduce manufacturing cycle time

2. Reduce delays, and damage
3. Promote safety and improve working conditions
4. Maintain or improve product quality
5. Promote productivity

i. Material should flow in a straight line

ii. Material should move as short a distance as possible
iii. Use gravity
iv. Move more material at one time

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v. Automate material handling

6. Promote increased use of facilities

i. Promote the use of building cube

ii. Purchase versatile equipment
iii. Develop a preventive maintenance program
iv. Maximize the equipment utilization etc.

7. Reduce tare weight

8. Control inventory

It is critical for manufacturing organization to identify importance of material handling principle

as the critical step in promoting the job improvement process. Manual material handling
significantly increases health hazard for the workers in from lower back injuries.
In the current competitive and globalized environment, it is important to control cost and reduce
time in material handling. An efficient material handling process promotes:

 Design of proper facility layout

 Promotes development of method which improves and simplifies the work process
 It improves overall production activity.
 Efficient material handling reduces total cost of production.

Principles of Material Handling

Material handling principles are as follows:

 Orientation Principle: It encourages study of all available system relationships before

moving towards preliminary planning. The study includes looking at existing methods,
problems, etc.
 Planning Principle: It establishes a plan which includes basic requirements, desirable
alternates and planning for contingency.
 Systems Principle: It integrates handling and storage activities, which is cost effective
into integrated system design.
 Unit Load Principle: Handle product in a unit load as large as possible
 Space Utilization Principle: Encourage effective utilization of all the space available
 Standardization Principle: It encourages standardization of handling methods and
equipment.
 Ergonomic Principle: It recognizes human capabilities and limitation by design
effective handling equipment.
 Energy Principle: It considers consumption of energy during material handling.
 Ecology Principle: It encourages minimum impact upon the environment during material
handling.
 Mechanization Principle: It encourages mechanization of handling process wherever
possible as to encourage efficiency.
 Flexibility Principle: Encourages of methods and equipment which are possible to
utilize in all types of condition.

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 Simplification Principle: Encourage simplification of methods and process by removing

unnecessary movements
 Gravity Principle: Encourages usage of gravity principle in movement of goods.
 Safety Principle: Encourages provision for safe handling equipment according to safety
rules and regulation
 Computerization Principle: Encourages of computerization of material handling and
storage systems
 System Flow Principle: Encourages integration of data flow with physical material flow
 Layout Principle: Encourages preparation of operational sequence of all systems
available
 Cost Principle: Encourages cost benefit analysis of all solutions available
 Maintenance Principle: Encourages preparation of plan for preventive maintenance and
scheduled repairs
 Obsolescence Principle: Encourage preparation of equipment policy as to enjoy
appropriate economic advantage.

Reduced Manufacturing Cycle Time

The total time required to make a product from the receipt of its raw material to the finished state
can be reduced using an efficient and effective material handling system. The movement of the
material can be faster and handling distance could be reduced with the adoption of an appropriate
material handling system.

4 Main Categories of Material Handling Equipment

There are 4 main categories of material handling equipment:

 Bulk material handling

 Engineered systems
 Industrial trucks
 Storage and handling equipment

ulk Handling Material Equipment

The term ‘bulk handling equipment’ refers to the storage, control and transportation of materials
by bulk, and in loose form. There are plenty of examples of this application – the handling of
food, beverages, liquids, metal items (such as screws and nails) and minerals are just a few.
In general terms, these pieces of equipment primarily handle these items when they are loose.
One example is a conveyor belt that is used to move items from one part of the production
process to another. Drums and hoppers may be used as well, to ‘funnel’ these loose items into a
stage where they can be more easily manipulated, or packaged.
Conveyor belts are used for horizontal transportation. For vertical transportation, elevators are
most commonly used.
Types of bulk handling material equipment

 Bucket and grain elevators

 Conveyor belts
 Hoppers and silos

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 Reclaimers
 Stackers

Engineered Systems
An engineered system is one that is typically automated. Such systems are also usually created
from a variety of units. When combined, they work to enable both storage and transportation.
An ‘Automated Storage and Retrieval System’ (or a AS/RS for short) is one example of a system
that is engineered. This is a large, automated device that comes complete with racks, shelves and
aisles. These storage solutions are accessed by a ‘shuttle’ – a mechanized device that’s similar to
a cherry picker. This device can be used by the system operator to manually select the items as
needed, or the entire system can be computerized and automated.
An AS/RS can be integrated with a production facility’s existing computer network to keep on
top of stock control, plus other logistical systems. It can also be integrated with other stages of
the production process, so that as much automation can be offered as possible.
Types of engineered systems

 Automated guided vehicles (AGVs)

 Conveyor systems
 Robotic delivery systems

Industrial Trucks
This term is another broad definition that can be applied to many different types of equipment.
Such pieces of equipment do have one thing in common, though – they all provide
transportation.
The scope of this term can include both small, hand-operated devices, and large-scale motorized
vehicles. Some items can be driven, while others – such as pallet trucks – simply add mobility to
the materials that are being handled.
Many of these types of trucks have useful characteristics such as forks or a flat surface that can
be inserted under pallets or other types of storage platforms. Other trucks need a separate item of
equipment to use for lifting.
Trucks have the capability to lift via powered or manual means, and can be ridden upon in a
driver’s cab, or simply power-assisted when pushed. Such tucks can also be steered by human
intervention, or can be completely automated, following a pre-defined track on the production
floor, sunken or raised tracks, or colored strips that are laid out and sensed by optical sensors.
Such automated industrial trucks also have anti-collision technology that senses when an
employee or other obstacle is near.
Stacking trucks are used to stacks items, while a non-stacking truck is just used for
transportation, and not for product loading.
Types of industrial trucks:

 Automated guided vehicles (AGVs)

 Hand, platform and pallet trucks
 Order pickers

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 Pallet jacks
 Side-loaders
 Walking stackers

Storage and Handling Equipment

Equipment that is used for storage usually only encompasses items that are not automated.
Storage and handling equipment that is automated falls under the term ‘engineered systems’
Storage equipment is equipment that is used to hold products and materials when they are not
being used, or when they are waiting to enter or leave the production process. These periods
could be long-term, or short-term in order to allow a suitable build-up of stock or finished items.
Most items that can be described as storage and handling equipment refers to pallets, racking or
shelves. Materials are stored in a neat and convenient manner to await transportation, or their
entry into the production process if necessary.
Having suitable storage equipment will add to any company’s production efficiency. The
efficiency of any production system is maximized by the ease at which each stage of the entire
system operates. Any inefficient section creates a bottleneck that will have an effect on all other
sections of the system further down the production line.
Space is also at a premium if you run a production environment. The better utilized your
available space is, the more items you’ll be able to store. This means you can keep your
workflow in operation for much longer without worrying about re-stocking. This helps further
increase your efficiency.
Types of storage and handling equipment

 Drive-through or drive-in racks

 Pallet racks
 Push-back racks
 Shelving
 Sliding racks
 Stacking frames

LIMITATIONS OF AUTOMATED MATERIAL HANDLING SYSTEMS:

A good management practice is to weigh benefits against the limitations or disadvantages before
contemplating any change. Material handling systems also have consequences that may be
distinctly negative. These are:

1. Additional investment
2. Lack of flexibility
3. Vulnerability to downtime whenever there is breakdown
4. Additional maintenance staff and cost
5. Cost of auxiliary equipment.
6. Space and other requirements:

The above limitations or drawbacks of adopting mechanized handling equipment have been
identified not to discourage the use of modern handling equipment but to emphasize that a

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judicious balance of the total benefits and limitations is required before an economically sound
decision is made.

The Twenty Principles of Material Handling

1. Orientation Principle
Study the system relationships thoroughly prior to preliminary planning in order to identify
existing methods and problems, physical and economic constraints, and to establish future
requirements and goals.

2. Planning Principle
Establish a plan to include basic requirements, desirable options, and the consideration of
contingencies for all material handling and storage activities.

3. Systems Principle
Integrate those handling and storage activities which are economically viable into a coordinated
system of operation including receiving, inspection, storage, production, assembly, packaging,
warehousing, shipping and transportation.

4. Unit Load Principle

Handle product in as large a unit load as practical.

5. Space Utilization Principle

Make effective utilization of all cubic space.

6. Standardization Principle
Standardize handling methods and equipment wherever possible.

7. Ergonomic Principle
Recognize human capabilities and limitations by designing material handling equipment and
procedures for effective interaction with the people using the system.

8. Energy Principle
Include energy consumption of the material handling systems and material handling procedures
when making comparisons or preparing economic justifications.

9. Ecology Principle
Minimize adverse effects on the environment when selecting material handling equipment and
procedures.

10. Mechanization Principle

Mechanize the handling process where feasible to increase efficiency and economy in the
handling of materials.

11. Flexibility Principle

Use methods and equipment which can perform a variety of tasks under a variety of operating
conditions.

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12. Simplification Principle

Simplify handling by eliminating, reducing, or combining unnecessary movements and/or
equipment.

13. Gravity Principle

Utilize gravity to move material wherever possible, while respecting limitations concerning
safety, product damage and loss.

14. Safety Principle

Provide safe material handling equipment and methods which follow existing safety codes and
regulations in addition to accrued experience.

15. Computerization Principle

Consider computerization in material handling and storage systems, when circumstances
warrant, for improved material and information control.

16. System Flow Principle

Integrate data flow with the physical material flow in handling and storage.

17. Layout Principle

Prepare an operational sequence and equipment layout for all viable system solutions, then select
the alternative system which best integrates efficiency and effectiveness.

18. Cost Principle

Compare the economic justification of alternate solutions in equipment and methods on the basis
of economic effectiveness as measured by expense per unit handled.

19. Maintenance Principle

Prepare a plan for preventive maintenance and scheduled repairs on all material handling
equipment.

20. Obsolescence Principle

Prepare a long range and economically sound policy for replacement of obsolete equipment and
methods with special consideration to after-tax life cycle costs.

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UNIT - II
CAPACITY PLANNING
CAPACITY

Capacity is defines as the ceiling on the maximum load a production unit can handle at a
given point of time.
In other words, capacity is defined as an upper limit on the rate of output.

The capacity question does not arise alone. It comes in conjunction with:

 New facility planning

 Leasing or buying the equipment required to maintain the output.

 Expansion of the existing facilities

 While introducing new product or services

 While finalizing the fund and energy requirements

The above mentioned situations, if come across alone, are easy to tackle. It
becomes complicated when more than one situation is encountered at the same time.

A facility’s Capacity is the rate of productive capability of a facility. Capacity

is usually expressed as maximum productive volume of output per time period.
Operations managers are concerned with capacity for capability, usually several
reasons. First, they want sufficient capacity to meet customer demand in a expressed
as volume of out put per period of timely manner. Second, capacity affects the cost
efficiency of operations, the case or time. Difficult y of scheduling output, and the
costs of maintaining the facility. Finally, capacity requires an investment. Since
managers seek a good return on investment, both the costs and revenues of a capacity
planning decision must be carefully evaluated.

Capacity planning

Capacity planning design is the first level planning for the inputs, conversion activities and
outputs of a production operation. Design decisions are very important because they re
often associated with significant investment of funds. The initial outlay and operating
expenses are established based on design decisions, and these in turn affect productivity of
the concern in future. So they affect fixed cost and variable cost

DESIGN CAPACITY: preliminary estimate of capacity is done based on long-range

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forecast extending 5 to 10 years into the future.

The design capacity of a system is the rate of output of goods or services under
full scale operating conditions. For example, a cement factory may be designed to
produce 200 tons per day. The projected demand for period anywhere from 5 to 10
years is taken as the estimate for the design capacity, since frequent expansion will
lead to productivity loss.

SYSTEM CAPACITY: In practice, it may not be possible to achieve production to the

extent of design capacity mainly because of mismatch between required resources and
available resources. The maximum output of a specific product or product mix that the
system of workers and equipments is capable of producing as an integrated whole is
called system capacity. This may be less than that of the design capacity.

The actual output may be even less than the system capcity since it is affected by
short-range factors such as actual demand, equipment breakdowns, and personal
absenteeism or productivity.
Capacity planning

Capacity planning is the process of determining the production capacity needed by an

organization to meet changing demands for its products.[1] In the context of capacity planning,
design capacity is the maximum amount of work that an organization is capable of completing in
a given period. Effective capacity is the maximum amount of work that an organization is
capable of completing in a given period due to constraints such as quality problems, delays,
material handling, etc.

The phrase is also used in business computing and information technology as a synonym
for capacity management. IT capacity planning involves estimating the storage, computer
hardware, software and connection infrastructure resources required over some future period of
time. A common concern of enterprises is whether the required resources are in place to handle
an increase in users or number of interactions.[2] Capacity management is concerned about
adding central processing units (CPUs), memory and storage to a physical or virtual server. This
has been the traditional and vertical way of scaling up web applications, however IT capacity
planning has been developed with the goal of forecasting the requirements for this vertical
scaling approach.[3]

A discrepancy between the capacity of an organization and the demands of its customers results
in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity
planning is to minimize this discrepancy. Demand for an organization's capacity varies based on

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changes in production output, such as increasing or decreasing the production quantity of an

existing product, or producing new products. Better utilization of existing capacity can be
accomplished through improvements in overall equipment effectiveness (OEE). Capacity can be
increased through introducing new techniques, equipment and materials, increasing the number
of workers or machines, increasing the number of shifts, or acquiring additional production
facilities.
NEED FOR CAPACITY PLANNING

Capacity planning is necessary when an organization decides to increase its

production or introduce new products into the market. Once capacity is evaluated and
a need for new or expanded facilities is determined, decisions regarding the facility
location and process technology selection are taken.

Capacity planning is the first step when an organization decides to produce

more or a new product. Once capacity is evaluated and a need for new or expanded
facilities is determined, facility location and process technology activities occur. Too
much capacity would require exploring ways to reduce capacity, such as temporarily
closing, selling, or consolidating facilities. Consolidation might involve relocation, a
combining of technologies, or a rearrangement of equipment and process.

Capacity planning

Capacity planning is the process of determining the production capacity needed by an

organization to meet changing demands for its products.[1] In the context of capacity planning,
design capacity is the maximum amount of work that an organization is capable of completing in
a given period. Effective capacity is the maximum amount of work that an organization is
capable of completing in a given period due to constraints such as quality problems, delays,
material handling, etc.

The phrase is also used in business computing and information technology as a synonym
for capacity management. IT capacity planning involves estimating the storage, computer
hardware, software and connection infrastructure resources required over some future period of
time. A common concern of enterprises is whether the required resources are in place to handle
an increase in users or number of interactions.[2] Capacity management is concerned about
adding central processing units (CPUs), memory and storage to a physical or virtual server. This
has been the traditional and vertical way of scaling up web applications, however IT capacity

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planning has been developed with the goal of forecasting the requirements for this vertical
scaling approach.[3]

A discrepancy between the capacity of an organization and the demands of its customers results
in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity
planning is to minimize this discrepancy. Demand for an organization's capacity varies based on
changes in production output, such as increasing or decreasing the production quantity of an
existing product, or producing new products. Better utilization of existing capacity can be
accomplished through improvements in overall equipment effectiveness (OEE). Capacity can be
increased through introducing new techniques, equipment and materials, increasing the number
of workers or machines, increasing the number of shifts, or acquiring additional production
facilities.
IMPORTANCE OF CAPACITY PLANNING

The importance of capacity planning lies in the fact that it is more

fundamental. Every organization looks at the future with its’ own focus and develop
and adjusts ‘its’ strategies to reach the goal. Capacity planning relates to the
organization potential impact on the ability of the organization to meet the future
demands for it’s product / service. This is because of the fact that the possible rate of
output is limited by the capacity.

a. There is also link between the capacity and the operating cost. Every managers
wants to minimize the operating cost of the final product. Also they are
interested in utilizing the established capacity to the fullest possible extent.
This trade – off puts the whole process, into a vicious circle.

b. Minimizing the operating cost is not possible always, as the demand is a

variable factor. The demand variation is due to:

 Increased competition (through the entry of new players; (or) due to the change
in the strategies of the existing players).

 Technological changes (through some inventions (or) entry of MNC’s through joint
ventures)

 User’s perception (which changes from time to time)

 Nature of the product (accordingly the demand will be seasonal or cyclical)

Possible demand patterns are:

 Growth

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 Decline

 Cyclical

 Stable

c. The Initial Investment involved. This is due to the fact that, the capacity is a
major determinant of the cost of a product, which will decide about the
organization’s position in the market.

d. Long term commitment of resources. Once a capacity is created, it is very

difficult – not impossible – to modify. In future, if modification is needed, it
calls for heavy investment.

CAPACITY PLANNING DECISIONS

Capacity planning involves activities such as:

(a) Assessing existing capacity

(b) Forecasting future capacity needs

(c) Identifying alternative ways to modify capacity

(d) Evaluating financial, economical and technological capacity alternatives

(e) Selecting a capacity alternative most suited to achieve the strategic mission of
the firm. Capacity planning involves capacity decisions that must merge
consumer demands with human, material and financial resources of the
organization.
e. Often decisions about capacity are inseparable from decisions about locations:
Capacity depends upon demand and demand often depends on location.
Commercial banks, for example, simultaneously expand capacity and demand
by building branch banks. Decisions about the size and location of the branch
are made according to projections about neighborhood population densities
and growth, geographic locations of market segments, transportation (traffic)
flows, and the locations of competitors. Adding a new branch offers greater
convenience to some existing customers and, management hopes, attracts new
customers as well. Obviously this decision affects the revenues, operating
costs and capital costs of the organisatoin.
f.
g. In the public sector, the capacity decision involves similar considerations.
Municipalities face ever-increasing demands for public services, strong public
sentiment for tightening budgets, and greater performance accountability.

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Consequently, officials have increased their efforts to rearrange public

resources so that service capacity is increased but the cost of operating is not.
Municipal emergency services, for example, are periodically expanded by
adding to show population growth and shifts. Next, municipal officials plan
where to locate new stations, taking into consideration both areas of greatest
need and costs of operation and facilities. Although the capacity may not
involve direct revenues, cost savings for citizens can be considered a form of
indirect revenues. These cost savings can result in reduced tax burdens of
lower insurance rates in areas with improved emergency services.
h.
i. Modeling techniques, are playing a central role in these planning processes. One
study, for example, explain how mathematical programming is used for greater
ambulance effectiveness considering time-to-scene, time-to- hospital, an
distance-to-hospital factors, thereby increasing effective service system
capacity. Another study shows how mathematical modeling can determine
optimal fleet sizes and vehicle routes for a commercial common carrier. Yet
another study demonstrates the value of queuing models in a computer-based
information system for the St. Louis County Police Department. The system
gives a way to allocate police patrols, thereby using existing capacity more
efficiently or reducing the size of operations without diminishing existing
service levels. All these examples show how systematic analysis and planning
can lead to effective use and improvement of capacity.

8 CAPACITY PLANNING STRATEGIES

Capacity is a measure of the ability to produce goods or services or, it may be

called as the rate of output. Capacity planning is the task of determining the long – and
short – term capacity needs of an organization and then determining how these needs
will be satisfied.

Long-term capacity strategies: Top management may have the following strategies to
cope up with major changes in products and services that it can provide to customers
in the long run which will have significant impact on the capacity. The major changes
will altogether revise the demand and resource requirements. There are:

 develop new product lines

 expand existing facilities

 construct or phase out production plants

Technological obsolescence may force some industries to use phase-in strategy for
introducing the next model of the same product or service to retain and/or improve its
market segment. The phase – in strategy is nothing but het planning for the next model

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even when the present model is moving well. Especially, in electronics industry, any
company should do continuous research and development to improve the operational
features of the product through advanced technology so that the company will be in a
position to bring out products into the market with the latest technology without any
time lag.

At the same time, all the products will not have continued demand for ever. Moreover,
continuing the production of some products will be uneconomical over a period of
time. This will force a company to diversify and/or phase out some of the existing
products. Phasing out of a product should be done over a period of time properly by
taking the re-employment features into account.

Short – term capacity strategies: In short-term planning, horizon, capacity decisions

are taken by considering the fluctuations in demand caused by seasonal and economic
factors. The purpose of short-term capacity planning is to respond to variations in
demand during the short-term planning horizon. Strategies like, overtime,
subcontracting, hiring firing, etc. can be used to cope up with the fluctuations in
demand.

2A.9 FACTORS AFFECTING CAPACITY PLANNING

The capacity variables are:

(a) CONTROLLABLE FACTOR’S such as amount of labour employed, facilities

installed, machines, tooting, shifts worked per day, days worked per week,
overtime work, sub-contracting, alternative routing of work, preventive
maintenance and number of production set-ups.

(b) LESS CONTROLLABLE FACTORS are absenteeism, labour-performance,

machine break-down, material shortage, scrap and rework and unexpected
problems such as strike, lockout, fire accidents etc.

2A 10 WAYS OF CHANGING CAPACITY

Once the long-range capacity needs are estimated through long-range

forecasts, there are many ways to provide for the needed capacity. Firms may have a
capacity shortage situation where present capacity is insufficient to meet the forecast
demand for their products and services or have excess capacity i.e., capacity in excess
of the expected future needs. Long-range capacity planning hence may require either
expansion or reduction of present capacity levels.

2A 11 TYPES OF CAPACITY

1. FIXED CAPACITY: The capital asset (buildings and equipments) the

company will have at a particular time is known as the fixed capacity. They

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cannot be easily changed within the intermediate time range. Capacity

represents an upper limit to the internal capacity, that the company
concentrates can use in its efforts to meet demand

2. ADJUSTABLE CAPACITY: It is on and the size of the workforce, the

number of hours per week they work, the number of shifts and the extent of
sub-contracting.

3. DESIGN CAPACITY: it is the planned rate of output of goods or services

under normal full-scale operating conditions. It is also known as installed
capacity. It sets the maximum limit to capacity and serves to judge the actual
utilization of capacity.

4. SYSTEM CAPACITY: It is the maximum output of a specific product or

product-mix that the system of workers and machines i.e., the productive
system is capable of producing as an integral whole. It is less than or equal to
the design capacity of the individual components because the system may be
limited by:

(a) The product mix

(b) Quality specifications and

(c) The current balance of equipment and labor

5. POTENTIAL CAPACITY: It is that, which can be made available within the

decision horizon of the top management.

6. IMMEDIATE CAPACITY: It is that, which can be made available within the current
budgeted period.

7. EFFECTIVE CAPACITY: is the capacity, which is used within the current

budget period. It is also known as practical capacity or operating capacity. No
plant can work upto the maximum or the theoretical capacity (installed or
design capacity) because of the loss of capacity due to scheduling delays,
machine break-down and preventive maintenance. This result in the plant
working at an efficiency of loss than 100%. Also, the actual output will be less
than the designed output due to rejections and scrap.

8. NORMAL CAPACITY OR RATED CAPACITY: This is the estimated

quantity of output or production, that should be usually achieved as per the
estimation done by the Industrial Engineering department. Actual capacity is
usually expressed as a percentage of rated capacity. For example, the rated
capacity of a steel plant may be expressed as 1 lakh ton of steel per month.

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This is also sometimes called as average capacity of the plant.

9. ACTUAL OR UTILIZED CAPACITY: This is the actual output achieved

during a particular time period. The actual output may be less than the rated
output because of short-range factors such as actual demand, employed
absenteeism, labour inefficiency and low productivity levels.

Design capacity is Reduced by long-range effects, and System capacity is Reduced by

short-range effects.

Long-range effect: Product-mix, long range market conditions, tight quality

specifications, inherent imbalance between equipment and labour.

Short-range effect: Actual demand, management performance vis scheduling,

staffing, strategy and control, labour inefficiencies, wear scrap loss machine
breakdown etc.

System efficiency is the ratio of the actual measured output of goods/services to the
system capacity.

CAPACITY DECISIONS

Major considerations in capacity decisions are:

(a) What size of plant? How much capacity to install?

(b) When capacity is needed? When to phase-in capacity or phase-out capacity?

(c) At what cost? How to budget for the cost?

2A. 13 FACTORS AFFECTING DETERMINATION OF PLANT CAPACITY

 Market demand for a product service

 The amount of capital that can be invested

 Degree of automation desired

 Level of integration (i.e. vertical integration)

 Type of technology selected

 Dynamic nature of all factors affecting determination of plant capacity, viz.,

changes in the product design, process technology, market conditions and
product life cycle, etc.

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 Difficulty in forecasting future demand and future technology

 Obsolescence of product and technology over a period of time

 Present demand and future demand both over short-range, intermediate-range and long-
range time horizons.

 Flexibility for capacity additions.

2A. 14 EQUIPMENT SELECTION

Equipment selection is the process of identifying a set of suitable equipments

which are most suitable for processing a set of products.

In the case of mass production, our task is to establish a product line for a
single product or for a set of products which are having similar processing
requirements. While determining the process sequence, the equipment availability
must be taken into account. At each and every stage of a product line, it is possible to
identify different equipments to satisfy the processing requirements. But, one should
carefully select a machine which can fully satisfy the processing requirement. But, one
should carefully select a machine which can fully satisfy the processing requirements
at a particular operation, or can club processing of two or more consecutive operations
in the line. This processing capabilities. If a product line is formed with few machine
centres, then the products will travel minimum distance before they are completed. For
this type of production, it is obvious that the production volume of the products should
be high enough to utilize the capacities of the machine/machine centers in the product
line.

In the case of batch production using process layout, it is very difficult to

dedicate a special machine for a particular product. Several products will be snaring a
given machine. So, at the time of doing process planning, we should select the
machines by simultaneously taking the availability of the machines and processing
requirements of the products into consideration, so that the products travel minimum
distance and they are produced with minimum set-up times.

In all the situations, the economy of cost must be taken into consideration. So,
we will have to list out different alternatives for equipment selection and finally, the
best one is to be selected.

DETERMINATION OF CAPACITY

Capacity determinations is a strategic decisions in plant planning or factory

planning. Capacity decisions are important because:

(a) They have a long-term impact.

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(b) Capacity determines the selection of appropriate technology, type of labor and
equipments, etc.

(c) Right capacity ensures commercial viability of the business ventures.

(d) Capacity influences the competitiveness of a firm.

2A. 16 CAPACITY MEASUREMENT

Capacity of a plant can be expressed as the rate of output viz., units per day or
per week or per month, tones per month, gallons per hour, labour hours/day, etc. But
for organizations whose product lines are more diverse, it is difficult to find a common
unit of output. More appropriate measure of capacity for such firms is to express the
capacity in terms of money value of output per period of time (day, week or month).

Capacity may be measured in terms of inputs or outputs of the conversion process.

Since, capacity is defined along with the constraints, the capacity

measurements becomes subjective, as different interpretations of the terms are made
by different people in the organization.For example, if the capacity is measured on the
sale of products in rupees ro dollars, the forex fluctuations will result in different
results on capacity.

In situations where the organization has more than one product in the product
mix, a question arises on which product the capacity should be measured? If done on
one product alone, it may not cover the whole infrastructure created and may
mislead.For example, if a refrigeration company produces Deep Freezers and
Refrigerators using the same machineries, capacity has to be expressed by taking into
consideration of both the products and not a single one.

Details of the industries and the capacity measurements are given in Table 2.1

Table 2.1
Examples of Commonly
used measured of capacity

Type of business Measurement of capacity

Resource available o
u
t
p
u
t
Education Faculty, Infrastructure Number of Students
Year

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Automobile Man-Machine hours Number of cars / shift

Agriculture Acres Tone of Grains / Year

Cows Litres of Milk / day

Steel Mill Furance Size Tons / Shift
Theatre Number of Seats Number of Tickets
sold / day
Restaurant Number of Tables Number of meals sold
/ day
Oil Refining Size of Refinery Fuel oil / day
MEASURING CAPACITY

For more organizations capacity is simple to measure. Amul can use “tons of
cheese per year”. General Motors Corporation can use “number of automobiles per
year.” But what about organizations whose product lines are more diverse? For these
firms, it is hard to find a common unit of output.

As a substitute, capacity can be expressed in terms of input. A legal office may

express capacity in terms of the number of attorneys employed per year. A custom job
shop or an auto repair shop may express capacity in terms of available labor hours and
/ or machine hours per week, month, or year.

Capacity, then, may be measured in terms of the inputs or the outputs of the
conversion. Some common example of capacity measures are shown:

Measures of operating

capacity Output

 Automobile manufacturer-number of autos

 Brewery-Barrels of beer

 Cannery-Tons of food

 Steel producer-Tons of steel

 Power

company-Megawatts

of electricity Input

 Airline-Number of seats

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 Hospital-Number of beds

 Job shop-Labour and/or machine hours

 Merchandising-Square feet of display or sales area

 Movie theater-Number of seats

 Restaurant-Number of seats or tables

 Tax office-Number of accountants

 University-Number of students and/or faculty

 Warehouse-Square or cubic feet of storage space.

It’s often difficult to measure capacity realistically because of day-to-day variations.

Employees are absent or late, equipment breaks down, facility downtime is needed for
maintenance and repair, machine setups are required for product change over and
vacations must be scheduled. Since all these variations occur from time to time, you
can see that the capacity of a facility can rarely be measured in precise terms, so
measurements must be interpreted cautiously. It’s not unusual, for example, for a
facility to operate at more than 100% capacity.

What is Aggregate Planning?

Introduction
Aggregate planning can be defined as the process involving the development, analyzation and
the maintenance of a preliminary and approximate schedule of the overall operations that take
place or have to take place in an organization. It is actually an operational activity involving an
aggregate plan, which would guide the production process. This plan is made in advance of
about 3 to 18 months and this plan plays a very critical role in providing an idea to the
management about the quantity of the materials and the other resources that are to be procured
and at what time of the operation all these are required.
An aggregate plan also consists of the targeted sales forecasts, production levels, inventory
levels, customer backlogs etc. In this type of planning, the word ‘aggregate’ is used because the
planning at this level includes all the resources in the aggregate. The schedule used in the
aggregate planning plays a very critical and an essential role in providing the satisfaction to the
demand forecast at a minimum cost.

Aggregate planning serves as the basic structure for the future short – range type planning and
this type of planning can be categorized as follows –

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1.Production plan –
• Also called as the manufacturing aggregate plan.
• Is a managerial statement of the period – by – period production rates, work – force levels etc.
2. Staffing plan –
• Also called as the service aggregate plan.

Is a managerial statement of the period – by – period staff sizes and the labor – related capacities,
given customer requirements and the capacity limitations.

Aggregate planning is considered to be intermediate-term (as opposed to long- or short-term) in

nature. Hence, most aggregate plans cover a period of three to 18 months. Aggregate plans serve
as a foundation for future short-range type planning, such as production scheduling, sequencing,
and loading. The master production schedule (MPS) used in material requirements planning
(MRP) has been described as the aggregate plan "disaggregated."

Steps taken to produce an aggregate plan begin with the determination of demand and the
determination of current capacity. Capacity is expressed as total number of units per time period
that can be produced (this requires that an average number of units be computed since the total
may include a product mix utilizing distinctly different production times). Demand is expressed
as total number of units needed. If the two are not in balance (equal), the firm must decide
whether to increase or decrease capacity to meet demand or increase or decrease demand to meet
capacity. In order to accomplish this, a number of options are available.

Options for situations in which demand needs to be increased in order to match capacity include:

1. Pricing. Varying pricing to increase demand in periods when demand is less than peak.
For example, matinee prices for movie theaters, off-season rates for hotels, weekend rates
for telephone service, and pricing for items that experience seasonal demand.
2. Promotion. Advertising, direct marketing, and other forms of promotion are used to shift
demand.
3. Back ordering. By postponing delivery on current orders demand is shifted to period
when capacity is not fully utilized. This is really just a form of smoothing demand.
Service industries are able to smooth demand by taking reservations or by making
appointments in an attempt to avoid walk-in customers. Some refer to this as
"partitioning" demand.
4. New demand creation. A new, but complementary demand is created for a product or
service. When restaurant customers have to wait, they are frequently diverted into a

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complementary (but not complimentary) service, the bar. Other examples include the
addition of video arcades within movie theaters, and the expansion of services at
convenience stores.

Options which can be used to increase or decrease capacity to match current demand include:

1. Hire/lay off. By hiring additional workers as needed or by laying off workers not
currently required to meet demand, firms can maintain a balance between capacity and
demand.
2. Overtime. By asking or requiring workers to work extra hours a day or an extra day per
week, firms can create a temporary increase in capacity without the added expense of
hiring additional workers.
3. Part-time or casual labor. By utilizing temporary workers or casual labor (workers who
are considered permanent but only work when needed, on an on-call basis, and typically
without the benefits given to full-time workers).
4. Inventory. Finished-goods inventory can be built up in periods of slack demand and then
used to fill demand during periods of high demand. In this way no new workers have to
be hired, no temporary or casual labor is needed, and no overtime is incurred.
5. Subcontracting. Frequently firms choose to allow another manufacturer or service
provider to provide the product or service to the subcontracting firm's customers. By
subcontracting work to an alternative source, additional capacity is temporarily obtained.
6. Cross-training. Cross-trained employees may be able to perform tasks in several
operations, creating some flexibility when scheduling capacity.
7. Other methods. While varying workforce size and utilization, inventory
buildup/backlogging, and subcontracting are well-known alternatives, there are other,
more novel ways that find use in industry. Among these options are sharing employees
with counter-cyclical companies and attempting to find interesting and meaningful
projects for employees to do during slack times.

Factors Affecting Aggregate Planning

Aggregate planning is an operational activity critical to the organization as it looks to

balance long-term strategic planning with short term production success. Following factors
are critical before an aggregate planning process can actually start;

 A complete information is required about available production facility and raw materials.
 A solid demand forecast covering the medium-range period

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 Financial planning surrounding the production cost which includes raw material, labor,
inventory planning, etc.
 Organization policy around labor management, quality management, etc.

For aggregate planning to be a success, following inputs are required;

 An aggregate demand forecast for the relevant period

 Evaluation of all the available means to manage capacity planning like sub-contracting,
outsourcing, etc.
 Existing operational status of workforce (number, skill set, etc.), inventory level and
production efficiency

Aggregate planning will ensure that organization can plan for workforce level, inventory level
and production rate in line with its strategic goal and objective.

Aggregate planning as an Operational Tool

Aggregate planning helps achieve balance between operation goal, financial goal and overall
strategic objective of the organization. It serves as a platform to manage capacity and demand
planning.

In a scenario where demand is not matching the capacity, an organization can try to balance both
by pricing, promotion, order management and new demand creation.

In scenario where capacity is not matching demand, an organization can try to balance the both
by various alternatives such as.

 Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce until

demand decrease/increase.
 Including overtime as part of scheduling there by creating additional capacity.
 Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator.

Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of the

organization. Aggregate planning helps in:

 Achieving financial goals by reducing overall variable cost and improving the bottom
line
 Maximum utilization of the available production facility
 Provide customer delight by matching demand and reducing wait time for customers
 Reduce investment in inventory stocking
 Able to meet scheduling goals there by creating a happy and satisfied work force

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Aggregate Planning Strategies

There are three types of aggregate planning strategies available for organization to choose from.
They are as follows.

1. Level Strategy

As the name suggests, level strategy looks to maintain a steady production rate and
workforce level. In this strategy, organization requires a robust forecast demand as to
increase or decrease production in anticipation of lower or higher customer demand.
Advantage of level strategy is steady workforce. Disadvantage of level strategy is high
inventory and increase back logs.

2. Chase Strategy

As the name suggests, chase strategy looks to dynamically match demand with
production. Advantage of chase strategy is lower inventory levels and back logs.
Disadvantage is lower productivity, quality and depressed work force.

3. Hybrid Strategy

As the name suggests, hybrid strategy looks to balance between level strategy and chase
strategy.

What is Master Production Schedule (MPS)?

Translating a business plan into a comprehensive product manufacturing schedule that covers
what is to be assembled or made, when, with what materials acquired when, and the cash
required. MPS is a key component of material requirements planning (MRP).

A Master Production Schedule is a Schedule of the completions of the end items and these
completions are very much planned in nature. Master production schedule acts as a very distinct
and important linkage between the planning processes. With the help of this schedule, one can
know the requirements for the individual end items by date and quantity. In companies, MPS are
generally produced in order to know the number of each product that is to be made over some
planning horizon. This schedule forms a very unique part of the company’s sales program which
deals with the planned response to the demands of the market.

A master production schedule is also in management language referred to as the master of all the
schedules as this schedule provides the production, planning, purchasing & top management, the
most needed information required for planning and control of the whole manufacturing process
or the operation.

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master production schedule (MPS) is a plan for individual commodities to be produced in

each time period such as production, staffing, inventory, etc.[1] It is usually linked to
manufacturing where the plan indicates when and how much of each product will be
demanded.[2] This plan quantifies significant processes, parts, and other resources in order to
optimize production, to identify bottlenecks, and to anticipate needs and completed goods. Since
an MPS drives much factory activity, its accuracy and viability dramatically affect profitability.
Typical MPSs are created by software with user tweaking.

Due to software limitations, but especially the intense work required by the "master production
schedulers", schedules do not include every aspect of production, but only key elements that
have proven their control effectivity, such as forecast demand, production costs, inventory costs,
lead time, working hours, capacity, inventory levels, available storage, and parts supply. The
choice of what to model varies among companies and factories. The MPS is a statement of what
the company expects to produce and purchase (i.e. quantity to be produced, staffing levels, dates,
available to promise, projected balance).[1][3]

The MPS translates the customer demand (sales orders, PIR’s), into a build plan using planned
orders in a true component scheduling environment. Using MPS helps avoid shortages, costly
expediting, last minute scheduling, and inefficient allocation of resources. Working with MPS
allows businesses to consolidate planned parts, produce master schedules and forecasts for any
level of the Bill of Material (BOM) for any type of part.

How an MPS works[edit]

By using many variables as inputs the MPS will generate a set of outputs used for decision
making. Inputs may include forecast demand, production costs, inventorymoney, customer
needs, inventory progress, supply, lot size, production lead time, and capacity. Inputs may be
automatically generated by an ERP system that links a sales department with a production
department. For instance, when the sales department records a sale, the forecast demand may be
automatically shifted to meet the new demand. Inputs may also be inputted manually from
forecasts that have also been calculated manually. Outputs may include amounts to be produced,
staffing levels, quantity available to promise, and projected available balance. Outputs may be
used to create a Material Requirements Planning (MRP) schedule.

A master production schedule may be necessary for organizations to synchronize their operations
and become more efficient. An effective MPS ultimately will:

 Give production, planning, purchasing, and management the information to plan and
control manufacturing[3]

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 Tie overall business planning and forecasting to detail operations[3]

 Enable marketing to make legitimate delivery commitments to warehouses and customers
 Increase the efficiency and accuracy of a company's manufacturing
 Rough cut capacity planning

MPS issues:

 Width of the time bucket

 Planning horizon
 Rolling plan
 Time fencing
 Schedule freezing
What are the Objectives of MPS?

Objectives of Master Production Schedule (MPS)

1. Keeping the inventories at the desired level by making perfect use of the resources that are
available with the company.
2. Setting up due dates for the availability of the end items and also providing the required
information regarding resources and also the materials – which act as the supporting pillars of
the aggregate planning.

3. Maintaining properly, the desired level of customer service.

4. Setting particular schedules for the production of the parts and the components that are used as
the inputs to materials requirements planning, in the end items.

Maintenance Management
Maintenance management is the process of overseeing maintenance resources so that the
organization does not experience downtime from broken equipment or waste money on
inefficient maintenance procedures. Maintenance management software programs can assist with
the process. The primary objectives of maintenance management are to schedule work
efficiently, control costs and ensure regulatory compliance.

Definition

Maintenance management consists of tools, technologies and methodologies that a company uses
in repair and maintenance activities. A maintenance manager ensures that subordinates complete
tasks effectively.

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Necessity of Maintenance Management:

Maintenance activities are related with repair, replacement and service of components or some
identifiable group of components in a manufacturing plant so that it may continue to operate at a
specified ‘availability’ for a specified period.
Thus maintenance management is associated with the direction and organisation of various
resources so as to control the availability and performance of the industrial unit to some specified
level.

Thus maintenance management may be treated as a restorative function of production

management which is entrusted with the task of keeping equipment/machines and plant services
ever available in proper operating condition.

The minimization of machine breakdowns and down time has been the main objective of
maintenance but the strategies adopted by maintenance management to achieve this aim have
undergone great changes in the past.

Maintenance has been considered just to repair the faulty equipment and put them back in order
in minimum possible time.

In view of the utilization of mostly general purpose/conventional machines with low production
output, the demands on maintenance function were not very high. But with fast developments in
the design, development and mechanisms of control such as electronic, NC and CNC in machine
tools the manufacturing scenario has changed a lot.

Importance of Maintenance Management:

Maintenance management is responsible for the smooth and efficient working of the industrial
plant and helps in improving the productivity.

It also helps to keep the machines/equipment in their optimum operating conditions. Thus plant
maintenance is an important and inevitable service function of an efficient production system.

It also helps in maintaining and improving the operational efficiency of the plant facilities and
hence contributes towards revenue by decreasing the operating cost and improving the quality
and quantity of the product being manufactured.

As a service function it is related with the incurrence of certain costs. The important component
of such costs are — employment of maintenance staff, other minor administrative expenses,
investment in maintenance equipment and inventory of repair components/ parts and
maintenance materials.
Absence of plant maintenance may lead to frequent machine breakdown and failure of certain
productive centres/services which in turn would result in stoppages of production activities, idle
man and machine time, dislocation of the subsequent operations, poor quality of production,
failure to meet delivery dates of product supply, industrial accidents endangering the life of
workers/ operators and allied costs etc.

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However, the importance of plant maintenance varies with the type of plant and its
production but it plays a prominent role in production management because plant
breakdown creates problems such as:
(i) Loss of production.

(ii) Rescheduling of production.

(iii) Materials wastage (due to sudden stoppage of process damages in process materials).

(iv) Need for overtimes,

(v) Need for work subcontracting.

(vi) For maximum manpower utilization workers may need alternative work due to temporary
work shortages.

Hence, the absence of planned maintenance service proves costlier. So it should be provided in
the light of cost benefit analysis. Since plant maintenance is a service function, it should be
provided at the least possible cost but it is very important as discussed above.

Objectives of Maintenance Management:

The purpose of maintenance management is to optimize the performance of productive facilities

of an organization by ensuring that these facilities function regularly and efficiently. This can be
achieved by preventing the failures or breakdowns if any, as far as possible and by minimizing
the production loss due to failures.

The main objectives of maintenance management are as follows:

(1) Minimizing the loss of productive time because of equipment failure to maximize the
availability of plant, equipment and machinery for productive utilization through planned
maintenance.

(2) To extend the useful life of the plant, machinery and other facilities by minimizing their wear
and tear.

(3) Minimizing the loss due to production stoppages.

(4) To ensure operational readiness of all equipment’s needed for emergency purposes at all
times such as fire-fighting equipment.

(5) Efficient use of maintenance equipment’s and personnel.

(6) To ensure safety of personnel through regular inspection and maintenance of facilities such as
boilers, compressors and material handling equipment etc.

(7) To maximize efficiency and economy in production through optimum utilization of available
facilities.

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(8) To improve the quality of products and to improve the productivity of the plant.

(9) To minimize the total maintenance cost which may consist of cost of repairs, cost of
preventive maintenance and inventory costs associated with spare parts/materials required for
maintenance.

(10) To improve reliability, availability and maintainability.

Functions of Maintenance Management:

The important functions of maintenance can be summarized as follows:

(1) To develop maintenance policies, procedures and standards for the plant maintenance system.

(2) To schedule the maintenance work after due consultation with the concerned production
departments.

(3) To carry out repairs and rectify or overhaul planned equipment/facilities for achieving the
required level of availability and optimum operational efficiency.

(4) To ensure scheduled inspection, lubrication oil checking, and adjustment of plant machinery
and equipment.

(5) To document and maintain record of each maintenance activity (i.e., repairs, replacement,
overhauls, modifications and lubrication etc.).

(6) To maintain and carry out repairs of buildings, utilities, material handling equipment’s and
other service facilities such as electrical installations, sewers, central stores and roadways etc.

(7) To carry out and facilitate periodic inspections of equipment and facilities to know their
conditions related to their failure and stoppage of production.

(8) To prepare inventory list of spare parts and materials required for maintenance.

(9) To ensure cost effective maintenance.

(10) To forecast the maintenance expenditure and prepare a budget and to ensure that
maintenance expenditure is as per planned budget.

(11) To recruit and train personnel to prepare the maintenance workforce for effective and
efficient plant maintenance.

(12) To implement safety standards as required for the use of specific equipment or certain
categories of equipment such as boilers, overhead cranes and chemical plants etc.

(13) To develop management information systems, to provide information to top management

regarding the maintenance activities.

(14) To monitor the equipment condition at regular intervals.

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(15) To ensure proper inventory control of spare parts and other materials required.

In terms of plants operations the functions of maintenance are:

(a) The plant must be available as and when required.

(b) The plant must not breakdown during actual operation state.

(c) The plant must operate in an efficient manner at required level of plant operation.

(d) The down time must not interfere with production runs.

(e) The down time due to breakdown should be a minimum.

To accomplish these conditions there must be complete cooperation and mutual understanding
between maintenance and production departments. There must be an effective maintenance
policy for planning, controlling and directing all maintenance activities.

The plant maintenance department must be well organized, adequately staffed sufficiently
experienced and adequate in number to carry out

6A. 13 FOCUS OF MAINTENANCE POLICIES

 Reduces frequency of break-downs

 Reduces severity of break-downs

 Emphasizes preventive maintenance

 Provide extra machines, reduce utilization to reduce wear and tear.

 Replace parts to reduce number of break downs.

 Train operators and involve them in machine care.

 Train operators and involve them in machine repair.

 Over design machines for durability and redundancy, so that likelihood of break downs
is reduced.

 Design machines for maintainability, emphasizing modular designs, quick

change parts and accessibility, so that repairs can be made faster.

 Enhance maintenance department’s capability, new size, capability of repair

facilities, cross training for personnel, flexibility etc.

 Increase supply of spare parts so that, repairs can be made faster.

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 Increase supply of stand-by or back up machines, devise alternative product

routings or arrange parallel production lines, so that, lost production is avoided
in case of break-downs.

 Increase in-process inventories.

MAINTENANCE POLICY

Maintenance of facilities and equipment in good working order is essential to

achieve specified levels of quality and reliability, and efficient working – the best
equipment will not work satisfactorily unless it is cared for, and the cost of a
breakdown in the system can be very high, not only in financial terms but also in poor
staff morale and bad relations with customers. The workforce and the materials must
also be ‘maintained’, through training, motivations, health care and even
entertainment for the people, and proper storage and handling of materials.

Primarily, maintenance policy must answer the questions of the extent of

activities and the size of the maintenance department. With regard to the extent of
activities, practices vary across companies. small plants, for example, use the
maintenance department for simple repair and replacement. A major non-production
engineering job in these plants, such as an addition to the building, is handled through
outside specialists with only token aid from in-house maintenance department. Large
companies, on the other hand, with more their maintenance departments. In some
companies, responsibility for planning and suggesting building construction changes is
placed with the maintenance department, but the actual construction is let to outside
contractors.

With regard to equipment maintenance, two practices vary. One practice is to

have a well-planned and organized maintenance programme designed to secure
maximum life and utilization of machinery. Other practice is to adopt a policy of
minimum maintenance and maximum wear. This policy is more economical because,
the equipment is usually superseded before it wears out With regard to size of the
maintenance crews large enough, so that, every job can be done on a moment’s notice.
What should happen to the maintenance staff, when there is no overhauling work, is
not the concern of the maintenance managers. For the management it amounts to a
trade off between large maintenance crew (and corresponding cost) and prompt
service and skeleton staff (with lower cost) and delayed maintenance services.

The other issues which deserve consideration in establishing the maintenance policy are:

1. Contract out some work during peak periods to avoid getting too far behind
and also to avoid hiring temporary extra help.

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2. Defer some maintenance work until slack periods so as to keep the workforce
intact during such periods. Overhaul work and painting projects are often
handled on this basis.

3. Replace machine and equipment at the optimum time. This time is difficult to
determine, but many machine tool manufacturers are willing and able to assist
in such determination.

The point is to replace machines before they get too old and require too much repair work. These
and similar items are policy matters, pertaining to the maintenance department and should be
decided by the top management. It is necessary that once a policy is formulated, everyone is
informed of the decision. In addition, the limits of
responsibility and authority of the maintenance department needs to be carefully
defined and everyone informed as to which jobs are maintenance jobs, who is to do
them and when they are to be done.
6A. 11 AREAS OF MAINTENANCE

The major areas of maintenance are:

1. Civil Maintenance: Building construction and maintenance, maintaining

service facilities such as water, gas, steam, compressed air, heating and
ventilating, air conditioning, painting, plumbing and carpentry work. Also
included in civil maintenance are janitor, service, house-keeping, scrap
disposal, fencing, land- scalping, gardening and maintaining drainage,
lawns and fire fighting equipments.

2. Planned approach to maintenance reduces the machine or equipment down

time, reduced the cost of maintenance and increases productivity as
compared to haphazard or unplanned maintenance.

6 OBJECTIVES OF MAINTENANCE MANAGEMENT

The following are some of the objectives of maintenance management.

a. Minimizing the loss of productive time because of equipment failure

(i.e., minimizing idle time of equipment due to break down).

b. Minimizing the repair time and repair cost.

c. Minimizing the loss due to production stoppages.

d. Efficient use of maintenance personnel and equipments

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e. Prolonging the life of capital assets by minimizing the rate of wear and tear.

f. To keep all productive assets in good working condition

g. To maximize efficiency and economy in production through optimum use of

facilities

h. To minimize accidents through regular inspection and repair of safety devices.

i. To minimize the total maintenance cost which includes the cost of

repair, cost of preventive maintenance and inventory carrying costs,
due to spare parts inventory.

j. To improve the quality of products and to improve productivity.

Work Study:
Definition, Role and Objectives

Definition of Work Study:

“Work study is a generic term for those techniques, particularly method study and work

measurement, which are used in all its context and which lead systematically to the

investigation of all the factors, which effect the efficiency and economy of the situation

being reviewed in order to effect improvement.”

The main objective of work study is to improve productivity of men, machines and materials.

The aim of work study is to determine the best method of performing each operation and to

eliminate wastage so that production increases with less fatigue. The work study is also used in

determining the standard time that a qualified worker should take to perform the operation when

working at a normal place.

Work study is a technique which deals with the following problems:

(a) As to how should a job be done, and

(b) How much time a job should take for completion.

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Answer for the first question is found by Motion Study or Method Study or Work Simplification.

Answer for the second question is found by the Time Study or Work Measurement.

Role of Work Study:

1. To standardise the method of doing a work,

2. To minimise the unit cost of production,

3. To determine the standard time for doing a task,

4. To minimise the material movement, and operators movement,

5. To eliminate unnecessary human movements,

6. To utilise facilities such as man, machine and materials most effectively, and

7. To a systematic investigation of all factors.

Objectives of Work Study:

The following are the objectives of work study:

1. Increased efficiency,

2. Better product quality,

3. To choose the fastest method to do a job,

4. To improve the working process,

5. Less fatigue to operators and workers,

6. Effective labour control,

7. Effective utilisation of resources,

8. To decide equipment requirements,

9. To pay fair wages,

10. To aid in calculating exact delivery,

11. To formulate realistic labour budgeting, and

12. To decide the required manpower to do a job.

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Advantages of Work Study:

The advantages of work study are the following:

1. Work study ensures higher productivity,

2. Better working conditions with less fatigue,

3. Higher wages to workers,

4. Uniform production flow,

5. Job satisfaction and job security to workers,

6. Reduction in unit cost of production,

7. Quality products to consumers,

8. Fast delivery schedule,

9. Harmonious employer-employee relation, and

10. Better service to customers.

Need for Work Study:

Principles of work study used to be employed even long ago, in order to explore improvements,

when industry was simple and involved lesser problems; of course a systematic procedure was

not there. Today the industries with all their complexities and modernization naturally demand a

more systematic approach like the work study in its present form.

Work study finds applications in:

1. Industries (Production operations, research and development),

2. Marketing, sales and distribution,

3. Offices, stores and warehouses,

. Material handling,

5. Design,

6. Building and other constructions,

7. Transport,

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8. Hospital,

9. Army, and

10. Agriculture, etc.

Method Study: Concept, Definition and Scope

Concept and Definition:
Method study is basically conducted to simplify the work or working methods and must go
towards higher productivity. It is always desirable to perform the requisite function with desired
goal minimum consumption of resources. Method signifies how a work is to be done i.e.
description of how we consume resources in order to achieve our target?

Methods are integral part of work accomplishment and signify:

1. How well our methods utilize the limited available resources such as manpower, machines,
materials and money.

2. How our methods physically affect production output of the unit.

3. The quality of output obtained by application of our methods.

Thus methods can determine the amount of input materials, time power and money consumed.
So methods may be considered the core where one can attempt to reduce the consumption of
resources thereby reducing cost per unit output through utilization of proper methods. The
method design can decided the cost and quality of output produced.

Method Study may be defined as:

A procedure for examining the various activities associated with the problem which ensures a
systematic, objective and critical evaluation of the existing factors and in addition and
imaginative approach while developing improvements”.
There are three aspects of its application:
(1) Method study proper is concerned with broad investigation and improvement of a
shop/section, the layout of equipment and machines and the movement of men and materials.

(2) Motion study is a more detailed investigation of the individual worker/ operator, layout of his
machines, tools, jigs and fixtures and movement of his limbs when he performs his job. The
ergomics aspect i.e. study of environment, body postures, noise level and surroundings
temperature also form part of investigation.

(3) Micro motion study i.e. much more detailed investigation of very rapid movements of the
various limbs of the worker.

So, motion study is an analysis of the flow and processing of material and the movements of men
through or at various work stations. Thus motion study analyses the human activities which
make up an operation. Whereas method study or methods analysis has been defined as:

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“systematic procedure for the critical analysis of movements made by men, materials and
machines in performing any work”.

Now because by definition method study includes the study of all facets of human work and all
factors affecting the work so motion study be considered as a part of method study.

Scope of Method Study:

The task of work simplification and compatible work system design concerns the
followings:
(i) Layout of shop floor and working areas or work stations.

(ii) Working conditions i.e. ergomics etc.

(iii) Handling distances (material movement)

(iv) Tooling and equipment used.

(v) Quality standards to be achieved.

(vi) Operators and operations in achieving the production targets.

(vii) Materials to be used.

(viii) Power required and available.

(ix) Work cycle time.

(x) Working processes.

All these factors are related to method study and possible improvements may be:

(a) Short term:

The improvements which can be introduced quickly and economically. These may be concerned
with management and work force.

(b) Long term:

The improvements which are not acceptable to management at present and which require good
investment. Improvement approach to method design is essential since a method describes how
resource are to be used in order to convert them into desired output (final products) in order to
accomplish the purpose through a network of facilities.

Operation and route sheets of production process contains in instructions that how a particular
product/component can be manufactured. This usually contains the details about time required to
perform the required operation.

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he target is the minimization of production costs by affecting the consumer’s acceptability by

incorporating changes or by developing requisite resigns. But the design engineer will not be
responsible for actual implementation of method designed by him. Likewise the Process
Engineer will try to select best methods which have most economical sequence of operations by
using most efficient infrastructure facilities (may be machines) with processing minimum time.

Work Measurement: Definition, Objectives and Techniques

Meaning and Definition of Work Measurement:

Work measurement is concerned with the determination of the amount of time required to

perform a unit of work. Work measurement is very important for promoting productivity of an

organization. It enables management to compare alternate methods and also to do initial staffing.

Work measurement provides basis for proper planning.

Since it is concerned with the measurement of time it is also called ‘Time Study’. The exact
examination of time is very essential for correct pricing. To find the correct manufacturing time
for a product, time study is performed. To give competitive quotations, estimation of accurate
labour cost is very essential. It becomes a basis for wage and salary administration and devising
incentive schemes.

Work measurement has been defined by British Standard Institution as, “The application of

techniques designed to establish the time for a qualified worker to carry out a specified job

at a defined level of performance”. This time is called standard or allowed time. Time study

may also be defined as “the art of observing and recording the time required to do each

detailed element of an industrial operation”.

Objectives of Work Measurement:

1. To compare the times of performance by alternative methods.

2. To enable realistic schedule of work to be prepared.

3. To arrive at a realistic and fair incentive scheme.

4. To analyse the activities for doing a job with the view to reduce or eliminate unnecessary jobs.

5. To minimise the human effort.

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6. To assist in the organisation of labour by daily comparing the actual time with that of target
time.

Uses of Work Measurement:

1. Wok measurement is used in planning work and in drawing out schedules.

2. Wok measurement is used to determine standard costs.

3. Wok measurement is used as an aid in preparing budgets.

4. It is used in balancing production lines for new products.

5. Wok measurement is used in determining machine effectiveness.

6. To determine time standards to be used as a basis for labour cost control.

7. To establish supervisory objectives and to provide a basis for measuring supervisory

efficiency.

8. To determine time standards to be used for providing a basis for wage incentive plans.

Techniques of Work Measurement:

Work measurement is investigating and eliminating ineffective time. It not only reveals the
existence of ineffective time. But it can be used to set standard times for carrying out the work so
that ineffective time does not evolve later. It will be immediately found out by the increased
standard time. For the purpose of work measurement, work may be regarded as repetitive work
and non-repetitive work.

The principal techniques of work measurement are classified under the following heads:
1. Time Study

2. Work Sampling
3. Pre-determined Motion Time System
4. Analytical Estimating

Purpose of Work Measurement

The uses, importance, objectives or purpose of work measurement data:
1. Manpower planning
Work measurement data is used for manpower planning. This is because it gives information
about the total hours required to perform the job. This helps to estimate the number and type of
employees who are required to do the job. It ensures that there will not be any excess staff.

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Work measurement data also helps to estimate the number of machines and equipment that will
be required in the future. This helps to find out the number of employees who will be required to
handle these machines and equipment.

2. Production planning and scheduling

Work measurement data is used for production planning and scheduling. This is because this
data is used for making production standards. This data is also used for scheduling. Scheduling
means to fix starting and finishing time for each job. This cannot be done without work
measurement data.

3. Estimating productions costs

Work measurement data helps to estimate the production cost. This is because it gives
management accurate data about production time. This data helps to estimate the labor costs.
Secondly, indirect costs such as fuel and power consumption, rent and salaries of staff, etc. also
depends on the production time factor.

4. Cost reduction and control

Work measurement data is used to reduce and control costs. It helps to reduce the labor cost.
This is because it provides a guideline to the employees to work efficiently and effectively. This
helps to make optimum use of the available manpower. So the labor cost will reduce.
Work measurement data helps to reduce material costs. It also helps to increase machine
productivity. All these steps help to reduce and control production costs.

5. Rational basis for incentives

Work measurement data is used for making incentive schemes for the employees. Incentive
schemes motivate employees to work hard. The efficient employees are rewarded by giving them
a higher wage rate.
Work measurement fixes the standard-time for doing the work. Those who complete their work
within a standard time or faster than the standard-time are rewarded with higher wages. This
encourages all employees to work fast and efficiently.

6. Performance appraisal
Performance appraisals are done to find out whether the employees are efficient or not. It is done
to find strengths & weaknesses of employees.
Work measurement helps to do performance appraisals. This is because it fixes the standard-
output and standard-time for each employee. The employees who produce the standard-output
within the standard-time are efficient and vice versa. Thus, it also helps to find out the strengths
and weaknesses of the employees.

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7. Training of employees
Work measurement helps to train the employees, especially the new employees. It divides the
full job into small elements (parts). It gives complete details about each element of the job. It
gives details about; how to do each element, the time taken for each element, the machines and
tools involved in each element, etc. These details are used for training the employees.

8. Comparing alternative methods

There are many methods for doing a job. Work measurement data helps to choose the best
method for doing a job.

9. Accepting new orders

Work measurement data tells us when will each job be completed. So, it helps the company to
decide whether to accept new orders or not. In other words, it helps to find out whether the new-
order will be completed within a specific time limit.

10. Fixing the selling cost

Work measurement data also helps to fix the selling cost of product. This is because it estimates
the cost of production, especially the labor cost. Selling cost is decided after fixing the estimated
production cost.

Steps Involved in Work Measurement

1. Divide jobs into elements

2. Observe and record each element, any of the work measurement techniques.
3. Set up unit time values, by extending observed time into normal time for each unit. This
can be done by applying rating factor.
4. Evaluate relaxation allowance and add the same to the normal time, for each element to
get the work content.
5. Ascertain the frequency of occurrence of each element in the job, then multiply the work
content to it. After that total the times to reach the work content of the job.
6. Add contingency allowance, wherever required, to get the standard time for performing
the job.

Work measurement is helpful in evaluating the labour cost. Further, gives information with
respect to the estimation of tenders, assessment of delivery schedule and fixation of the selling
price.

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Materials and Resource Requirement Planning

Introduction

Success of an operation department of any organization is dependent upon an efficient

production plan. One of the key essential of a production plan is material and manufacturing
planning system. Material requirement planning plays a pivotal role in assembly-line production.
Material requirement planning is a system based approach, which organizes all required
production material.

Material requirement planning is an information system for production planning based on

inventory management. The basic components of material planning are:

 Material planning provides information that all the required raw material and products are
available for production.
 Material planning ensures that inventory level are maintained at its minimum levels. But
also ensures that material and product are available whenever production is scheduled,
therefore, helping in matching demand and supply.

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 Material planning provides information of production planning and scheduling but also
provides information around dispatch and stocking.

Objective of Material Requirement Planning

Material requirement planning is processed which production planning and inventory control
system, and its three objectives are as follows:

 Primary objective is to ensure that material and components are available for production,
and final products are ready for dispatch.
 Another primary objective is not only to maintain minimum inventory but also ensure
right quantity of material is available at the right time to produce right quantity of final
products.
 Another primary objective is to ensure planning of all manufacturing processes, this
scheduling of different job works as to minimize or remove any kind of idle time for
machine and workers.

Advantages and Disadvantages of Material Resource Planning

As with every system based process, material resource planning also has its advantages and
disadvantages, and they are as follows:

Advantages of Material Resource Planning

 It helps in maintain minimum inventory levels.

 With minimum inventory levels, material planning also reduces associated costs.
 Material tracking becomes easy and ensures that economic order quantity is achieved for
all lot orders.
 Material planning smoothens capacity utilization and allocates correct time to products as
per demand forecast.

Disadvantages of Material Resource Planning

 Material planning is highly dependent on inputs it receives from other systems or

department. If input information is not correct than output for material planning will also
be incorrect.
 Material planning requires maintenance of robust database with all information pertaining
inventory records, production schedule, etc. without which output again would be
incorrect.
 Material planning system requires proper training for end users, as to get maximum out
of the system.
 Material resource planning system requires substantial investment of time and capital.

Material Resource Planning - Inter dependency of Business Function

Material planning not only benefits operation department but is also beneficial to the other
department of organization. They are as follows:

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 Material planning is useful in determining cash flow requirement based on material

requirements and final dispatch schedules.
 It helps procurement team in scheduling purchase of necessary material.
 It helps the sales team in determining delivery dates for final products.

Implementation of Material Resource Planning

Implementation and success of material resource planning dependent on following factors:

 Acceptability of by top management about advantages and benefits

 Proper training and participation of all workers and personnel
 Precision and accuracy of input data for accurate and reliable results

INVENTORY CONTROL
5B. 1 INVENTORY
Inventory is a detailed list of movable goods such as raw materials, work-in-
progress, finished goods, spares tools, consumables, general supplies which are
necessary to manufacture product and to maintain the plant and machinery in good
working condition. The list includes the quantity and value of each and every item,
Inventory is defined as an idle resource of any kind having an economic value since
these resources are idle when kept in the stores.

5B. 2 TYPES OF INVENTORIES

The inventories most firms hold can be classified into one of the following types:

(i) Raw materials and purchased parts: These include, the raw materials directly
used for production and the semi finished products – which are produced and
supplied by another firm and sold as a raw materials by the firm under
considerations.

(ii) In – process inventories (or) partially completed goods (or) goods in transit are
the semi finished goods at various stages of the manufacturing cycle.

(iii) Finished goods inventories (manufacturing firms) or merchandise (retail

stores) are the finished goods lying in the storage yards after the final
inspection clearance and waiting dispatch.

(iv) Indirect inventories include lubricants, spares, tools, Consumables, component

parts and general supplies needed for proper operation, repair and maintenance
during the manufacturing cycle.

5B. 3 FUNCTIONS OF INVENTORY

Good inventory managemnet is important to the successful operation of most

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organisatoin. Adequate inventory facilitates smooth production operations and help to

assure customers for various goods and services offered by the company. On the other
hand, carrying inventories ties up working capital on goods that are kept idle – not
earning any return on investment. Hence the major problem of inventory management
is to maintain adequate but not excessive levels of inventories. By holding the
optimum inventory, the following functions can be realized.

(i) To meet the expected customer (immediate and seasonal) demands. A

customer can be a person who walks in off the street to buy some cosmetics
say, a tooth paste, and if a particular brand he/she is asking for is not available
then they may switchover to some other brand. In this process, the company
losses sale opportunity. In most cases, expected demand requirements are
based on forecasts.

(ii) To smoothen production requirements and establish an efficient production

flow, the organizations often build up inventories in anticipation of seasonal
increase in demand, and take up the production to replenish the depleted
inventory during the off-season periods.

(iii) To decouple internal operations: A buffer oil in-process inventory will be

created at successive operations. If this is not created, a breakdown in any one
operation will cause the entire system to come to a grinding halt.

(iv) Desired quantities are purchased to protect the firm against the effects of
process changes and possible stock-outs. Delayed deliveries and unexpected
increases in demand increase the risk of shortages. Delays can be due to
weather conditions, supplier stock-outs, delivery of wrong and defective
materials. The risk of shortage can often be reduced by holding stocks in
excess.

(v) To take advantage of economic lot sizes in order to minimize frequent ordering
costs, it is necessary to buy quantities that exceed the immediate usage
requirements. This necessitates strong some or all of the purchased items for
later use. Similarly, it is economical to produce items in batches which are
generally in
large quantities. Here also, the excess finished goods must be stored for firm to
buy and produce in economic lot sizes without having to try to match
purchases or production with demand requirements in the short run.

(vi) To derive advantages against price increases: If the firm expects the prices of
raw material or any other input material to go up due to price revision by the
suppliers or due to changes of policy by the government, they procure these
items in excess of their requirements. Similarly if they expect the demand (due

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to seasonality) or price of the firm’s finished good to go up, they produce the
items in excess and stock them thereby increasing the firm’s profit.

(vii) Facilitate
the production of different products using the same facilities: If two
or more products can be manufactured using, the existing facilities of a firm,
batch processing form of production may be adopted, thereby first produce on
product in excess of the current demand and store it for future use. Then take
up other product and adopt the same mode of production so that the firm will
be able to produce more than one product and serve its clients in a better way.

5B. 4 REPLENISHMENT OF STOCK

A firm which is already in the process of manufacturing a particular product or

products will have a certain type of inventories of required quality and in desired
quantities. Adequate control has to be exercised on the stock. If the control becomes
inadequate, it will result in either under stocking or overstocking of items. Under
stocking results in missed deliveries, lost sales dissatisfied customers and production
bottlenecks while overstocking unnecessarily ties up funds that might be used more
productively elsewhere in the case of continuous process industry, under stocking will
cease the production line.

5B. 14 INVENTORY CONTROL OF SPARES

The spares are required for the upkeep of various general and special purpose equipment and
machineries in a company. The requirement of spares will emerge preventive or breakdown
maintenance operations. The requirement of spares can be well planned in the case of items
required during routine preventive operations irrespective of its cost, critically or its essentiality.
In the case of breakdown of certain machineries, the requirement of spares becomes critical for
the repair and rectification of the machinery. If the machine itself as an important special purpose
machinery, then the requirement and availability of the spares at that point of time is very much
vital irrespective of the cost of the spare. The required item may fall in any of the A,B,C
category, but its availability is to be ensured by stocking certain expected items to the required
numbers. The inventory control of spares items call for a trade – off between the cost of the
spares stored and the breakdown or stoppage of production because o f the non- availability of
certain critical and vital spare parts

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UNIT – III
Just-in-time manufacturing

Toyota adopted JIT in the Toyota Production System (TPS), as a means of eliminating the seven
wastes. However, it was not at the Ford Motor Company that Toyota representatives saw the JIT
model in action. When Toyota toured plants in the United States in 1956, Ford had not yet fully
implemented the JIT model.

It was at Piggly Wiggly, the first self-service grocery chain, that Toyota representatives saw JIT
demonstrated and that was the model they based their system on.

In the major alternative to JIT manufacturing, inventory in excess of immediate need is managed.
That model is sometimes referred to as just-in-case (JIC) manufacturing.

Just-in-case (JIC) manufacturing is the traditional model of production, in which products are
created in advance and in excess of demand. According to the principles of lean production, the
JIC model wastes resources because inventories must be maintained. The just-in-time (JIT)
model of manufacturing was developed to eliminate the wastefulness of the traditional model.

Definition

Production processes based on JIT inventory system which allows faster response to customer
demands without large finished goods or goods-in-process inventories.
quality

Traditionally manufacturers have forecasted demand for their products into the future and then
have attempted to smooth out production to meet that forecasted demand. At the same time, they
have also attempted to keep everyone as busy as possible producing output so as to maximize
“efficiency” and (hopefully) reduce costs. Unfortunately, this approach has a number of major
drawbacks including large inventories, long production times, high defect rates, production
obsolescence, inability to meet delivery schedules, and (ironically) high costs. Non of this is
obvious -if it were, companies would long ago have abandoned this approach.

JIT is a production and inventory control system in which materials are purchased and units are
produced only as needed to meet actual customer demand. In just in time manufacturing system
inventories are reduced to the minimum and in some cases they are zero.

JIT works in the three types of inventories:

a) Raw materials: inventories provide insurance in case suppliers are late with deliveries.

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b) Work in process: inventories are maintained in case a work station is unable to operate due to
a breakdown or other reason.

c) Finished goods: inventories are maintained to accommodate unanticipated fluctuations in

demand.

Just-in-time manufacturing was a concept introduced to the United States by the Ford motor
company. It works on a demand-pull basis, contrary to hitherto used techniques, which worked
on a production-push basis.
To elaborate further, under just-in-time manufacturing (colloquially referred to as JIT
production systems), actual orders dictate what should be manufactured, so that the exact
quantity is produced at the exact time that is required.
Just-in-time manufacturing goes hand in hand with concepts such as Kanban, continuous
improvement and total quality management (TQM).
Just-in-time production requires intricate planning in terms of procurement policies and the
manufacturing process if its implementation is to be a success.
Highly advanced technological support systems provide the necessary back-up that Just-in-time
manufacturing demands with production scheduling software and electronic data interchange
being the most sought after.

Advantages Just-In-Time Systems

Following are the advantages of Adopting Just-In-Time Manufacturing Systems
 Just-in-time manufacturing keeps stock holding costs to a bare minimum. The release of
storage space results in better utilization of space and thereby bears a favorable impact
on the rent paid and on any insurance premiums that would otherwise need to be made.
 Just-in-time manufacturing eliminates waste, as out-of-date or expired products; do not
enter into this equation at all.
 As under this technique, only essential stocks are obtained, less working capital is
required to finance procurement. Here, a minimum re-order level is set, and only once
that mark is reached, fresh stocks are ordered making this a boon to inventory
management too.
 Due to the aforementioned low level of stocks held, the organizations return on
investment (referred to as ROI, in management parlance) would generally be high.
 As just-in-time production works on a demand-pull basis, all goods made would be sold,
and thus it incorporates changes in demand with surprising ease. This makes it
especially appealing today, where the market demand is volatile and somewhat
unpredictable.
 Just-in-time manufacturing encourages the 'right first time' concept, so that inspection
costs and cost of rework is minimized.

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 High quality products and greater efficiency can be derived from following a just-in-time
production system.
 Close relationships are fostered along the production chain under a just-in-time
manufacturing system.
 Constant communication with the customer results in high customer satisfaction.
 Overproduction is eliminated when just-in-time manufacturing is adopted.

Disadvantages
Following are the disadvantages of Adopting Just-In-Time Manufacturing Systems
 Just-in-time manufacturing provides zero tolerance for mistakes, as it makes re-working
very difficult in practice, as inventory is kept to a bare minimum.
 There is a high reliance on suppliers, whose performance is generally outside the
purview of the manufacturer.
 Due to there being no buffers for delays, production downtime and line idling can occur
which would bear a detrimental effect on finances and on the equilibrium of the
production process.
 The organization would not be able to meet an unexpected increase in orders due to the
fact that there are no excess finish goods.
 Transaction costs would be relatively high as frequent transactions would be made.
 Just-in-time manufacturing may have certain detrimental effects on the environment due
to the frequent deliveries that would result in increased use of transportation, which in
turn would consume more fossil fuels.

Precautions
Following are the things to Remember When Implementing a Just-In-Time Manufacturing
System
 Management buy-in and support at all levels of the organization are required; if a just-in-
time manufacturing system is to be successfully adopted.
 Adequate resources should be allocated, so as to obtain technologically advanced
software that is generally required if a just-in-time system is to be a success.
 Building a close, trusting relationship with reputed and time-tested suppliers will
minimize unexpected delays in the receipt of inventory.
 Just-in-time manufacturing cannot be adopted overnight. It requires commitment in
terms of time and adjustments to corporate culture would be required, as it is starkly
different to traditional production processes.
 The design flow process needs to be redesigned and layouts need to be re-formatted, so
as to incorporate just-in-time manufacturing.
 Lot sizes need to be minimized.

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 Workstation capacity should be balanced whenever possible.

 Preventive maintenance should be carried out, so as to minimize machine breakdowns.
 Set-up times should be reduced wherever possible.
 Quality enhancement programs should be adopted, so that total quality control practices
can be adopted.
 Reduction in lead times and frequent deliveries should be incorporated.
 Motion waste should be minimized, so the incorporation of conveyor belts might prove
to be a good idea when implementing a just-in-time manufacturing system.

The main BENEFITS of JIT are the following:

1. Funds that were tied up in inventories can be used elsewhere.

2. Areas previously used to store inventories can be used for other more productive uses.
3. Throughput time is reduced, resulting in greater potential output and quicker response to
customers.
4. Defect rates are reduced, resulting in less waste and greater customer satisfaction.

Most companies find, however, that simply reducing inventories is not enough. To remain
competitive in an ever changing and ever competitive business environment, must strive for
continuous improvement.

A real business example: Dell Computer Corporation

In this company an order for a customized personal computer that comes in over the internet at 9
am, can be on a delivery truck to the customer by 9 p.m. In addition, Dell’s low cost production
system allows it to under price its rivals by 10% to 15%. How does the company’s just in time
system deliver lower costs? While machines from Compaq and IBM can languish on dealer
shelves for two months Dell does not start ordering components and assembling computers until
an order is booked. By ordering right before assembly, Dell figures it s parts, on average, are 60
days newer than those in an IBM or Compaq machine. That can translate into a 6% profit
advantage in components alone.

DISADVANTAGES of JIT:

Implementing thorough JIT procedures can involve a major overhaul of business systems -it may
be difficult and expensive to introduce.

JIT manufacturing also opens businesses to a number of risks, notably those associated with the
supply chain. With no stocks to fall back on, a minor disruption in supplies to the business from
just one supplier could force production to cease at very short notice.

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A real business example: Toyota

Just-in-time manufacturing system is vulnerable to unexpected disruptions in supply chain. A

production line can quickly come to a halt if essential parts are unavailable. Toyota, the
developer of JIT, found this out the hard way. One Saturday, a fire at Aisin Seiki Company’s
plant stopped the delivery of all break parts to Toyota. By Tuesday, Toyota had to close down all
of its Japanese assembly line. By the time the supply of break parts had been restored, Toyota
had lost an estimated $15 billion in sales.

Methodology[edit]
Sepheri provides a list of methodologies of JIT manufacturing that "are important but not
exhaustive":[40]

 Housekeeping – physical organization and discipline.

 Make it right the first time – elimination of defects.
 Setup reduction – flexible changeover approaches.
 Lot sizes of one – the ultimate lot size and flexibility.
 Uniform plant load – leveling as a control mechanism.
 Balanced flow – organizing flow scheduling throughput.
 Skill diversification – multi-functional workers.
 Control by visibility – communication media for activity.
 Preventive maintenance – flawless running, no defects.
 Fitness for use – producibility, design for process.
 Compact plant layout – product-oriented design.
 Streamlining movements – smoothing materials handling.
 Supplier networks – extensions of the factory.
 Worker involvement – small group improvement activities.
 Cellular manufacturing – production methods for flow.
 Pull system – signal [kanban] replenishment/resupply systems.

What are the main problems with a JIT (just in time) production strategy?

The benefits of the just-in-time (JIT) production strategy are well-documented, but it can also
have some serious disadvantages. The chief issue with this production process is evidenced in its
name. "Just in time" means that the success of this business strategy depends largely on precise
coordination between businesses and their suppliers to ensure prompt delivery. Because there is
no inventory buffer, business can suffer greatly if any one element of production is delayed.

The JIT production strategy means that businesses do not produce items for sale until they have
been ordered by customers, meaning inventory is low or nonexistent. While low inventory can be

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beneficial to a company's bottom line in a number of ways, running a business this way requires
a great deal of coordination. From obtaining the raw materialsneeded for manufacturing to
ensuring timely delivery, every aspect of JIT production must be synchronized. This often means
businesses must invest in the implementation of information technology to enable automatic
notification to suppliers when orders are received.

Under standard inventory-based production models, businesses place large orders for materials
from wholesalers, and many items can be produced from one shipment. As production depletes
the first shipment of raw materials, another order is shipped, creating a convenient time buffer.
On-demand production means companies must find suppliers that are willing to fulfill small,
frequent orders on very short notice, which often means using local suppliers to reduce shipping
time and expenses. With no back stock of inventory or materials, any supply chain issue can lead
to delivery delays and angry customers. A sudden increase in the price of raw goods due to
issues with material sourcing, shortages, natural disaster or political upheaval (called supply
shock) can also pose a serious threat to the ability of a company to service its customers
effectively.

Because JIT production is based entirely on existing orders, it is not the most efficient system for
dealing with the unexpected. A company that uses this strategy may be ill-equipped to handle a
sudden surge in demand for a product. The lack of back-up inventory means customers must wait
for the company to receive supplies and manufacture the product. This can mean extended
delays, dissatisfied customers and potential forfeit of part of all of an order if any supply chain
issues arise.

Inability to fulfill large orders in a timely manner can cost a business money, but there are other
hidden expenses inherent in the JIT strategy that are just as important, though less dramatic.
Producing goods for sale in smaller quantities means spending less per shipment of raw
materials, but it can actually end up costing a company more. Businesses that have high
production levels benefit from the economy of scale: as production increases, the average cost of
producing each item actually decreases. This is partially because large wholesale purchases often
come with generous quantity-based discounts. Businesses that utilize the JIT production strategy
may pay more per item because they must make smaller, more frequent orders that do not qualify
for these types of price breaks. The additional shipping and delivery charges that accompany
more frequent ordering can also have an important impact on the bottom line, as well as on the
environment.

Conclusion
Just-in-time manufacturing is a philosophy that has been successfully implemented in many
manufacturing organizations.
It is an optimal system that reduces inventory whilst being increasingly responsive to customer
needs, this is not to say that it is not without its pitfalls.
However, these disadvantages can be overcome with a little forethought and a lot of commitment
at all levels of the organization.

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Business process reengineering

Proper execution of Business Process Reengineering can be a game-changer to any
business.
If properly handled, it can perform miracles on a failing or stagnating company, increasing the
profits and driving growth.
Business process reengineering, however, is not the easiest concept to grasp. It involves
enforcing change in an organization – tearing down something people are used to and creating
something now.
And that’s not an easy task.
Jump to any section
 So, What is Business Process Reengineering?
 Business Process Reengineering Steps
o Step #1: Identity and Communicating the Need for Change
 Risk of Failure: Not Getting Buy-In From The Company
o Step #2: Put Together a Team of Experts
 Risk of Failure: Not Putting The Right Team Together
o Step #3: Find the Inefficient Processes and Define Key Performance Indicators
(KPI)
 Risk of Failure: Inability to Properly Analyze Processes
o Step #4: Reengineer the processes and Compare KPIs
 Business Process Reengineering Examples
o BPR Examples: Ford Motors

So, What is Business Process Reengineering?

Business process reengineering is the act of recreating a core business process with the goal of
improving product output, quality, or reducing costs.
Typically, it involves the analysis of company workflows, finding processes that are sub-par or
inefficient, and figuring out ways to get rid of them or change them.
Business process reengineering became popular in the business world in the 1990s, inspired by
an article called Reengineering Work: Don’t Automate, Obliterate which was published in the
Harvard Business review by Michael Hammer.
His position was that too many businesses were using new technologies
to automatefundamentally ineffective processes, as opposed to creating something different,
something that is built on new technologies.

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Think, using technology to “upgrade” a horse with lighter horseshoes which make them faster,
as opposed to just building a car.
In the decades since, BPR has continued to be used by businesses as an alternative to business
process management (automating or reusing existing processes), which has largely superseded it
in popularity.
And with the pace of technological change faster than ever before, BPR is a lot more relevant
than ever before.

Business Process Reengineering Steps

As we’ve mentioned before, business process reengineering is no easy task.

Unlike business process management or improvement, both of which focus on working with
existing processes, BPR means changing the said processes fundamentally.
This can be extremely time-consuming, expensive and risky. Unless you manage to carry out
each of the steps successfully, your attempts at change might fail.

Step #1: Identity and Communicating the Need for Change

If you’re a small startup, this can be a piece of cake. You realize that your product has a high
user drop-off rate, send off a text to your co-founder, and suggest a direction to pivot.
For a corporation, however, it can be a lot harder. There will always be individuals who are
happy with things as they are, both from the side of management and employees. The first might
be afraid that it might be a sunk investment, the later for their job security.
So, you’ll need to convince them why making the change is essential for the company. If the
company is not doing well, this shouldn’t be too hard.
In some cases, however, the issue is with the company not doing as well as it could be. Meaning,
you should do your research. Which processes might not be working? Is your competition
doing better than you in some regards? Worse?
Once you have all the information, you’ll need to come up with a very comprehensive plan,
involving leaders from different departments. The management will have to play the role of
salespeople: conveying the grand vision of change, showing how it’ll affect even the lowest-
ranked employee positively.

Risk of Failure: Not Getting Buy-In From The Company

If you fail to do this, however, your business process reengineering efforts might be destined
to fail long before they even start.
Business Process Re-Engineering can seriously impact on everyone in the company, and
sometimes this can appear to be a negative change for some. Some employees might, for
example, think you’ll let them all go if you find a better way to function (which is a real
possibility).

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In such cases, even if the management is on board, the initiative might fail because the
employees aren’t engaged.
Usually, it’s possible to get the employees buy-in by motivating them or showing them different
views they weren’t aware of. Sometimes, however, the lack of employee engagement might be
because of a bad workplace culture – something that might need to be dealt with before starting
any BPR initiatives.

Step #2: Put Together a Team of Experts

As with any other project, business process reengineering needs a team of highly skilled,
motivated people who will carry out the needed steps.
In most cases, the team consists of:
 Senior Manager. When it comes to making a major change, you need the supervision of
someone who can call the shots. If a BPR team doesn’t have someone from the senior
management, they’ll have to get in touch with them for every minor change.
 Operational Manager. As a given, you’ll need someone who knows the ins-and-outs of
the process – and that’s where the operational manager comes in. They’ve worked with the
process(es) and can contribute with their vast knowledge.
 Reengineering Experts. Finally, you’ll need the right engineers. Reengineering
processes might need expertise from a number of different fields, anything from IT to
manufacturing. While it usually varies case by case, the right change might be anything –
hardware, software, workflows, etc.

Risk of Failure: Not Putting The Right Team Together

There are a lot of different ways to mess this one up.

If the team consists of individuals with a similar viewpoint and agenda, for example, they might
not be able to properly diagnose the problems/solutions.
Or, the team might involve too many or too few people. In the first case, the decision making
might be slowed down due to conflicting viewpoints. In the later, there might not be enough
experts on certain fields to create adequate solutions.
It’s hard to put all that down as a framework, as it depends on the project itself. There is one
thing, however, that benefits every BPR team: having a team full of people who are enthusiastic
(and yet unbiased), positive and passionate about making a difference.

Step #3: Find the Inefficient Processes and Define Key Performance Indicators (KPI)

Once you have the team ready and about to kick-off the initiative, you’ll need to define the
right KPIs. You don’t want to adapt to a new process and THEN realize that you didn’t keep
some expenses in mind – the idea of BPR is to optimize, not the other way around.

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While KPIs usually vary depending on what process you’re optimizing, the following can be
very typical:
 Manufacturing
o Cycle Time – The time spent from the beginning to the end of a process
o Changeover Time – Time needed to switch the line from making one product to
the next
o Defect Rate – Percentage of products manufactured defective
o Inventory Turnover – How long it takes for the manufacturing line to turn
inventory into products
o Planned VS Emergency Maintenance – The ratio of the times planned
maintenance and emergency maintenance happen
 IT
o Mean Time to Repair – Average time needed to repair the system / software /
app after an emergency
o Support Ticket Closure rate – Number of support tickets closed by the support
team divided by the number opened
o Application Dev. – The time needed to fully develop a new application from
scratch
o Cycle Time – The time needed to get the network back up after a security breach
Once you have the exact KPIs defined, you’ll need to go after the individual processes. The
easiest way to do this is to do business process mapping. While it can be hard to analyze
processes as a concept, it’s a lot easier if you have everything written down step by step.
This is where the operational manager comes in handy – they make it marginally easier to define
and analyze the processes.
Usually, there are 2 ways to map out processes:
 Flowcharts – the most basic way to work with processes is through flowcharts. Grab a
pen and paper and write down the processes step by step.
 Workflow Software – if you’re more tech-savvy, using software for process analysis can
make everything a lot easier. You can use Tallyfy, for example, to map out your processes,
include user responsibilities, etc. Simply using such software might end up optimizing the said
processes as it allows for easier collaboration between the employees.

Risk of Failure: Inability to Properly Analyze Processes

Or, to put it more succinctly – impatience. It’s uncommon for someone to try business process
reengineering if they profits are soaring and the projections are looking great.
BPR is usually called for when things aren’t going all that well and businesses need drastic
changes. So, it can be very tempting to hurry things up and skip through the analysis process and
start carrying out the changes.

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The thing is, though, the business needs analysis needs to be done properly, not rushed through
to get to the more exciting parts.
There are always time and money pressures in the business world, and it’s the responsibility of
the senior management to resist the temptation and make sure the proper procedure is carried out.
Problem areas need to be identified, key goals need to be set and business objectives need to be
defined and this takes time.
Ideally, each stage requires input from groups from around the business to ensure that a full
picture is being formed, with feedback and ideas being taken into consideration from a diverse
range of sources. The next step is to identify and prioritize the improvements that are needed
and those areas and processes that need to be scrapped. Any business that doesn’t take this
analysis seriously will be going into those next steps blind and will find that their BPR efforts
will fail.
Any business that doesn’t take this analysis seriously will be going into those next steps blind
and will find that their BPR efforts will fail.

Step #4: Reengineer the processes and Compare KPIs

Finally, once you’re done with all the analysis and planning, you can start implementing the
solutions and changes on a small scale.
Once you get to this point, there’s not much to add – what you have to do now is keep putting
your theories into practice and seeing how the KPIs hold up.
If the KPIs show that the new solution works better, you can start slowly scaling the solution,
putting it into action within more and more company processes.
If not, you go back to the drawing board and start chalking up new potential solutions.

Business Process Reengineering Examples

The past decade has been very big on change. With new technology being developed at such a
breakneck pace, a lot of companies started carrying out business process reengineering
initiatives. There are a lot of both
There are a lot of both successful and catastrophic business process reengineering examples in
history, one of the most famous being that of Ford.

BPR Examples: Ford Motors

One of the most referenced business process reengineering examples is the case of Ford, an
automobile manufacturing company.
In the 1980s, the American automobile industry was in a depression, and in an attempt to cut
costs, Ford decided to scrutinize some of their departments in an attempt to find inefficient
processes.

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One of their findings was that the accounts payable department was not as efficient as it could
be: their accounts payable division consisted of 500 people, as opposed to Mazda’s (their
partner) 5.
While Mazda was a smaller company, Ford estimated that their department was still 5 times
bigger than it should have been.
Accordingly, Ford management set themselves a quantifiable goal: to reduce the number of
clerks working in accounts payable by a couple of hundred employees. Then, they launched a
business process reengineering initiative to figure out why was the department so overstaffed.
They analyzed the current system, and found out that it worked as follows:
1. When the purchasing department would write a purchase order, they sent a copy to
accounts payable.
2. Then, the material control would receive the goods, and send a copy of the related
document to accounts payable.
3. At the same time, the vendor would send a receipt for the goods to accounts payable.
Then, the clerk at the accounts payable department would have to match the three orders, and if
they matched, he or she would issue the payment. This, of course, took a lot of manpower in the
department.

Old Payable Process

So, as is the case with BPR, Ford completely recreated the process digitally.
1. Purchasing issues an order and inputs it into an online database.
2. Material control receives the goods and cross-references with the database to make sure it
matches an order.
3. If there’s a match, material control accepts the order on the computer.

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New payable process

This way, the need for accounts payable clerks to match the orders was completely eliminated.
Business process re-engineering (BPR) is a business management strategy, originally
pioneered in the early 1990s, focusing on the analysis and design of workflows and business
processes within an organization. BPR aimed to help organizations fundamentally rethink how
they do their work in order to dramatically improve customer service, cut operational costs, and
become world-class competitors.[1] In the mid-1990s, as many as 60% of the Fortune
500 companies claimed to either have initiated reengineering efforts, or to have plans to do so.[2]
BPR seeks to help companies radically restructure their organizations by focusing on the ground-
up design of their business processes. According to Davenport (1990) a business process is a set
of logically related tasks performed to achieve a defined business outcome. Re-engineering
emphasized a holistic focus on business objectives and how processes related to them,
encouraging full-scale recreation of processes rather than iterative optimization of sub-
processes.[1]
Business process reengineering is also known as business process redesign, business
transformation, or business process change management.
Business process reengineering (BPR) is an approach to change management in which the
related tasks required to obtain a specific business outcome are radically redesigned. An
important goal of BPR is to analyze workflows within and between enterprises in order to
optimize end-to-end processes and eliminate tasks that do not provide the customer with value.

BPR was a very important management concept from the mid-1980s to the mid-1990s. The
concept is generally credited to MIT professor Michael Hammer and Babson College professor
Thomas Davenport. Hammer and Davenport started out as colleagues, working on a research
program called PRISM (Partnership for Research in Information Systems Management). Their
research efforts, which were sponsored by some of the biggest corporations at the time, involved

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developing an architectural model that would help large companies take advantage of recent
advances in technology, including personal computers (PCs) and the internet.

Today, there is a renewed interest in business process reengineering as a framework for digital
transformation. With hindsight, it has become apparent that the concept’s focus on radical
change can complement process improvement approaches that emphasize incremental change,
such as continuous improvement (Kaizen) or the Total Quality Movement (TQM).

‘Business Process Reengineering (BPR) aims at cutting down enterprise costs and process
redundancies, but unlike other process management techniques, it does so on a much broader
scale. Business Process Reengineering (BPR) - also known as process innovation and core
process redesign - attempts to restructure or obliterate unproductive management layers, wipe
out redundancies, and remodel processes differently.’

‘Thorough rethinking of all business processes, job definitions, management systems,

organizational structure, work flow, and underlying assumptions and beliefs. BPR's main
objective is to break away from old ways of working, and effect radical (not incremental)
redesign of processes to achieve dramatic improvements in critical areas (such as cost, quality,
service, and response time) through the in-depth use of information technology. Also called
business process redesign.’

definition: The Business Process Reengineering or BPR is the analysis and redesign of core
business processes to achieve the substantial improvements in its performance, productivity, and
quality. The business process refers to the set of interlinked tasks or activities performed to
achieve a specified outcome.

Simply, the business process reengineering means to change the way an individual performs the
work such that better results are accomplished. The purpose of business process reengineering is
to redesign the workflows in order to dramatically improve the customer service, achieve higher
levels of efficiency, cut operational costs and become a world-class competitor.

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The principles of business process reengineering

In 1993, Hammer and organizational theorist James Champy published a book to expand upon
the ideas Hammer proposed in his research paper. The book, which was entitled “Reengineering
the Corporation: A Manifesto for Business Revolution,” quickly became a national bestseller.
The authors suggested seven principles for reengineering a work process and achieving a
significant level of improvement in quality, time management, speed and profitability.

1. Organize around outcomes, not tasks.

2. Identify all the processes in an organization and prioritize them in order of redesign
urgency.

3. Integrate information processing work into the real work that produces the information.

4. Treat geographically dispersed resources as though they were centralized.

5. Link parallel activities in the workflow instead of just integrating their results.

6. Put the decision point where the work is performed and build control into the process.

7. Capture information once and at the source.

5 Steps to business process redesign

The business community's enthusiasm for business process reengineering inevitably generated
many interpretations for how radical change should be implemented. For example, while
Hammer used the word reengineering and provided business leaders with broad guiding
principles, Thomas Davenport used the word redesign and provided business leaders with more
concrete advice, emphasizing the value of prototypes, simulations and tests.

Davenport’s book with James Short, entitled “The New Industrial Engineering: Information
Technology and Business Process Redesign,” suggested that business leaders use a five-step
approach to radically change workflow:

1. Develop the business vision and process objectives.

2. Identify the processes to be redesigned.

3. Understand and measure the existing processes.

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4. Identify IT levers.

5. Design and build a prototype of the new process.

BPR team member roles

Both Hammer and Davenport agreed on the importance of having a serious commitment from
the top executives of the company and the need to secure buy-in from all departments affected by
the process redesign. Many implementations of BPR during the late 1980s and mid-1990s used a
team approach that reflected BPR’s top-down management philosophy. Such a team might look
like this:

Team Leader - a senior executive who has envisioned and authorized the overall reengineering
effort. The team leader is responsible for appointing the process owner.

Process Owner - a senior-level manager in charge of a specific business process. The process
owner is responsible for assembling a team to reengineer the process he or she oversees.

Reengineering Team - a group that is composed of insiders whose work involves the process
being reengineered and outsiders whose jobs will not be affected by changes in process. The
reengineering team is responsible for analyzing the existing process and overseeing its redesign.

Steering Committee – a group of senior managers who have championed the concept of
reengineering within the organization and set specific goals for improving performance. The
steering committee, which is led by the Team Leader, is responsible for arbitrating disputes and
helping process owners make decisions about competing priorities.

Reengineering Czar – an individual who is responsible for the day-to-day coordination of all
ongoing reengineering activities. The czar’s responsibility is to be a facilitator and develop the
techniques and tools the organization will use to reengineer workflow.

Why BPR in the 1990s was a failure

In a 1996 Fast Company article, "The Fad That Forgot People," Davenport blamed BPR’s
negative press on the excessive power given to third-party consultants who were primarily
interested in cost savings and didn't have an emotional investment in the company. He cited a

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pharmaceutical company that went through two major consulting contracts before calling off its
BPR initiative and a large telecommunications firm whose treatment of employees as
interchangeable components only succeeded at alienating the company’s brightest minds.
Michael Hammer and James Champy also agreed that BPR failed to manage the effect that
radical change would have on people and culture.

Other factors that heavily influenced success included the difficulty of mapping processes
accurately and working across business silos that made change difficult. IT is a major driver of
most reengineering business processes and the failure of business leaders to align IT
infrastructure with BPR strategies and wisely invest in technology that performed as promised
also raised frustration levels.

Future of BPR

During the early part of this century, BPR was sometimes regarded as simply a business
buzzword of historical interest. A recent emphasis in business on digital transformation as a way
to gain competitive advantage, however, as well as the pervasiveness of the Internet of Things
(IoT) and advances in artificial intelligence (AI) have spurred many companies to radically
rethink their workflows and make technology-driven changes. In the future, it's expected that
business process reengineering will continue to be part and parcel of most business
transformation and enterprise resource planning initiatives.

fff factors that are important to BPR success include:

1. BPR team composition.

2. Business needs analysis.
3. Adequate IT infrastructure.
4. Effective [change management].
5. Ongoing continuous improvement
The aspects of a BPM effort that are modified include organizational structures, management
systems, employee responsibilities and performance measurements, incentive systems, skills
development, and the use of IT. BPR can potentially affect every aspect of how business is
conducted today. Wholesale changes can cause results ranging from enviable success to
complete failure.
If successful, a BPM initiative can result in improved quality, customer service, and
competitiveness, as well as reductions in cost or cycle time. However, 50-70% of reengineering
projects are either failures or do not achieve significant benefit.[15]

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There are many reasons for sub-optimal business processes which include:

1. One department may be optimized at the expense of another

2. Lack of time to focus on improving business process
3. Lack of recognition of the extent of the problem
4. Lack of training
5. People involved use the best tool they have at their disposal which is usually Excel to fix
problems
6. Inadequate infrastructure
7. Overly bureaucratic processes
8. Lack of motivation
Many unsuccessful BPR attempts may have been due to the confusion surrounding BPR, and
how it should be performed. Organizations were well aware that changes needed to be made, but
did not know which areas to change or how to change them. As a result, process reengineering is
a management concept that has been formed by trial and error or, in other words, practical
experience. As more and more businesses reengineer their processes, knowledge of what caused
the successes or failures is becoming apparent.[16] To reap lasting benefits, companies must be
willing to examine how strategy and reengineering complement each other by learning to
quantify strategy in terms of cost, milestones, and timetables, by accepting ownership of the
strategy throughout the organization, by assessing the organization’s current capabilities and
process realistically, and by linking strategy to the budgeting process. Otherwise, BPR is only a
short-term efficiency exercise.[17]
The business process reengineering involves a series of steps. These are:

Step 1: Define Objectives and Framework

Step 2: Identify Customer Needs

Step 3: Study the existing business process

Step 4: Formulate a redesign business plan

Step 5: Implement the Redesign Plan

The business process is required to be reengineered because of the following reasons:

 The processes the company is using might have become outdated or holds no relevance in
the current market scenario.
 Often, the sub-divisions in the organization aims at improving their respective division
performance and overlook the resultant effects on the other departments. This might lead to
the underperformance of the firm as a whole.
 Due to the departmentalization, each employee focuses on the performance of his
respective department and may overlook the critical issues emerging in other areas of the firm,

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and therefore, the need for re-engineering arises so that the role of the employees could be
broadened and shall be made more responsible towards the firm.
 The existing business process could be lengthy, time-consuming, costly, obsolete,
therefore, is required to be redesigned to match it with the current business requirements.
 The technology keeps on updating and in order to catch up with it, reengineering is
a must.
Thus, the business process reengineering focuses on obtaining the quantum gains in terms of
cost, time, output, quality and responsiveness towards customers. Also, it emphasizes on
simplifying and streamlining the business process by eliminating the unnecessary or time-
consuming business activities and speeding up the workflow by making the use of high-tech
systems.

Enterprise resource planning

ontent:
1. Introduction to ERP
2. Evolution of ERP
3. What is ERP?
4. Reason for the growth of ERP
5. Scenario and Justification of ERP in India
6. Evaluation of ERP
7. Various modules of ERP
8. Advantages of ERP

a business management system that integrates allfacets of the business, including

planning, manufacturing, sales, and marketing
.As the ERP methodology has become more popular, software applications have emergedto help
business managers implement ERP in business activities such as inventorycontrol, order
tracking, customer service, finance and human resources
.Enterprise resource planning's true ambition is to integrate all departments and functionsacross a
company onto a single computer system that can serve all those differentdepartments' particular
needs.Thus ERP attempts to integrate all departments and functions across a company onto
asingle computer system that can serve all those different departments' particular needs
.ERP systems are IT systems which are meant to serve all the IT needs of a
manufacturingcompany. ERP stands for "Enterprise Resource Planning". This type of system
hasevolved from earlier MRP and MRPII systems.MRP stands for "Material Requirements
Planning", and is a computer technique for taking a product schedule as input and generating
works and purchase orders as output.MRP II was a later development of MRP which arose
because MRP needed a set of business processes surrounding it to make it effective. Not all of
the business processesneeded IT support, but others did, hence MRPII systems supported a wider
range of business processes than MRP.
The name MRPII came about because the new set of business processes was called
"Manufacturing Resource Planning", and because theinitials were the same as MRP, the II was
tagged on.

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. Evolution of ERP
The history of ERP can be traced back to the 1960’s, when the focus of systems wasmainly
towards inventory control. Most of the systems software were designed to handleinventory based
in traditional inventory concepts. The 1970’s witnessed a shift of focustowards MRP (Material
Requirement Planning).This system helped in translating the master production schedule into
requirements for individual units like sub assemblies, components and other raw material
planning and procurement. This system was involved mainly in planning the raw
materialrequirements.Then, in 1980’s came the concept of MRP-II i.e. the Manufacturing
Resource Planningwhich involved optimizing the entire plant production process. Though MRP-
II, in the beginning was an extension of MRP to include shop floor and distribution
managementactivities, during later years, MRP-II was further extended to include areas like
Finance,Human Resource, Engineering, Project Management etc.This gave birth to ERP
(Enterprise Resource Planning) which covered the cross-functional coordination and integration
in support of the production process. The ERP ascompared to its ancestors included the entire
range of a company’s activities. ERPaddresses both system requirements and technology aspects
including client/server distributed architecture, RDBMS, object oriented programming etc.
Evaluation Criteria
1.Some important points to be kept in mind while evaluating ERP software include
2.Functional fit with the Company’s business processes.
3.Degree of integration between the various components of the ERP system
4. Fl ex i bi l i t y a nd s c al abi l i t y
5.User friendliness
6.Ease of implementation
7.Ability to support multi-site planning and control
8.Technology - client/server capabilities, database independence, security
9.A v ai l ab i l i t y o f r e gul a r u p gr ad es
10.Amount of customization required
11.Local support infrastructure
12.Reputation and sustainability of the ERP vendor
13.Total costs, including cost of license, training, implementation, maintenance,customization
and hardware requirements.
Why ERP?
To Enhance Profitability:
a)Increase in sales
b)/ or R ed uc e P r o cu r em ent C o st
2. for Healthy Operations:
a)Integration of Systems across the Functional Departments in aCompany as well as
across the Enterprise as a Whole
. b ) Be t t er C u st o m e r S e rvi c e.

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c)Introduction of Latest Technologies as and when the are ready for the Industry
acceptance
d)Expertise database
e)Avoids data redundancy
3. Competition in the Market:
a )M an uf a ct u ri n g C h al l en ge s.
b )M an uf a ct uri n g G l ob al l y.
c )Di st ri b ut i on n et w or k s pr e ad .
d) N ew P r od uc t i nt ro du ct i o n
.e ) Lo w e r m a nu f a ct u ri n g l e ad t i m e .
f)Focus on industry markets.
g)S at i sf yi n g t h e ne e ds of cus t om e rs.
h)Develop specific business methods and processes
.i ) In t e gr a t i o n wi t h t hi r d pa rt y p r od uc t s.

4. Demands on the Industry:

a ) Be t t er p ro du ct s at l o we r c ost s
b)Tough competition
c)Need to analyze costs / revenues on a product or customer basis
d)Flexibility to respond to changing business requirements
e )Mo r e i n fo rm ed m a na ge m e nt d e ci si on m ak i n g
5. Solving the Problems:
a )U na bl e t o ge t a c c ur at e, t i m el y i n fo rm at i on
b)Applications not complete for existing business practices
c)Modifications are time consuming
The advantages of ERP
Installing an ERP system has many advantages -both direct and indirect.The direct advantages
include improved efficiency, information integration for better decision making, faster response
time to customer queries, etc. The indirect benefitsinclude better corporate image,
improved customer goodwill, customer satisfaction, andso on.
The following are some of the direct benefits of an ERP system:
1.Business Integration
2.Flexibility
3. B et t e r An al ys i s an d P l an ni n g C a pa bi l i t i e s
4.U s e o f La t est T e c hnol o g y.
1. Business Integration:
The first and most important advantage lies in the promotion of integration. The reason why ERP
packages are considered to the integrated, is theautomatic data updating (automatic data
exchange among applications) that is possibleamong the related business components.
Since conventional company information systems were aimed at the optimization of independent
business functions in business units, almost all were weak in terms of thecommunication and
integration of information that transcended the different businessfunctions.
In the case of large companies in particular, the timing of system construction anddirectives
differs for each product and department/ function and sometimes, they aredisconnected. For this
reason, it has become an obstacle in the shift to new product and business classification.
In the case of ERP packages, the data of related business functions is also automaticallyupdated
at the time a transaction occurs. For this reason, one is able to grasp businessdetails in real time,
and carry out various types of management decisions in a timelymanner, based on that
information.

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2. Flexibility:
The second advantage of the ERP packages is their flexibility. Differentlanguages, currencies,
accounting standards and so on can be covered in one system, andfunctions that comprehensively
manage multiple locations of a company can be packagedand implemented automatically. To
cope with company globalization and systemunification, this flexibility is essential and one can
say that it has major advantages, notsimply for development and maintenance, but also in terms
of management.
3. Better Analysis and planning Capabilities:
Yet another advantage is the boost to the planning functions. By enabling the comprehensive and
unified management of related business and its data, it becomes possible to fully utilize many
types of decision supportsystems and simulation functions. Furthermore, since it becomes
possible to carry out, flexible and in real time, the filing and analysis of data from a variety of
dimensions, oneis able to give the decision-makers the information they want; thus enabling
them tomake better and informed decisions.
4. Use of Latest Technology
: the fourth advantage is the utilization of the latestdevelopment in information Technology (IT).
The ERP vendors were quick to realize thatin order to grow and to sustain that growth; they had
to embrace the latest developmentsin the field of information technology.
Therefore, they quickly adapted their systems totake advantage of the latest technologies like
open systems, client/ server technology,Internet/Intranet, CALS (Computer- Aided Acquisition
and Logistics Support),electronic-commerce, etc.
It is this quick adaptation to the latest changes in the Information Technology that makesthe
flexible adaptation to changes in future business environments possible. It is thisflexibility that
makes the incorporation of the latest technology possible during systemcustomization,
maintenance and expansion phases

Enterprise Resource Planning

Business software has indispensable role to accelerate business activities of global organization.
Enterprise Resource Planning Systems, briefly abbreviated as ERP is specially designed for
distributors, retailers and expert services firms as per for their requirements. The company
named SAP Aktiengesellschaft is leader in offering ERP systems (Benjamin et,al., 2004).
Though it is beneficial for organizations, some management studies have shown that Enterprise
resource planning systems are highly complex information systems. The implementation of these
systems is a challenging and high cost proposition that places tremendous demands on corporate
time and resources. Many ERP implementations have been categorized as failures because they
did not accomplish predetermined corporate goals.
true Enterprise Resource Planning system incorporates both internal and external information
flows used by the organization within a single, comprehensive solution. An Enterprise resource
planning solution incorporates the practical systems used by organizations to manage the basic
business functions like planning, inventory/materials management, purchasing, manufacturing,
finance, accounting, human resources, marketing and sales, services etc. The objective of the
Enterprise resource planning solution is to drive the flow of information between all internal
business functions as well as managing functions related to outside stakeholders.
Enterprise resource planning system is implemented in organization to provide more precise
information and safe time, decrease asset costs and financial cycles, increase customer
satisfaction, and globally assimilate information across the enterprise supply chain. ERP system
use relational database technology to incorporate various units of an organization's information

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system which integrated all business process and sub-processes related and combined into a
single system. This process is designed to focus on four main areas in a firm such as financial,
human resources, marketing and supply chain management. Irrespective of the alignment,
characteristically, Enterprise resource planning solutions use a common database to hold
information from the numerous business functions that is accessible in some form or another by
different customers. The use of an integrated database to manage the solution's multi-module
application framework within a common information system is one of the primary ERP benefits.
Enterprise resource planning systems are basically software systems for business management,
incorporating modules supporting functional areas such as planning, manufacturing, sales,
marketing, distribution, accounting, financial, human resource management, project
management, inventory management, service and maintenance, transportation and e-business.
The planning of the software enables clear integration of modules, providing flow of information
between all functions within the enterprise in a steadily visible manner.
Management practitioners and experts described that Enterprise resource planning systems are
computer-based systems designed to process an organization's transactions and facilitate
integrated and real-time planning, production, and customer response (O'Leary, 2001).
The concept of the ERP system, Davenport, 1998

The development towards ERP: In the decade of 1960s, main focus of manufacturing systems
was to control inventory. Companies could afford to keep lots of ''just-in-case'' inventory on hand
to fulfil the needs of customer and gain competitive advantage in market. Subsequently,
techniques focused on effective way to manage huge inventory. Most software packages were
designed to manage inventory based on conventional inventory concepts (Schragenheim, 2000).
In the decade of 1970s, it became apparent that companies could no longer afford the luxury high

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cost of maintaining large quantities of inventory. This led to the introduction of material
requirements planning (MRP) systems. MRP signified a huge step forward in the materials
planning process. By the use of accurate inventory record files, the available quantity of on-hand
or scheduled-to-arrive materials could then be used to decide net material requirements. This
prompted an activity such as placing an order, cancelling an existing order, or modifying the
timing of existing orders. For the first time in manufacturing, there was a formal mechanism for
keeping priorities valid in a fluctuating manufacturing environment. The capability of the
planning system to methodically and efficiently schedule all parts was a major step forward for
productivity and quality (Oden, 1993).
Enterprise Resource Planning system was first evolved in the late 1980s and the beginning of the
1990s with the power of enterprise-wide inter-functional management and integration. Based on
the technological foundations of MRP and MRP II, Enterprise Resource Planning systems
assimilate business processes including manufacturing, distribution, accounting, financial,
human resource management, project management, inventory management, service and
maintenance, and transportation, providing accessibility, visibility and consistency across the
enterprise. In the period of the 1990s, ERP vendors added more modules and functions as "add-
ons" to the core modules which created extended ERPs. These Enterprise Resource Planning
extensions include advanced planning and scheduling (APS), e-business solutions such as
customer relationship management (CRM) and supply chain management (SCM).
Evolution of ERP

Enterprise Resource Planning system is required by all types of firms and can be used in any
kind of organization, regardless of the business objectives, size, and area of operations.
Enterprise Resource Planning improves the efficiency of the average existing work process. In
contemporary business world, without ERP system, organizations cannot operate their business
function competitively. The main reason for this is because it can be configured to accommodate
different work processes and this lead it to become popular not only in large corporations but
medium companies also often used it because it provides a seamless incorporation of their
business. During the 1990s, Global 2000 companies spent huge amount in implementing
Enterprise Resource Planning systems (Dan Everett, 2003).
Major features of enterprise resource planning: ERP systems alter disparate, complex, and
fragmentary sets of data into a clear and logically structured format which helps decision-makers
to take action to manage the material in a quick manner. ERP also facilitates sophisticated

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processes which allow firms to assume complex volume and timing decisions relating both to the
present and future. Main features of ERP are as follows:

1. Enterprise resource planning provides multi-platform, multi-facility, multi-mode

manufacturing, multi-currency, multi-lingual facilities.
2. This system supports strategic and business planning activities, operational planning and
execution activities, creation of Materials and Resources.
3. Enterprise resource planning cover all functional areas like manufacturing, selling and
distribution, payables, receivables, inventory, accounts, human resources, purchases.
4. Enterprise resource planning performs major activities and increases customer service,
thereby enhancing the corporate image.
5. Enterprise resource planning bridges the information gap across organisations.
6. Enterprise resource planning provides complete integration of systems not only across
departments but also across companies under the same management.

Implementation steps in ERP: Enterprise Resource Planning systems can be multifaceted and
difficult to implement, but a structured and well-organized approach can facilitate the
implementation. There are numerous steps for an effective implementation of Enterprise
Resource Planning (Ptak, 2000).

1. Review the pre-implementation process to date. Make sure the system selection process
has been satisfactorily completed and all factors critical to implementation success are in
place.
2. Install and test any new hardware. Before attempting to install any software, it is essential
to make sure that the hardware is reliable and is running as expected.
3. Install the software and perform the computer room pilot. A technical support person
from the software supplier will often install the software and run a few tests to make sure
it is installed correctly.
4. Attend system training. Software training will teach users the keystrokes and transactions
required to run the system.
5. Train on the conference room pilot. The conference room pilot exercises the systems and
tests the users understanding of the system. The project team creates a skeletal business
case test environment which takes the business processes from the beginning, when a
customer order is received, to the end, when the customer order is shipped.
6. Establish security and necessary permissions. Once the training phase is finished, during
the conference room pilot, begin setting the security and permissions necessary to ensure
that everyone has access to the information they need.
7. Ensure that all data bridges are sufficiently robust and the data are sufficiently accurate.
The data brought across from the old system must be sufficiently accurate for people to
start trusting the new system.
8. Document policies and procedures. The policy statement is a statement of what is
intended to be accomplished. The procedural steps to accomplish that statement may be
detailed in a flowchart format.
9. Bring the entire organization on-line, either in a total cutover or in a phased approach. In
a ''cold turkey'' approach, the whole company is eventually brought onto the new system.
The entire company prepares for the cutover date, which would preferably be during a
plant shutdown of one to two weeks. In a phased approach, modules/products/plants are
brought on-line sequentially.

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After the first module/product/plant is live, procedures may be refined and adjusted, then
the remaining modules/products/plants are sequentially implemented. The phased
approach may allow for improvements to be made during the implementation.

10. Celebrate. This can be the most important step. The company has just completed a major
project, the celebration recognizes this, and clearly demonstrates the importance of the
project to the organization.
11. Improve continually. The organization can only engage a limited amount of change
during a finite time period. Change is an on-going process, successful companies
understand this, and encourage their employees to use the system to continue to improve.

Advantages:
Major advantage of implementing ERP system is, it helps organization to decrease costs and
cycle time, increase the productivity and quality and improve the customer service by automating
basic and repetitive operations. Enterprise Resource Planning systems automatically assess the
demand for a product, order the raw materials, provide production schedules, track down the
entire inventory, allocate costs, and keep historical customer. The ERP systems repeat all the
operation and keep the information so that company can analyse the impact of changes in
product mix and volumes in order to maximize corporate profit margins. Enterprise Resource
Planning systems also offer informational benefits to management. ERP system helps an
organization to accomplish better resource management for instance, in workforce management
improved the manpower allocation, in inventory management, improved inventory turn and
stock allocation, in production management, optimized supply chain and production schedules. It
also helps in taking wise decision by increase the market responsiveness, has a better profit and
also controls the cost and also flexible the customer services, increase the service adjustment and
response customer demand.
Enterprise Resource Planning systems also offer E-business by using the web integration
capability. It provides benefit to business to business (B2B) interactive customer service, for
example through customer directs feedback, it can improve product design, and most importantly
deliver real time and reliable data enquiries.
In brief, ERP provide following advantages to firms:

1. ERP enhances business process efficiency

2. It offers a platform for improved communication channels which enable speedier actions
between units.
3. It is a mechanism for seeing the organizational whole and not simply distinct parts of the
overall business.
4. ERP facilitates an all-encompassing and seamless merging of the entire supply chain
network

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Benefits of ERP

Limitations of Enterprise Resource Planning: The disadvantage for implementing Enterprise

Resource Planning system is the high cost of installation. The ERP system be installed by ERP
consulting organization and the fees to modify the system is also expensive (Benjamin B. Bae,
and Paul Ashcroft, 2004). Besides that, installing an Enterprise Resource Planning systems take a
long period. "ERP system is an intricate system and it often takes 12-18 months to be installed
and operating (Benjamin B. Bae, and Paul Ashcroft, 2004). It takes longer period because a
thorough study must be made and reviewed before installing Enterprise Resource Planning
system to match the business requirement. If there is any mistake in planning of ERP systems, it
will affect the whole performance system. Some management consultant has indicated that
Enterprise Resource Planning systems are inflexible and does not meet specific organization and
industry requirements (Booth et al., 2000).
Table: Drawbacks of ERP
To summarize, Enterprise Resource Planning has emerged as the major option for enterprise
management systems among software such as SAP, Oracle and Microsoft, and from the small
software developers in their own places. Enterprise Resource Planning software is composed of
many software components. Each component represent major functional area of organization
such as Logistics, Production, Finance, Accounting and Human Resources.

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SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) is the broad range of activities required to plan, control and
execute a product's flow, from acquiring raw materials and production through distribution to the
final customer, in the most streamlined and cost-effective way possible.

SCM encompasses the integrated planning and execution of processes required to optimize the
flow of materials, information and financial capital in the areas that broadly include demand
planning, sourcing, production, inventory management and storage, transportation --
or logistics -- and return for excess or defective products. Both business strategy and specialized
software are used in these endeavors to create a competitive advantage.

Supply chain management is an expansive, complex undertaking that relies on each partner --
from suppliers to manufacturers and beyond -- to run well. Because of this, effective supply
chain management also requires change management, collaboration and risk management to
create alignment and communication between all the entities.

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In addition, supply chain sustainability -- which covers environmental, social and legal issues, in
addition to sustainable procurement -- and the closely related concept of corporate social
responsibility -- which evaluates a company's effect on the environment and social well-being --
are areas of major concern for today's companies.

Logistics vs. supply chain management

The terms supply chain management and logistics are often confused or used synonymously.
However, logistics is a component of supply chain management. It focuses on moving a product
or material in the most efficient way so it arrives at the right place at the right time. It manages
activities such as packaging, transportation, distribution, warehousing and delivery.

In contrast, SCM involves a more expansive range of activities, such as strategic sourcing of raw
materials, procuring the best prices on goods and materials, and coordinating supply chain
visibility efforts across the supply chain network of partners, to name just a few.

Supply Chain Management can be defined as the management of flow of products and services,
which begins from the origin of products and ends at the product’s consumption. It also
comprises movement and storage of raw materials that are involved in work in progress,
inventory and fully furnished goods. The main objective of supply chain management is to
monitor and relate production, distribution, and shipment of products and services. This can be
done by companies with a very good and tight hold over internal inventories, production,
distribution, internal productions and sales.

Supply chain management basically merges the supply and demand management. It uses
different strategies and approaches to view the entire chain and work efficiently at each and
every step involved in the chain. Every unit that participates in the process must aim to minimize
the costs and help the companies to improve their long term performance, while also creating
value for its stakeholders and customers. This process can also minimize the rates by eradicating
the unnecessary expenses, movements and handling. Here we need to note that supply chain
management and supply chain event management are two different topics to consider. The
Supply Chain Event Management considers the factors that may interrupt the flow of an effective
supply chain; possible scenarios are considered and accordingly, solutions are devised for them.

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Supply Chain Management–Advantages

In this era of globalization where companies compete to provide the best quality products to the
customers and satisfy all their demands, supply chain management plays a very important role.
All the companies are highly dependent on effective supply chain process. Let’s take a look at
the major advantages of supply chain. The key benefits of supply chain management are as
follows: Develops better customer relationship and service.

 Creates better delivery mechanisms for products and services in demand with

 minimum delay. Improvises productivity and business functions

. Minimizes warehouse and transportation costs

. Minimizes direct and indirect costs

. Assists in achieving shipping of right products to the right place at the right time

. Enhances inventory management, supporting the successful execution of just-intime

 stock models. Assists companies in adapting to the challenges of globalization, economic

 upheaval, expanding consumer expectations, and related differences. Assists companies in

minimizing waste, driving out costs, and achieving efficiencies throughout the supply chain
process.

Supply Chain Management –Goals

Every firm strives to match supply with demand in a timely fashion with the most efficient use
of resources. Here are some of the important goals of supply chain management:

1 Supply chain partners work collaboratively at different levels to maximize resource

productivity, construct standardized processes, remove duplicate efforts and minimize inventory
levels. Minimization of supply chain expenses is very essential, especially when there are

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 economic uncertainties in companies regarding their wish to conserve capital. Cost efficient
and cheap products are necessary, but supply chain managers need

 to concentrate on value creation for their customers.

Exceeding the customers’ expectations on a regular basis is the best way to satisfy them.
Increased expectations of clients for higher product variety, customized goods, off-season
availability of inventory and rapid fulfillment at a cost comparable to in-store offerings should be
matched.

To meet consumer expectations, merchants need to leverage inventory as a shared resource and
utilize the distributed order management technology to complete orders from the optimal node in
the supply chain.

Lastly, supply chain management aims at contributing to the financial success of an enterprise.
In addition to all the points highlighted above, it aims at leading enterprises using the supply
chain to improve differentiation, increase sales, and penetrate new markets. The objective is to
drive competitive benefit and shareholder value.

SCM – Process

Supply chain management is a process used by companies to ensure that their supply chain is
efficient and cost-effective. A supply chain is the collection of steps that a company takes to
transform raw materials into a final product. The five basic components of supply chain
management are discussed below:

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Plan

The initial stage of the supply chain process is the planning stage. We need to develop a plan or
strategy in order to address how the products and services will satisfy the demands and
necessities of the customers. In this stage, the planning should mainly focus on designing a
strategy that yields maximum profit. For managing all the resources required for designing
products and providing services, a strategy has to be designed by the companies. Supply chain
management mainly focuses on planning and developing a set of metrics.

Develop (Source)

After planning, the next step involves developing or sourcing. In this stage, we mainly
concentrate on building a strong relationship with suppliers of the raw materials required for
production. This involves not only identifying dependable suppliers but also determining
different planning methods for shipping, delivery, and payment of the product.

Companies need to select suppliers to deliver the items and services they require to develop their
product. So in this stage, the supply chain managers need to construct a set of pricing, delivery
and payment processes with suppliers and also create the metrics for controlling and improving
the relationships.

Finally, the supply chain managers can combine all these processes for handling their goods and
services inventory

This handling comprises receiving and examining shipments, transferring them to the
manufacturing facilities and authorizing supplier payments.

Make

The third step in the supply chain management process is the manufacturing or making of
products that were demanded by the customer. In this stage, the products are designed, produced,
tested, packaged, and synchronized for delivery. Here, the task of the supply chain manager is to
schedule all the activities required for manufacturing, testing, packaging and preparation for

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delivery. This stage is considered as the most metric-intensive unit of the supply chain, where
firms can gauge the quality levels, production output and worker productivity.

Deliver

The fourth stage is the delivery stage. Here the products are delivered to the customer at the
destined location by the supplier. This stage is basically the logistics phase, where customer
orders are accepted and delivery of the goods is planned. The delivery stage is often referred as
logistics, where firms collaborate for the receipt of orders from customers, establish a network of
warehouses, pick carriers to deliver products to customers and set up an invoicing system to
receive payments.

Return

The last and final stage of supply chain management is referred as the return. In the stage,
defective or damaged goods are returned to the supplier by the customer. Here, the companies
need to deal with customer queries and respond to their complaints etc. This stage often tends to
be a problematic section of the supply chain for many companies. The planners of supply chain
need to discover a responsive and flexible network for accepting damaged, defective and extra
products back from their customers and facilitating the return process for customers who have
issues with delivered products.

SCM – Process flow

There are three different types of flow in supply chain management:

Material flow

 Information/Data flow

 Money flow

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Material Flow Material flow includes a smooth flow of an item from the producer to the
consumer. This is possible through various warehouses among distributors, dealers and retailers.
The main challenge we face is in ensuring that the material flows as inventory quickly without
any stoppage through different points in the chain. The quicker it moves, the better it is for the
enterprise, as it minimizes the cash cycle. The item can also flow from the consumer to the
producer for any kind of repairs, or exchange for an end of life material. Finally, completed
goods flow from customers to their consumers through different agencies. A process known as
3PL is in place in this scenario. There is also an internal flow within the customer company.

Information Flow

Information/data flow comprises the request for quotation, purchase order, monthly schedules,
engineering change requests, quality complaints and reports on supplier performance from
customer side to the supplier.

From the producer’s side to the consumer’s side, the information flow consists of the
presentation of the company, offer, confirmation of purchase order, reports on action taken on
deviation, dispatch details, report on inventory, invoices, etc.

For a successful supply chain, regular interaction is necessary between the producer and the
consumer.

In many instances, we can see that other partners like distributors, dealers, retailers, logistic
service providers participate in the information network. In addition to this, several departments
at the producer and consumer side are also a part of the information loop.

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Here we need to note that the internal information flow with the customer for in-house
manufacture is different

Money Flow

On the basis of the invoice raised by the producer, the clients examine the order for correctness.
If the claims are correct, money flows from the clients to the respective producer. Flow of money
is also observed from the producer side to the clients in the form of debit notes.

In short, to achieve an efficient and effective supply chain, it is essential to manage all three
flows properly with minimal efforts.

It is a difficult task for a supply chain manager to identify which information is critical for
decision-making. Therefore, he or she would prefer to have the visibility of all flows on the click
of a button.

Have you come across the term ‘Supply Chain Management’? It sounds like jargon, doesn’t it?
Well, it isn’t so difficult to understand and most manufacturing industries indulge in it
today. Supply chain management is the process of managing the development of finding
suitable raw material, processing it, and converting it into something valuable or useful that
could be sold to the market.
The better a company is at managing its resources, processing and locating its raw materials, and
working on them, the entire production process might constitute a simple supply chain
management case study.
According to CIO Magazine,
Supply chain management (SCM) is the combination of art and science that goes into improving
the way your company finds the raw components it needs to make a product or service and
deliver it to customers. The following are five basic components of SCM:
 Plan
 Source
 Make
 Deliver
 Return
Supply chain management has a lot of visible and also invisible elements to it. The glamorous
parts might probably be the vendor management and the like. It is the invisible parts of the
supply chain that attain the status of primary importance. Things like labor management,
procurement, warehouse management, order processing, fulfillment and delivery.
The importance of supply chain management has been growing steadily over the recent
years and more so because of the fact that the companies have been growing larger and larger.
Because of this recent growth, the companies gain more cost efficiency when they outsource
some of the functions they ought to do in-house to other specialized service companies. This

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enables the larger companies to be more flexible, focus more on their core competencies, and
create more value for their customers, while retaining profits by reducing costs at the same time.
The Internet has made it possible to automate some of a company’s supply chain management
elements with the help of supply chain management software.
The extended supply chain, which contains the vendors and their vendors network, has always
been a critical link in the new era of modern supply management where everything boils down to
cost cutting so the process can create value for the customer.
Team Quality Services takes pride in our excellent service and software. Schedule a demo today
to push your company above and beyond.

Objective

• Maximise the overall value generated – is the difference between what the final product is
worth to the customer and the effort the supply chains expends in filling the request of the
customer

• Supply chain profitability is the difference between the revenue generated from the customer
and the overall cost across the supply chain

• It is the total profit to be shared across all supply chain stages

• Supply chain success is measured in terms of supply chain profitability and not in terms of the
profits at an individual stage

• Revenue is from customer – positive cash flow

• All other cash flows are simply fund exchanges that occur within the supply chain given that
different stages have different owners

• All flows of information, product or funds generates costs within the supply chain

• Supply chain management involves the management of flows between and among stages in a
supply chain to maximise total supply chain profitability Decision Phases Three categories -
Depending on the frequency of each decision

Decision Phases Three categories

- Depending on the frequency of each decision and the time frame over which a decision has an
impact, Supply chain strategy

or design Supply chain planning

Supply chain operation

Supply chain strategy

• Decides how to structure the supply chain over the next several years

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- chain configuration,

- resource allocated and –

process at each stage should perform

• Decisions include

- location and capacities of production and warehousing facilities,

- the products to be manufactured or stored at various locations,

- the method of transportation to be made available along different shipping legs,

And

- the type of information system to be utilised

Supply chain planning

• Under the given configuration decisions are made which has impact on a time frame of quarter
to a year

• Starts with a forecast the coming year or a comparable time frame

• Planning decisions include

– which market will be supplied from which locations,

the subcontracting for manufacturing,

– the inventory policies to be followed, and

– the timing and size of marketing promotions

• Companies in the planning phase try to incorporate any flexibility built into the supply chain in
the design phase and exploit it to optimise performance

• Companies define a set of operating policies that govern short-term operations Supply chain
operation

• Decisions are taken regarding individual customer order and the time frame is week or days

• Configuration is fixed and policies are defined

• Objective is to handle incoming customer orders in the best possible manner

• Decisions related with

– allocation of inventory or production to individual orders,

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– set a date that an order is to be filled,

– generate pick lists at a warehouse

, – allocate an order to a particular shipping mode and shipment,

– set delivery schedules of trucks, and

– place replenishment order

• Exploit the reduction in uncertainty and optimise performance

Process View of Supply Chain

• A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product

• Two ways to view the processes performed in a supply chain Cycles view and Push/pull view

Cycle view

• Defines the processes involved and the owners of each process

• Process in a supply chain are divided into a series of cycles

• Cycles are performed at the interface between two successive stages of a supply chain

• Supply chain process can be broken down into four process cycles such as

– Customer order cycle

– Replenishment cycle

– Manufacturing cycle

– Procurement cycl

• Each cycles occurs at the interface between two successive stages of the supply chain

• A cycle view of the supply chain is very useful when considering operational decisions

• It clearly specifies the roles and responsibilities of each member of the supply chain

• It helps the designer to consider the infrastructure required to support the processes

Supplier

Manufacture

r Distributor

Retailer

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SCM – Decision Phases

Decision phases can be defined as the different stages involved in supply chain management for
taking an action or decision related to some product or services. Successful supply chain
management requires decisions on the flow of information, product, and funds that fall into three
decision phases. Here we will be discussing the three main decision phases involved in the entire
process of supply chain. The three phases are described below:

Supply ChainStrategy

In this phase, decision is taken by the management mostly. The decision to be made considers
the sections like long term prediction and involves price of goods that are very expensive if it
goes wrong. It is very important to study the market conditions at this stage.

These decisions consider the prevailing and future conditions of the market. They comprise the
structural layout of supply chain. After the layout is prepared, the tasks and duties of each is laid
out. All the strategic decisions are taken by the higher authority or the senior management.

These decisions include deciding manufacturing the material, factory location, which should be
easy for transporters to load material and to dispatch at their mentioned location, location of
warehouses for storage of completed product or goods and many

Supply Chain Planning Supply

chain planning should be done according to the demand and supply view. In order to understand
customers’ demands, a market research should be done. The second thing to consider is
awareness and updated information about the competitors and strategies used by them to satisfy
their customer demands and requirements.

As we know, different markets have different demands and should be dealt with a different
approach. This phase includes it all, starting from predicting the market demand to which market
will be provided the finished goods to which plant is planned in this stage.

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All the participants or employees involved with the company should make efforts to make the
entire process as flexible as they can. A supply chain design phase is considered successful if it
performs well in short-term planning.

Supply Chain Operations

The third and last decision phase consists of the various functional decisions that are to be made
instantly within minutes, hours or days.

The objective behind this decisional phase is minimizing uncertainty and performance
optimization. Starting from handling the customer order to supplying the customer with that
product, everything is included in this phase. For example, imagine a customer demanding an
item manufactured by your company. Initially, the marketing department is responsible for
taking the order and forwarding it to production department and inventory department.

The production department then responds to the customer demand by sending the demanded
item to the warehouse through a proper medium and the distributor sends it to the customer
within a time frame. All the departments engaged in this process need to work with an aim of
improving the performance and minimizing uncertainty.

SCM – Performance Measures

Mostly the measures taken for measuring the performance may be somewhat similar to each
other, but the objective behind each segment is very different from the other. Quantitative
measures is the assessments used to measure the performance, and compare or track the
performance or products. We can further divide the quantitative measures of supply chain
performance into two types. They are:

Non-financial measure

 Financial measures

Non-Financial Measures The metrics of non-financial measures comprise cycle time, customer
service level, inventory levels, resource utilization ability to perform, flexibility, and quality. In
this section, we will discuss the first four dimensions of the metrics

: Cycle Time

Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a
business process. For supply chains, cycle time can be defined as the business processes of
interest, supply chain process and the order-to-delivery process. In the cycle time, we should
learn about two types of lead times. They are as follows:

Supply chain lead time

 Order-to-delivery lead time

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 The order-to-delivery lead time can be defined as the time of delay in the middle of the
placement of order by a customer and the delivery of products to the customer. In case the item
is in stock, it would be similar to the distribution lead time and order management time.

If the ordered item needs to be produced, it would be the summation of supplier lead time,
manufacturing lead time, distribution lead time and order management time.

The supply chain process lead time can be defined as the time taken by the supply chain to
transform the raw materials into final products along with the time required to reach the products
to the customer’s destination address.

Hence it comprises supplier lead time, manufacturing lead time, distribution lead time and the
logistics lead time for transport of raw materials from suppliers to plants and for shipment of
semi-finished/finished products in and out of intermediate storage points.

Lead time in supply chains is governed by the halts in the interface because of the interfaces
between suppliers and manufacturing plants, between plants and warehouses, between
distributors and retailers and many more.

Lead time compression is a crucial topic to discuss due to the time based competition and the
collaboration of lead time with inventory levels, costs, and customer service levels

Customer Service Level

The customer service level in a supply chain is marked as an operation of multiple unique
performance indices. Here we have three measures to gauge performance. They are as follows:

Order fill rate:

The order fill rate is the portion of customer demands that can be easily satisfied from the stock
available. For this portion of customer demands, there is no need to consider the supplier lead
time and the manufacturing lead time. The order fill rate could be with respect to a central
warehouse or a field warehouse or stock at any level in the system.

Stockout rate: It is the reverse of order fill rate and marks the portion of orders lost because of
a stockout.

Backorder level: This is yet another measure, which is the gauge of total number of orders
waiting to be filled.

Probability of on-time delivery: It is the portion of customer orders that are completed on-
time, i.e., within the agreed-upon due date. In order to maximize the customer service level, it is
important to maximize order fill rate, minimize stockout rate, and minimize backorder levels

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Lean manufacturing

What is lean manufacturing?, if you look through the Internet to discover a definition of
lean you will find many different suggestions, some of a few sentences, others that run to many
pages. Lean is a Philosophy for business success as well as a large collection of proven tools.
However, read some of these definitions, the reason I say to do so is because I am very
disappointed with regard to how many of these are written. Most miss the main point of lean,
they on the whole define lean as being a process of waste elimination, in some ways this is
correct but it misses some of the major and most important parts of lean.
If you only focus on an internally focused drive to eliminate waste, a process generally of cost
reduction and labour elimination to reduce costs and increase profits, you forget the first and
most important part of lean; what is value to the customer? The selfish drive to reduce costs
wrongly assumes value on the part of the customer and the organisation tends to become not lean
but anorexic! They remove the ability to be able to react to customer changes, to adapt when
there are supplier and internal problems. Because of this companies that "have done lean"
quickly revert to the way they were before the improvements, bringing back old inefficient
processes to cover over other issues and rehiring the labour that they removed, lean being put on
the discard pile of management fads.
Lean is Customer First, what is value in the eyes of the customer? What features and services
does the customer want? When do they want them and what price do they want to pay? Without
this information how can you design your ideal system?
This value needs to be made to flow from raw materials through to the consumer, this value
stream needs to produce product at the pull of the customer. This is Just In Time manufacturing
(JIT), producing what the customer wants when they want it!
Once you have the customer defined value flowing at the pull of the customer you strive for
perfection, improving everything that you can about the product and process.
This is done by all within your organisation, lean values respect for people, involves everyone in
the company to help meet customer value.
If you follow this process you will not be going through a process of waste elimination and
reduction but a more important process of waste prevention! So if you want to implement lean
manufacturing you must not just focus internally to impress your board and make short term
gains, but focus on the customer to make sustainable changes that will help your company
flourish in today's world, not just struggle to survive.
The lean tools such as 5S or 5C, seven wastes, Single Minute Exchange of Die (SMED), Value
Stream Mapping etc. are all important parts of lean manufacturing but they are not the end of the
story, you need to get lean training or find a lean consultant if you want to truly learn how to
implement lean manufacturing.
Lean Production or Lean Manufacturing is a manufacturing/production system best
characterized as relentlessly eliminating waste from all of its’ activities and operations. Lean
strives to produce products (and deliver services):
 On-Time
 Using as few resources as possible
 Better than competitors

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 Faster & Cheaper than competitors

 While Eliminating as Much Waste as Possible
Lean Manufacturing is the “umbrella” under which many manufacturing improvement
tools are housed. Some examples include:
 SMED: Single Minute Exchange of DIE
 TPM: Total Productive Maintenance
 5S: Visual Workplace or Visual Factory
 KanBan: Work Signaling System
 2-Bin: Materials Replenishment system
 Error & Mistake-Proofing: A perfect process tool
 Level-Loading (Heijunka): For producing mixed quantities and styles of products
 Inventory Reduction
 Kaizen Events (a.k.a. Kaizen Blitzes or Improvement Events)
 Continuous Improvement (and “Lean Culture Change”)
 (And the list goes on…)
A Few More Thoughts on Lean Manufacturing…
There are some popular ways to begin Implementing Lean Manufacturing. These include
creating a “Value Stream Map” (VSM) and focusing your initial efforts on a critical area of your
company. This can be followed by sequentially addressing the elements in the VSM according to
priority and greatest “bang-for-the-buck” opportunities.

Others will start their Lean Manufacturing Process by implementing a 5S Visual Workplace
system in order to “clean things up” before they engage in major improvement events. In some
cases a 5S event is absolutely needed before many of the other Lean Manufacturing Tools can
begin…we’ve seen that a time or two over the years!

Lean Manufacturing can also be initialized and driven, by putting a focus on Inventory
Reduction. We have used this approach to getting Lean many times, as inventory, in its’ many
forms, will often point to wastes that exist even in a fairly Lean environment.

TOC or (Theory of Constraints) is another framework used to help companies begin their Lean
Implementation. Although TOC is a different approach than Lean, it is not wholly incompatible
with Lean Principles. In many ways the main “Constraint” of a company, as well as many of its’
“Bottlenecks,” will be among the very highest priorities when Lean Manufacturing efforts are
begun, and throughout the entire Lean Implementation process. We see many parallels and much
compatibility between Lean Manufacturing and TOC.

In truth, there are unlimited ways to begin and facilitate the implementation of your Lean
Manufacturing Program. Although we encourage companies to start their Lean efforts with
something that will make a major, even bottom-line difference, it is more important to start
getting Lean, than to talk about getting Lean year after year as some companies do.

Widely adopted throughout the world, and gaining ground in less industrialized nations, Lean
Manufacturing has become a global standard or set of practices which virtually all companies
must adopt in order to be competitive in a global economy.

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Beyond the “need” to compete globally, Lean Manufacturing Principles and Processes (even the
Lean Mindset) empowers and motivates employees to engage in the betterment of their
respective companies. And no kidding, helping your company implement Lean Manufacturing is
also great fun, and a tremendous achievement

For all that was said about Lean in this brief article, there is much more that hasn’t been said. If
your company needs to be more competitive, improve bottom-line results, and truly engage your
workforce in its’ improvement, Lean Manufacturing is the best system available to help you
reach those goals.

Lean Manufacturing Definition

My own personal definition of Lean Manufacturing is as follows;
“Providing total satisfaction to your customers by pulling value from the value stream when
required by your customers using the minimum amount of resources. This is achieved through
the involvement and respect of all employees and is a never ending journey towards perfection.”
It is difficult to define Lean in just a few sentences as Lean encompasses so much. Lean is about
creating value, it is about customer service, it is about revolution and evolution of your systems
and processes, it is a journey towards success.
If you want your company to thrive not just struggle to survive in this global economy then Lean
techniques are core.

What is Lean Manufacturing?

Womack and Jones define 5 main principles of Lean

Manufacturing;
1. Define Value as Perceived by the Customer
2. Identify the Value Stream
3. Make the Value Stream Flow
4. Flow at the Pull of the Customer
5. Strive for Perfection
These principles form the Backbone of Lean Manufacturing and are achieved through respecting
and involving your workforce in every aspect of your business.
Many people define Lean as being about eliminating waste, while in some ways they are right,
Lean is more about preventing waste. By implementing the lean principles above you identify
those actions that add value and make them flow at the pull of the customer, this prevents the
waste from occurring. Lean is not a hunt for waste it is a journey to add value.
Whilst Lean Manufacturing has a huge toolbox of tools and techniques you cannot define Lean

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Manufacturing from those tools. Lean is more than the sum of all of those tools, applying tools in
isolation will not necessarily give you the benefits that you would expect and want to see.

What is Lean?
The core idea of lean manufacturing is actually quite simple…relentlessly work on eliminating
waste from the manufacturing process.

So what is waste? Waste is defined as any activity that does not add value from the customer’s
perspective. According to research conducted by the Lean Enterprise Research Centre (LERC),
fully 60% of production activities in a typical manufacturing operation are waste – they add no
value at all for the customer.

The good news is that just about every company has a tremendous opportunity to improve,
using lean manufacturing techniques and other manufacturing best practices. Techniques that
enable you to deliver higher quality products at significantly lower costs. Now that is
something to get excited about!

It can be difficult to find reliable and well-written information about improvement techniques
for manufacturing. So, our goal is to provide you with the absolute best source of easy-to-
understand information for helping you improve the efficiency, effectiveness, and profitability
of your manufacturing operations.

With that in mind, we have designed each topic on this site to be self-contained and to stand on
its own. If you want to learn about a topic, simply forge ahead and read about it. We have
worked to make it particularly easy to explore the topics that are of most interest to your
situation.
The Standard definitions

There are a number of standard Lean Manufacturing Definitions……..

“Lean is a Business philosophy that continuously shortens the time between customer order and
shipment by eliminating anything that increases the cost of production and time of delivery to
customers.” – Eaton Corporation

“Lean Manufacturing is an operational strategy oriented toward achieving the shortest possible
cycle time by eliminating waste.” – Rockford Consulting

“the philosophy of continually reducing waste in all areas and in all forms; an English phrase
coined to summarize Japanese manufacturing techniques (specifically, the Toyota Production
System).” – Beyond Lean

“A passionate belief that there’s always a simpler, better way…continuous drive to identify and
eliminate WASTE”

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The common theme

Pretty much, wherever you go in your search for the ideal Lean Manufacturing Definition, there
are commonalities. The following pointers tend to spring up:

 Elimination of waste
 Shorten Lead Times
 Strategy or Philosophy
Strategic

Lean must be strategic: It has to be implemented as part of a business strategy, and therefore
deployed in the organisation using a structured approach. This advance takes time, as it must
address the hardest part: cultural change.

Elimination of Waste

Through a relentless pursuit to eliminate waste, operations can be conducted more efficiently and
at less cost. There are real productivity gains to be made, and some typical productivity
improvements can be increased by 40%+. An efficient process means an agile one – which can
quickly adapt to customer demands.

Shorten Leadtimes

If you eliminate NVA in your business processes and end to end value streams, you will shorten
Leadtimes. That means, the time it takes to produce a product or service will shorten.

By shortening leadtimes and removing waste, your operations will be more efficient, therefore
your margins should increase and your operation becomes a great deal more competitive than
before.

Lean Manufacturing Principles

The five lean manufacturing principles are;
 Specify Value - as seen by the Customer
 Identify and Create Value Streams
 Make the Value flow from raw material to Customer
 Pull Production not Push
 Strive for Perfection
It is these five principles that form the backbone of any lean definition, not just the constant
removal of waste, the Lean Manufacturing definition must be more based on the creation of a
value stream flow meeting the needs of the customer to prevent the creation of waste.
These 5 principles were first described within the book "The Machine that Changed the World"
which was written around the MIT study of the success of Toyota as an automotive
manufacturer.

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The Pillars of Lean Manufacturing

Lean is JIT, Jidoka and respect for people built on a firm foundation of 5S and TPM

The House of Lean

Toyota depict their production system as a house with supporting pillars.
Lean has to be built on a solid foundation; this foundation is provided by 5S and Total
Productive Maintenance which provides you with reliable and predictable processes and
standardized operations. Without this stable base you cannot build a strong company that will
satisfy your customers.
The main pillars of Lean then are Jidoka (Built in Quality) and Just in Time (JIT), these are
supported by the participation of all staff within the company. Every individual is respected and
expected to perform as part of the team to continually improve every aspect of the business
through Kiazen.
All of this is focused on satisfying the customers and making the business a success for
everyone.

Agile Manufacturing Vs Lean Manufacturing

Because of some people's perceived view of lean manufacturing as being "mean", there is a
feeling that lean puts companies in a situation where they sacrifice flexibility and speed for extra
profits. However that is only so when Lean is approached as a means for cost reduction only.
If the company focuses on the customer value and the customer needs for the company to be
quick in it's response to change, able to meet wild fluctuations in demand and product variety
then the company will design a system that is Agile! Lean is fast, flexible, flow so it is by
definition Agile!

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Agile manufacturing in my mind is just an attempt by some consultancies/academics to

differentiate themselves from lean to escape the reputation given by poor implementations.

Lean Manufacturing Vs Six Sigma

Many people are trying to decide wether to implement lean manufacturing or six sigma, why
make the choice? Implement both as required!
Each has it's own strengths, hence the push towards "Lean Sigma" in some quarters.
Six Sigma's drive is one of variation reduction to drive waste reduction, it has many tools shared
with lean as well as some more "advanced" statistical tools. Combined with Lean's ability to look
at the "big picture" and establish standard operations the problem solving tools of six sigma
combine to make a very effective combination.
If you can't prevent the waste in the first place through the applications of lean principles then
you can use the six sigma tools to reduce the waste to the point where it barely exists!
The 5 S’s of Lean

The Five Steps of Lean Implementation

The process used to implement lean manufacturing is a straightforward one.However it is critical that lean
is implemented in a logical manner. The stepsassociated in implementing lean follow:
Step 1: Specify ValueDefine value from the perspective of the final customer. Expressvalue in terms of a
specific product, which meets the customer's needs at aspecific price and at a specific time.
Step 2: MapIdentify the value stream, the set of all specific actions required tobring a specific product through
the three critical management tasks of anybusiness: the problem-solving task, the information management task,
and thephysical transformation task. Create a map of the Current State and the FutureState of the value stream.
Identify and categorize waste in the Current State, andeliminate it!
Step 3: FlowMake the remaining steps in the value stream flow. Eliminatefunctional barriers and develop a
product-focused organization that dramaticallyimproves lead-time.
Step 4: PullLet the customer pull products as needed, eliminating the need fora sales forecast.
Step 5: PerfectionThere is no end to the process of reducing effort, time, space,cost, and mistakes. Return to the
first step and begin the next leantransformation, offering a product that is ever more nearly what the customer
wants
poka yoke

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Poka-yoke is a technique for avoiding simple human error in the workplace. Also known as
mistake-proofing, goof-proofing, and fail-safe work methods, poka-yoke is simply a system
designed to prevent inadvertent errors made by workers performing a process. The idea is to take
over repetitive tasks that rely on memory or vigilance and guard against any lapses in focus.
Poka-yoke can be seen as one of the three common components of Zero Defect Quality Control
performed by Japanese companies (source inspection and feedback are the other two).
Dr. Shigeo Shingo, a renowned authority on quality control and efficiency, originally developed
the mistake-proofing idea. Realizing its value as an effective quality control technique, he
formalized its use in Japanese manufacturing as the poka-yoke system. One hundred percent
inspections catch unacceptable products but do nothing to improve the process. Shingo was
emphatic that the purpose of this system be to improve the process not sort out defective parts.
Today, this concept is in wide use in Japan. Toyota Motor Corporation, whose production system
Shingo helped design, averages twelve poka-yoke devices per machine in their manufacturing
plants, thus validating the concept as beneficial to industry. Patel, Dale, and Shaw, in the article
"Set-Up Time Reduction and Mistake Proofing Methods: An Examination in Precision" list the
potential benefits as:

elimination of set-up errors and improved quality

 decreased set-up times with associated reduction in production time and improved
production capacity
 simplified and improved housekeeping
 increased safety
 lower costs
 lower skill requirements
 increased production flexibility
 improved operator attitudes.

In a Quality magazine article, Melissa Larson provides interesting details about benefits resulting
from the implementation of poka-yoke systems at the Supply Support Activity (SSA) at Fort
Carson, Colorado, a military retail supply operation of the U.S. Army.
Inventory, receipt, and batch processing all improved quantifiably. Location survey accuracy was
approximately sixty-five percent prior to implementation. After implementing the use of the bar-
code readers location accuracy increased to ninety-eight percent. Inventory adjustments averaged
$3000 a month. Inventory adjustments dropped to an average of $250 per month.
The rate of incorrect receipt closures to the supplier had been ninety percent. This rate dropped
to zero percent. Batch processing was also significantly improved. Traditionally, the SSA had
approximately fifteen to twenty batch processing failures per month, and a myriad of system file
failures due to operators performing the process out of proper sequence. Since the poka-yoke
implementations, there have been zero batch process failures.
Catalog update improvements also resulted. The error rate was twenty-two percent but dropped
to zero percent. Original request processing time was 12.5 days, but with the new request
processing time is 1.6 days. Actual dollars invested in these activities totaled less than $1000.
A poka-yoke is a mechanism that is put in place to prevent human error. The purpose of a poka-
yoke is to inhibit, correct or highlight an error as it occurs. Poka-yoke roughly means "avoid

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unexpected surprises" or "avoid blunders" in Japanese. In English, a poka-yoke is sometimes

referred to as "mistake-proof" or "fool-proof."

Essentially, a poka-yoke is a safeguard that prevents a process from proceeding to the next step
until the proper conditions have been met. Poka-yokes can be either warning mechanisms
or control mechanisms. Warnings provide an alert that is designed to prevent additional errors or
defects from happening. Control mechanisms stop the next step of a process from occuring.

Automobiles often have a number of poka-yokes to help drivers avoid making mistakes. Should
a driver exit the vehicle but fail to remove the ignition key, for example, many cars are designed
with a poka-yoke that will warn the driver with an auditory alert that he has forgotten his key. To
prevent the driver from accidently locking himself out, some cars also have a control poka-yoke
that prevents the vehicle door from locking when the key is still in the ignition in the off
position.

Poka-yokes have their roots in lean manufacturing and are closely aligned with Six
Sigma methodologies, continuous improvement (kaizen) and the Toyota Way Production
System. The concept of designing process steps to be fool proof was developed by Dr. Shigeo
Shingo, an industrial engineer who was a Toyota consultant and author of "Zero Quality Control:
Source Inspection and the Poka-Yoke System." The concept was originally called baka-yoke,
but Dr. Shingo changed the name to poka-yoke after realizing that the label "fool-proof" was
humiliating to workers. Like kanban and many other lean production concepts, the concept of
poka-yokes has been adopted by many other industries, including software development and
health care.

TYPES OF POKA-YOKES
Poka-yoke is based on prediction and detection. That is, recognizing that a defect is about to
occur or recognizing that a defect has occurred. Consequently, there are two basic types of poka-
yoke systems. The control poka-yoke does not allow a process to begin or continue after an error
has occurred. It takes the response to a specific type of error out of the hands of the operator. For
example, a fixture on a machine may be equipped with a sensing device that will not allow the
process to continue unless the part is properly inserted. A 3.5-inch floppy disk will not work if
inserted backwards or upside down. As a matter of fact, it won't fit into the drive at all unless
properly inserted. A second type of poka-yoke provides some type of warning when an error
occurs. This does not prevent the error, but immediately stops the process when an error is
detected. This type of poka-yoke is useful for mass production environments with rapid
processing as the device prevents mass production of scrapped material. For environments where
large losses of time or resources do not result, a warning poka-yoke is warranted. All that is
needed is a way to ensure that the error is investigated and corrected in a timely manner.

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Poka-yokes can be as simple as a steel pin on a fixture that keeps incorrectly placed parts from
fitting properly, or they can be as complex as a fuzzy logic neural network used to automatically
detect tool breakage and immediately stop the machine. Surprisingly, the simple low-cost
devices tend to be in the majority. Regardless of degree of simplicity, all poka-yokes fall into one
of three categories: contact methods, fixed-value methods, and motion-step methods. Each is
briefly discussed.

CONTACT METHODS.
Contact methods are based on some type of sensing device which detects abnormalities in the
product's shape or dimension and responds accordingly. Interference pins, notches with matching
locator pins, limit switches and proximity switches are sometimes used to ensure that a part is
positioned correctly before work occurs. Asymmetric parts with matching work fixtures can also
alleviate incorrect positioning. If orientation is not critical, symmetrical designs can then be used
to prevent defects.
Contact methods are useful in situations which encourage mistakes. Such situations involve rapid
repetition, infrequent production, or environmental problems such as poor lighting, high or low
heat, excess humidity, dust, noise, or anything which distracts a worker. Paul Dvorak, in "Poka-
Yoke Designs Make Assemblies Mistakeproof," an article appearing in Machine
Design, recommends that the maintenance engineer investigate at least four areas for potential
problems that require contact method solutions:

1. Look for where the product will fail if parts are assembled incorrectly.
2. Look for small features critical to proper assembly.
3. Beware of relying on subtle differences to determine top from bottom or front from back,
especially if the parts are painted dark colors.
4. Beware of designs so complicated that they confuse inexperienced operators.

FIXED-VALUE METHODS.
Fixed-value methods are used in processes where the same activity is repeated several times,
such as tightening of bolts. This method frequently involves very simple techniques, such as
methods that allow operators to easily track how often this activity has been performed. Dvorak
gives the example of an operator who is responsible for tightening down six bolts on a product.
Before passing the product on, the tightening process is performed a fixed number of times (six).
A simple poka-yoke device would incorporate the use of a wrench dipped in diluted paint. Since
untightened bolts will not have paint on them, the operator can easily see if he or she has
performed the process the required number of times. A second example (from Dvorak) would be
the use of packaged material in the exact (fixed) quantities needed to complete the process. If the
bolts were stored in containers of six, the operator could easily see when the process was still
incomplete as the box would still contain one or more bolts.

MOTION-STEP METHOD.
The motion-step method is useful for processes requiring several different activities performed in
sequence by a single operator. This is similar to the fixed-value situation in that the operator is
responsible for multiple activities but instead of performing the same activity multiple times the

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operator performs different activities. First, each step in the

Poka-yokes in manufacturing

In manufacturing, there are three main types of poka-yoke for quality assurance: contact
methods, fixed-value methods and motion-step methods. Each can be a control method or a
warning method. Contact methods rely on sensing device that ascertains whether a product
makes contact with a device. This can be physical, as in a pin that must be placed correctly, or
energetic, wherein photoelectric beams sense something is not positioned correctly.

Fixed-value methods are used when a process must be done a certain number of times or when a
certain number of parts are associated with the completion of a task, for example, bolts that need
tightening a certain number of times or the parts required in package. In fixed-value, a signal is
given or present when the number is reached or the product is released to the next stage upon
completion.

Motion-step methods monitor whether a motion or step has occurred within a certain timeframe
or sequence. An example would be an indicator light that is turned on if a step in a machine cycle
is not done in the proper sequence or timeframe. Motion-step methods typically rely
on sensors and devices to detect that the appropriate actions have occurred. In the indicator light
example, the steps of the machine cycle are all wired to the indicator board and a timer. The light
is triggered if a step has not been completed in time and in sequence.

Implementation in manufacturing[edit]
Poka-yoke can be implemented at any step of a manufacturing process where something can go
wrong or an error can be made.[7] For example, a fixture that holds pieces for processing might
be modified to only allow pieces to be held in the correct orientation,[8] or a digital counter might
track the number of spot welds on each piece to ensure that the worker executes the correct
number of welds.[8]
Shigeo Shingo recognized three types of poka-yoke for detecting and preventing errors in a mass
production system:[3][7]

1. The contact method identifies product defects by testing the product's shape, size, color,
or other physical attributes.
2. The fixed-value (or constant number) method alerts the operator if a certain number of
movements are not made.
3. The motion-step (or sequence) method determines whether the prescribed steps of the
process have been followed.

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Either the operator is alerted when a mistake is about to be made, or the poka-yoke device
actually prevents the mistake from being made. In Shingo's lexicon, the former implementation
would be called a warning poka-yoke, while the latter would be referred to as a control poka-
yoke.[3]
Shingo argued that errors are inevitable in any manufacturing process, but that if appropriate
poka-yokes are implemented, then mistakes can be caught quickly and prevented from resulting
in defects. By eliminating defects at the source, the cost of mistakes within a company is
reduced.[citation needed]
A methodic approach to build up poka-yoke countermeasures has been proposed by the Applied
Problem Solving (APS) methodology,[9] which consists of a three-step analysis of the risks to be
managed:

1. identification of the need

2. identification of possible mistakes
3. management of mistakes before satisfying the need
This approach can be used to emphasize the technical aspect of finding effective solutions during
brainstorming sessions.

Benefits of poka-yoke implementation[edit]

A typical feature of poka-yoke solutions is that they don't let an error in a process happen. But
that is just one of their advantages. Others include:[1]

 Less time spent on training workers;

 Elimination of many operations related to quality control;
 Unburdening of operators from repetitive operations;
 Promotion of the work improvement-oriented approach and actions;
 A reduced number of rejects;
 Immediate action when a problem occurs;
 100% built-in quality control.

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UNIT – IV
Quality management

What Is Quality?

Quality, defined as superiority in kind, doesn't just happen. Think of a company that you believe
is a good example of quality. Perhaps it is Toyota in the automobile industry, or maybe Apple
and its consumer products. Few watches are as mechanically sound as Rolexes, and Armani
makes one of the best suits money can buy.
Each of these organizations has become known for the quality of its products, but each had to
work very hard to get that reputation and has to continue to work hard to maintain it.
Organizations don't achieve quality simply by stating it as a core value; successful organizations
go through a thoughtful and meaningful process to identify and improve their quality
management system. A quality management system is the totality of organizational processes,
people, internal controls, resources, and goals focused on producing a given output that meets
defined specifications.

Examples

A quality management system can be home grown, meaning that an organization defines and
documents all the necessary components of a quality management system without basing it on
any model or framework. In fact, while most organizations do rely on one of the many quality
management models, the most successful companies are those that adapt the model and make it
uniquely theirs.
Popular quality management models or frameworks include ISO 9001, Six Sigma,
ensures that an organization, product or service is consistent. It has four main components:
quality planning, quality assurance, quality control and quality improvement.[1] Quality
management is focused not only on product and service quality, but also on the means to achieve
it. Quality management, therefore, uses quality assurance and control of processes as well as
products to achieve more consistent quality.

Definition
Management activities and functions involved in determination of quality policy and its
implementation through means such as quality planning and quality assurance (including quality
control). See also total quality management (TQM).

definition

Quality management is a discipline for ensuring that outputs, benefits, and the processes by
which they are delivered, meet stakeholder requirements and are fit for purpose.

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General

Quality management has four components: quality planning, quality assurance, quality
control and continual improvement.These include procedures, tools and techniques that are
used to ensure that the outputs and benefits meet customer requirements.

The first component, quality planning, involves the preparation of a quality management plan
that describes the processes and metrics that will be used. The quality management plan needs to
be agreed with relevant stakeholders to ensure that their expectations for quality are correctly
identified. The processes described in the quality management plan should conform to the
processes, culture and values of the host organisation.

Quality assurance provides confidence to the host organisation that its projects, programmes
and portfolios are being well managed. It validates the consistent use of procedures and
standards, and ensures that staff have the correct knowledge, skills and attitudes to fulfil their
project roles and responsibilities in a competent manner. Quality assurance must be independent
of the project, programme or portfolio to which it applies.

The next component, quality control, consists of inspection, testing and measurement. It verifies
that the deliverables conform to specification, are fit for purpose and meet stakeholder
expectations.

Quality control activities determine whether acceptance criteria have, or have not, been met. For
this to be effective, specifications must be under strict configuration control. It is possible that,
once agreed, the specification may need to be modified. Commonly this is to accommodate
change requests or issues, while maintaining acceptable time and cost constraints. Any
consequent changes to acceptance criteria should be approved and communicated.

The last component, continual improvement, is the generic term used by organisations to
describe how information provided by quality assurance and quality control processes is used to
drive improvements in efficiency and effectiveness. A P3 maturity model provides a framework
against which continual improvement can be initiated and embedded in the organisation.

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Project

Projects that are part of a programme may well have much of the quality management plan
developed at programme level to ensure that standards are consistent with the rest of the
programme. Stand-alone projects need to develop their own quality management plans, either
from scratch or by adapting those from other similar projects. This may seem to be an
administrative burden at the beginning of smaller projects, but is always worthwhile in the end.

Projects deliver tangible outputs that are subject to many forms of quality control, depending
upon the technical nature of the work and codes affecting particular industries. Examples of
inspecting deliverables include crushing samples of concrete used in the foundations of a
building; x-raying welds in a ship’s hull; and following the test script for a new piece of
software.

Inspection produces data and tools such as scatter diagrams, control charts, flowcharts and cause
and effect diagrams, all of which help to understand the quality of work and how it may be
improved.

The main contribution to continual improvement that can be made within the timescale of a
project is through lessons learned. Existing lessons learned should be consulted at the beginning
of every project, and any relevant lessons used in the preparation of the project documentation.
At the end of every project, the lessons learned should be documented as part of the post-project
review and fed back into the knowledge database.

Programme

The responsibility of the programme management team is to develop a quality management plan
that encompasses the varied contexts and technical requirements contained within the
programme. This sets the standards for the project quality management plans and also acts as a
plan for quality in the benefits realisation parts of the programme.

A comprehensive quality management plan at programme level can greatly reduce the effort
involved in preparing project-level quality management plans.

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Quality control of outputs is mainly handled at project level, but the programme may get
involved where an output from one project is an input to another, or where additional inspection
is needed when outputs from two or more projects are brought together.

The programme is responsible for quality control of benefits. This is a complex task since the
acceptance criteria of a benefit may cover subjective as well as measurable factors but benefits
should be defined in measurable terms so that quality control can be applied.

The typical scale of programmes means that they have a very useful role to play in continual
improvement. Programme assurance will ensure that projects do take existing lessons learned
into account and then capture their own lessons for addition to the knowledge database.

Portfolio

The very nature of a portfolio means that it is unlikely to need a portfolio quality management
plan. Quality management for the portfolio should be indistinguishable from the quality
management policies of the host organisation as a whole.

It may be necessary for the portfolio management team to provide guidance on the application of
general policies or perhaps augment them where the portfolio creates special requirements.

The portfolio is responsible for delivering strategic objectives. These may be expressed in very
broad terms resulting in difficulty in applying quality control. When establishing the scope of a
portfolio, attention should be given to defining acceptance criteria for strategic objectives so that
they can be quality controlled.

Continual improvement is very much a concern at portfolio level. The portfolio management
team needs to ensure that the management of projects and programmes becomes more effective
and efficient with the passage of time.

The Concept of Quality Management

A Quality Management System in its basic concept is quite simple. It seeks to,

 Recognize interested party requirements including Licenses to Trade, guidelines,

customer requirements, and the chosen management system standard(s).

 Ensure that all requirements have been met.

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 Confirm that employees receive applicable training in the quality system requirements.

 Determine processes, their interaction, inputs and outputs.

 Produce records or evidence that system requirements have been met.

 Measure, monitor and report the performance of the QMS.

 Plan changes to the QMS and take actions to address risks and opportunities as a result of

changes.

 Perform internal audit to analyze the QMS and correct nonconformities.

 Continually improve the QMS.

Evolution

Quality management is a recent phenomenon but important for an organization. Civilizations that
supported the arts and crafts allowed clients to choose goods meeting higher quality standards
rather than normal goods. In societies where arts and crafts are the responsibility of master
craftsmen or artists, these masters would lead their studios and train and supervise others. The
importance of craftsmen diminished as mass production and repetitive work practices were
instituted. The aim was to produce large numbers of the same goods. The first proponent in the
US for this approach was Eli Whitney who proposed (interchangeable) parts manufacture for
muskets, hence producing the identical components and creating a musket assembly line. The
next step forward was promoted by several people including Frederick Winslow Taylor, a
mechanical engineer who sought to improve industrial efficiency. He is sometimes called "the
father of scientific management." He was one of the intellectual leaders of the Efficiency
Movement and part of his approach laid a further foundation for quality management, including
aspects like standardization and adopting improved practices. Henry Ford was also important in
bringing process and quality management practices into operation in his assembly lines. In
Germany, Karl Benz, often called the inventor of the motor car, was pursuing similar assembly
and production practices, although real mass production was properly initiated in Volkswagen
after World War II. From this period onwards, North American companies focused
predominantly upon production against lower cost with increased efficiency.

Walter A. Shewhart made a major step in the evolution towards quality management by creating
a method for quality control for production, using statistical methods, first proposed in 1924.

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This became the foundation for his ongoing work on statistical quality control. W. Edwards
Deming later applied statistical process control methods in the United States during World War
II, thereby successfully improving quality in the manufacture of munitions and other strategically
important products.

Quality leadership from a national perspective has changed over the past decades. After the
second world war, Japan decided to make quality improvement a national imperative as part of
rebuilding their economy, and sought the help of Shewhart, Deming and Juran, amongst
others. W. Edwards Deming championed Shewhart's ideas in Japan from 1950 onwards. He is
probably best known for his management philosophy establishing quality, productivity, and
competitive position. He has formulated 14 points of attention for managers, which are a high
level abstraction of many of his deep insights. They should be interpreted by learning and
understanding the deeper insights. These 14 points include key concepts such as:

 Break down barriers between departments

 Management should learn their responsibilities, and take on leadership
 Supervision should be to help people and machines and gadgets to do a better job
 Improve constantly and forever the system of production and service
 Institute a vigorous program of education and self-improvement

In the 1950s and 1960s, Japanese goods were synonymous with cheapness and low quality, but
over time their quality initiatives began to be successful, with Japan achieving high levels of
quality in products from the 1970s onward. For example, Japanese cars regularly top the J.D.
Power customer satisfaction ratings. In the 1980s Deming was asked by Ford Motor Company to
start a quality initiative after they realized that they were falling behind Japanese manufacturers.
A number of highly successful quality initiatives have been invented by the Japanese (see for
example on this pages: Genichi Taguchi, QFD, Toyota Production System). Many of the
methods not only provide techniques but also have associated quality culture (i.e. people factors).
These methods are now adopted by the same western countries that decades earlier derided
Japanese methods.

Customers recognize that quality is an important attribute in products and services. Suppliers
recognize that quality can be an important differentiator between their own offerings and those of
competitors (quality differentiation is also called the quality gap). In the past two decades this

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quality gap has been greatly reduced between competitive products and services. This is partly
due to the contracting (also called outsourcing) of manufacture to countries like China and India,
as well internationalization of trade and competition. These countries, among many others, have
raised their own standards of quality in order to meet international standards and customer
demands.[2][3] The ISO 9000 series of standards are probably the best known International
standards for quality management.

Customer satisfaction is the backbone of Quality Management. Setting up a million dollar

company without taking care of needs of customer will ultimately decrease its revenue.

There is a huge number of books available on quality management. Some themes have become
more significant including quality culture, the importance ofknowledge management, and the
role of leadership in promoting and achieving high quality. Disciplines like systems thinking are
bringing more holistic approaches to quality so that people, process and products are considered
together rather than independent factors in quality management.

The influence of quality thinking has spread to non-traditional applications outside of walls of
manufacturing, extending into service sectors and into areas such
assales, marketing and customer service.[4]

Principles

he International Standard for Quality management (ISO 9001:2015) adopts a number of

management principles, that can be used by top management to guide their organizations towards
improved performance.
Customer focus[edit]

The primary focus of quality management is to meet customer requirements and to strive to
exceed customer expectations.

Rationale

Sustained success is achieved when an organization attracts and retains the confidence of
customers and other interested parties on whom it depends. Every aspect of customer interaction
provides an opportunity to create more value for the customer. Understanding current and future
needs of customers and other interested parties contributes to sustained success of an
organization [5]

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Leadership[edit]

Leaders at all levels establish unity of purpose and direction and create conditions in which
people are engaged in achieving the organization’s quality objectives.

Rationale

Creation of unity of purpose and direction and engagement of people enable an organization to
align its strategies, policies, processes and resources to achieve its objectives [6]
Engagement of people[edit]

Competent, empowered and engaged people at all levels throughout the organization are
essential to enhance its capability to create and deliver value.

Rationale

To manage an organization effectively and efficiently, it is important to involve all people at all
levels and to respect them as individuals. Recognition, empowerment and enhancement of
competence facilitate the engagement of people in achieving the organization’s quality
objectives.[7]
Process approach[edit]

Consistent and predictable results are achieved more effectively and efficiently when activities
are understood and managed as interrelated processes that function as a coherent system.

Rationale

The quality management system consists of interrelated processes. Understanding how results
are produced by this system enables an organization to optimize the system and its
performance.[8]
Improvement[edit]

Successful organizations have an ongoing focus on improvement.

Rationale

Improvement is essential for an organization to maintain current levels of performance, to react

to changes in its internal and external conditions and to create new opportunities.[9]
Evidence based decision making[edit]
Further information: decision making

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Decisions based on the analysis and evaluation of data and information are more likely to
produce desired results.

Rationale

Decision making can be a complex process, and it always involves some uncertainty. It often
involves multiple types and sources of inputs, as well as their interpretation, which can be
subjective. It is important to understand cause-and-effect relationships and potential unintended
consequences. Facts, evidence anddata analysis lead to greater objectivity and confidence in
decision making.[10]

quality improvement and more[edit]

The PDCA cycle[14]

There are many methods for quality improvement. These cover product improvement, process
improvement and people based improvement. In the following list are methods of quality
management and techniques that incorporate and drive quality improvement:

1. ISO 9004:2008 — guidelines for performance improvement.

2. ISO 9001:2015 - a certified quality management system (QMS) for organisations who
want to prove their ability to consistently provide products and services that meet the
needs of their customers and other relevant stakeholders.[15]
3. ISO 15504-4: 2005 — information technology — process assessment — Part 4:
Guidance on use for process improvement and process capability determination.
4. QFD — quality function deployment, also known as the house of quality approach.
5. Kaizen — 改善, Japanese for change for the better; the common English term
is continuous improvement.
6. Zero Defect Program — created by NEC Corporation of Japan, based upon statistical
process control and one of the inputs for the inventors of Six Sigma.
7. Six Sigma — 6σ, Six Sigma combines established methods such as statistical process
control, design of experiments and failure mode and effects analysis (FMEA) in an
overall framework.

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8. PDCA — plan, do, check, act cycle for quality control purposes. (Six
Sigma's DMAIC method (define, measure, analyze, improve, control) may be viewed as
a particular implementation of this.)
9. Quality circle — a group (people oriented) approach to improvement.
10. Taguchi methods — statistical oriented methods including quality robustness, quality loss
function, and target specifications.
11. The Toyota Production System — reworked in the west into lean manufacturing.
12. Kansei Engineering — an approach that focuses on capturing customer emotional
feedback about products to drive improvement.
13. TQM — total quality management is a management strategy aimed at embedding
awareness of quality in all organizational processes. First promoted in Japan with the
Deming prize which was adopted and adapted in USA as the Malcolm Baldrige National
Quality Award and in Europe as the European Foundation for Quality
Management award (each with their own variations).
14. TRIZ — meaning "theory of inventive problem solving"
15. BPR — business process reengineering, a management approach aiming at optimizing
the workflows and processes within an organisation.
16. OQRM — Object-oriented Quality and Risk Management, a model for quality and risk
management.[16]
17. Top Down & Bottom Up Approaches—Leadership approaches to change[17]

Quality standards
ISO standards[edit]

The International Organization for Standardization (ISO) created the Quality Management
System (QMS)[20] standards in 1987. They were the ISO 9000:1987 series of standards
comprising ISO 9001:1987, ISO 9002:1987 and ISO 9003:1987; which were applicable in
different types of industries, based on the type of activity or process: designing, production or
service delivery.

The standards are reviewed every few years by the International Organization for
Standardization. The version in 1994 was called the ISO 9000:1994 series; consisting of the ISO
9001:1994, 9002:1994 and 9003:1994 versions.

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The last major revision was in the year 2000 and the series was called ISO 9000:2000 series. The
ISO 9002 and 9003 standards were integrated into one single certifiable standard: ISO
9001:2000. After December 2003, organizations holding ISO 9002 or 9003 standards had to
complete a transition to the new standard.

ISO released a minor revision, ISO 9001:2008 on 14 October 2008. It contains no new
requirements. Many of the changes were to improve consistency in grammar, facilitating
translation of the standard into other languages for use by over 950,000 certified organization in
the 175 countries (as at Dec 2007) that use the standard.

The ISO 9004:2009 document gives guidelines for performance improvement over and above the
basic standard (ISO 9001:2000). This standard provides a measurement framework for improved
quality management, similar to and based upon the measurement framework for process
assessment.

The Quality Management System standards created by ISO are meant to certify the processes
and the system of an organization, not the product or service itself. ISO 9000 standards do not
certify the quality of the product or service.

In 2005 the International Organization for Standardization released a standard, ISO 22000, meant
for the food industry. This standard covers the values and principles of ISO 9000 and
the HACCP standards. It gives one single integrated standard for the food industry and is
expected to become more popular in the coming years in such industry.

ISO has also released standards for other industries. For example, Technical Standard TS 16949
defines requirements in addition to those in ISO 9001:2008 specifically for the automotive
industry.

ISO has a number of standards that support quality management. One group describes processes
(including ISO/IEC 12207 and ISO/IEC 15288) and another describes process assessment and
improvement ISO 15504.

ISO 9000 Series

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Family of related, auditable, international standards and supplementary guidelines on

quality management and quality assurance. First published in 1987 (and continually
updated) by the International Standards Organization (ISO), these standards are not
specific to any industry or product (good or service) but are nearly universally applicable
and recognized. Although called 'voluntary,' they are almost mandatory for practically all
manufacturers and service providers selling to multinationals and large or governmental
organizations. To be awarded certification, a firm's operations and internal systems must
be verify by independent (third party) and accredited auditors (after an on-site audit) to be
in compliance with these standards

CMMI and IDEAL methods[edit]

The Software Engineering Institute has its own process assessment and improvement methods,
called CMMI (Capability Maturity Model Integration) and IDEAL respectively.

Capability Maturity Model Integration (CMMI) is a process improvement training and appraisal
program and service administered and marketed by Carnegie Mellon University and required by
many DOD and U.S. Government contracts, especially in software development. Carnegie
Mellon University claims CMMI can be used to guide process improvement across a project,
division, or an entire organization. Under the CMMI methodology, processes are rated according
to their maturity levels, which are defined as: Initial, Managed, Defined, Quantitatively
Managed, Optimizing. Currently supported is CMMI Version 1.3. CMMI is registered in the
U.S. Patent and Trademark Office by Carnegie Mellon University.

Three constellations of CMMI are:

 Product and service development (CMMI for Development)

 Service establishment, management, and delivery (CMMI for Services)
 Product and service acquisition (CMMI for Acquisition).

CMMI Version 1.3 was released on November 1, 2010. This release is noteworthy because it
updates all three CMMI models (CMMI for Development, CMMI for Services, and CMMI for
Acquisition) to make them consistent and to improve their high maturity practices. The CMMI
Product Team has reviewed more than 1,150 change requests for the models and 850 for the
appraisal method.

As part of its mission to transition mature technology to the software community, the SEI has
transferred CMMI-related products and activities to the CMMI Institute, a 100%-controlled

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subsidiary of Carnegie Innovations, Carnegie Mellon University’s technology commercialization

enterprise.[21]

Other quality management information[edit]

 VDA: Organisation developed for the German automobile industry VDA

 AVSQ: Organisation developed for the Italian automobile industry AVSQ
 EAQF: Organisation developed for the French automobile industry EAQF
 QS-9000: Standard developed for the US automobile industry QS9000
 ISO 19011 Standard developed for auditing a management system (international) ISO
19011
Awards[edit]

 EFQM Excellence Award (Formerly the European Quality-Award: European award

for Total Quality Management

and organizational excellence which has been presented since 1991 by the European Foundation
for Quality Management (EFQM). www.efqm.org Similar awards are presented by the EFQM's
National Partner organisations across Europe. For example, in the UK the British Quality
Foundation (BQF) run the UK Excellence Awards. These awards are based on the EFQM
Excellence Model, an organizational framework. www.bqf.org.uk

 Deming-Award: Japanese award for Quality management since 1951.www.deming.org

 Malcolm Baldrige National Quality Award: US-American Award for performance
excellence created in 1987.[1]

Quality management software[edit]

Quality Management Software is a category of technologies used by organizations to manage the

delivery of high quality products. Solutions range in functionality, however, with the use of
automation capabilities they typically have components for managing internal and external risk,
compliance, and the quality of processes and products. Pre-configured and industry-specific
solutions are available and generally require integration with existing IT architecture applications
such as ERP,SCM, CRM, and PLM.

Quality Management Software Functionalities

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 Non-Conformances/Corrective and Preventive Action

 Compliance/Audit Management
 Supplier Quality Management
 Risk Management
 Statistical Process Control
 Failure Mode and Effects Analysis
 Complaint Handling
 Advanced Product Quality Planning
 Environment, Health, and Safety
 Hazard Analysis & Critical Control Points
 Production Part Approval Process

Enterprise Quality Management Software

The intersection of technology and quality management software prompted the emergence of a
new software category: Enterprise Quality Management Software (EQMS). EQMS is a platform
for cross-functional communication and collaboration that centralizes, standardizes, and
streamlines quality management data from across the value chain. The software breaks down
functional silos created by traditionally implemented standalone and targeted solutions.
Supporting the proliferation and accessibility of information across supply chain activities,
design, production, distribution, and service, it provides a holistic viewpoint for managing the
quality of products and processes.[22]

Quality terms[edit]

 Quality Improvement can be distinguished from Quality Control in that Quality

Improvement is the purposeful change of a process to improve the reliability of achieving an
outcome.
 Quality Control is the ongoing effort to maintain the integrity of a process to maintain the
reliability of achieving an outcome.
 Quality Assurance is the planned or systematic actions necessary to provide enough
confidence that a product or service will satisfy the given requirements.

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COST OF QUALITY (COQ)

Cost of poor quality (COPQ): The costs associated with providing poor quality products or
services. There are four categories: internal failure costs (costs associated with defects found
before the customer receives the product or service), external failure costs (costs associated with
defects found after the customer receives the product or service), appraisal costs (costs incurred
to determine the degree of conformance to quality requirements) and prevention costs (costs
incurred to keep failure and appraisal costs to a minimum).

Cost of quality is a methodology that allows an organization to determine the extent to which its
resources are used for activities that prevent poor quality, that appraise the quality of the
organization’s products or services, and that result from internal and external failures. Having
such information allows an organization to determine the potential savings to be gained by
implementing process improvements.

Quality-related activities that incur costs may be divided into prevention costs, appraisal costs,
and internal and external failure costs

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Prevention costs

Prevention costs are incurred to prevent or avoid quality problems. These costs are associated
with the design, implementation, and maintenance of the quality management system. They are
planned and incurred before actual operation, and they could include:

 Product or service requirements—establishment of specifications for incoming materials,

processes, finished products, and services
 Quality planning—creation of plans for quality, reliability, operations, production, and
inspection
 Quality assurance—creation and maintenance of the quality system
 Training—development, preparation, and maintenance of programs

Appraisal costs

Appraisal costs are associated with measuring and monitoring activities related to quality. These
costs are associated with the suppliers’ and customers’ evaluation of purchased materials,
processes, products, and services to ensure that they conform to specifications. They could
include:

 Verification—checking of incoming material, process setup, and products against agreed

specifications
 Quality audits—confirmation that the quality system is functioning correctly
 Supplier rating—assessment and approval of suppliers of products and services

Internal failure costs

Internal failure costs are incurred to remedy defects discovered before the product or service is
delivered to the customer. These costs occur when the results of work fail to reach design quality
standards and are detected before they are transferred to the customer. They could include:

 Waste—performance of unnecessary work or holding of stock as a result of errors, poor

organization, or communication
 Scrap—defective product or material that cannot be repaired, used, or sold
 Rework or rectification—correction of defective material or errors
 Failure analysis—activity required to establish the causes of internal product or service
failure

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External failure costs

External failure costs are incurred to remedy defects discovered by customers. These costs occur
when products or services that fail to reach design quality standards are not detected until after
transfer to the customer. They could include:

 Repairs and servicing—of both returned products and those in the field
 Warranty claims—failed products that are replaced or services that are re-performed
under a guarantee
 Complaints—all work and costs associated with handling and servicing customers’
complaints
 Returns—handling and investigation of rejected or recalled products, including transport
costs

Cost of quality and organizational objectives

The costs of doing a quality job, conducting quality improvements, and achieving goals must be
carefully managed so that the long-term effect of quality on the organization is a desirable one.

These costs must be a true measure of the quality effort, and they are best determined from an
analysis of the costs of quality. Such an analysis provides a method of assessing the effectiveness
of the management of quality and a means of determining problem areas, opportunities, savings,
and action priorities.

Cost of quality is also an important communication tool. Philip Crosby demonstrated what a
powerful tool it could be to raise awareness of the importance of quality. He referred to the
measure as the “price of nonconformance” and argued that organizations choose to pay for poor
quality.

Many organizations will have true quality-related costs as high as 15 to 20 percent of sales
revenue, some going as high as 40 percent of total operations. A general rule of thumb is that
costs of poor quality in a thriving company will be about 10 to 15 percent of operations.
Effective quality improvement programs can reduce this substantially, thus making a direct
contribution to profits.

The quality cost system, once established, should become dynamic and have a positive impact on
the achievement of the organization’s mission, goals, and objectives.

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Cost area Description Examples

 Quality planning
 Statistical process
control
 Investment in
quality-related
information systems
Prevention Arise from efforts to keep  Quality training
costs defects from occurring at all and workforce
development
 Product-design
verification
 Systems
Costs of control development and
(Costs of management
conformance)
 Test and inspection
of purchased materials
 Acceptance testing
 Inspection
 Testing
Appraisal Arise from detecting defects  Checking labor
costs via inspection, test, audit  Setup for test or
inspection
 Test and inspection
equipment
 Quality audits
 Field testing
Arise from defects caught  Scrap
Internal internally and dealt with by  Rework
failure costs discarding or repairing the  Material
defective items procurement costs
 Complaints in
Costs of failure of
control (Costs of non- warranty
conformance)  Complaints out of
External Arise from defects that warranty
failure costs actually reach customers  Product service
 Product liability
 Product recall
 Loss of reputation
The central theme of quality improvement is that larger investments in prevention drive even
larger savings in quality-related failures and appraisal efforts. Feigenbaum's categorization

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allows the organization to verify this for itself.[6] When confronted with mounting numbers of
defects, organizations typically react by throwing more and more people into inspection roles.
But inspection is never completely effective, so appraisal costs stay high as long as the failure
costs stay high. The only way out of the predicament is to establish the "right" amount of
prevention.
Once categorized, quality costs can serve as a means to measure, analyze, budget, and predict.[7]
Variants of the concept of quality costs include cost of poor quality and categorization based on
account type, described by Joseph M. Juran.[8]

Cost area Examples

 Materials scrapped or junked

 Labor and burden on product scrapped or junked
 Labor, materials, and burden necessary to effect repairs on
salvageable product
Tangible costs—factory
 Extra operations added because of presence of defectives
accounts
 Burden arising from excess production capacity necessitated
by defectives
 Excess inspection costs
 Investigation of causes of defects
 Discount on seconds
Tangible costs—sales
 Customer complaints
accounts
 Charges to quality guarantee account
 Delays and stoppages caused by defectives
Intangible costs  Customer good will
 Loss in morale due to friction between departments

Continuous Improvement kaizen

Continuous improvement, or Kaizen, is a method for identifying opportunities for
streamlining work and reducing waste. The practice was formalized by the popularity of
Lean / Agile / Kaizen in manufacturing and business, and it is now being used by thousands
of companies all over the world to identify savings opportunities. Many of these ideologies
can be combined for excellent results. For example, Kaizen and Kanban can go hand-in-
hand to facilitate continuous improvement.

While many companies practice a formal version of a Lean / Agile method, other companies
enjoy the flexibility of continuous improvement as a practice while reserving the right to
deviate from the practice whenever a less formal approach is needed.

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Kaizen, also known as continuous improvement, is a long-term approach to work that

systematically seeks to achieve small, incremental changes in processes in order to improve
efficiency and quality. Kaizen can be applied to any kind of work, but it is perhaps best known
for being used in lean manufacturing and lean programming. If a work environment practices
kaizen, continuous improvement is the responsibility of every worker, not just a selected few.

Kaizen: A Flexible Practice

Continuous improvement can be viewed as a formal practice or an informal set of

guidelines. Many companies have shifted focus to more formal approaches to project and
process management such as Lean / Agile methodologies (Kanban, Kaizen, Scrum, XP).
For example, Kaizen and Kanban can be integrated together to allow for continuous
improvement through visualization of workflow. In all Lean / Agile methodologies,
continuous improvement is a primary focus, in addition to high customer service standards
and the reduction of waste in the forms of cost, time and defects (rework).

Benefits of Continuous Improvement

Streamline Workflows

Working to constantly improve is the number one way in which many businesses reduce
operating overhead. Continuous improvement (sometimes known as ‘Rapid improvement’) is a
Lean improvement technique that helps to streamline workflows. The Lean way of working
enables efficient workflows that save time and money, allowing you to reduce wasted time and
effort. For example, projects that involve shifting deadlines, changing priorities and other
complexities are usually filled with opportunities to improve. It’s just that no one has taken
action on that opportunity.

Reduce Project Costs and Prevent Overages

It’s important for a project manager to know the cost of completing a body of work. For this
reason, most project management offices benefit from knowing the amount of time it takes to get

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certain types of work done. Project managers can reduce project cost and prevent overages using
Forecasting Software. Forecasting (versus estimating) whether a project’s constraints are likely
to be broken is one way in which project management offices are able to increase their overall
effectiveness for the company.

Gain Flexibility

While many companies practice a formal version of a Lean / Agile method, other companies
enjoy the flexibility of continuous improvement as a theory while reserving the right to deviate
from the practice whenever a less formal approach is needed. For example, teams that want to
provide the space and time necessary for creativity or innovation may enforce the concept more
loosely as they seek new ways to lead in the marketplace.

Try LeanKit, the best continuous improvement tool designed to eliminate waste and improve
efficiency.

When To Use Continuous Improvement

Sacrificing quality can rarely be justified by the ability to do something faster or cheaper. To
maintain quality standards while cutting time and cost, companies turn to Lean ways of working,
including continuous improvement.

By observing continuous improvement best practices, companies can figure out ways to continue
business as usual while analyzing improvement opportunities along the way.

For companies whose teams are unable to practice continuous improvement throughout their
day-to-day work, the next best way to leverage the concept is to hold continuous improvement
events, otherwise known as Rapid Improvement events or Value Stream Mapping. Continuous
Improvement events can take anywhere between one to five days to complete, depending on the
depth and breadth of the topic to be covered, and team members usually come away with “to-do”
items that help the new processes take hold within the organization and may require a small
amount of time to execute.

Many companies have adopted Lean improvement techniques as a standard by which all projects
and work is done, while others choose to keep it at arm’s length. While continuous improvement
helps save money for companies by helping to identify inefficiencies (project teams with many
layers of management or manufacturing teams whose motions equate to money), other
companies may perceive continuous improvement differently. After years of continuous
improvement being touted as the most beneficial way to save on production cost, some
companies say the philosophy has placed unexpected constraints on innovation and creativity.

While companies seek ways to reduce waste, the less formal, sometimes messy creative process
and ideation may hold more value in the long run than saving a few dollars on a particular
process. It is impossible to put a price on innovation, therefore a company’s decision as to how

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much time to devote to continuous improvement can be complex. Whether or not a company
chooses to make continuous improvement a part of its everyday culture depends on the particular
needs of the company and the potential cost savings that may come as a result.

How to Practice Continuous Improvement

Working to constantly improve is the number one way in which many businesses reduce
operating overhead. Continuous improvement (sometimes known as ‘Rapid improvement’) is a
Lean improvement technique that helps to streamline workflows. Efficient workflows save time
and money, allowing you to reduce wasted time and effort. For example, projects that involve
shifting deadlines, changing priorities and other complexities are usually filled with opportunities
to improve. It’s just that no one has taken action on that opportunity.

Kaizen with Six Sigma Ensures Continuous Improvement

aizen is a Japanese philosophy that focuses on continual improvement throughout all aspects of
life. When applied to the workplace, Kaizen activities can improve every function of a business,
from manufacturing to marketing and from the CEO to the assembly-line workers. Kaizen aims
to eliminate waste in all systems of an organization through improving standardized activities
and processes. By understanding the basics of Kaizen, practitioners can integrate this method
into their overall Six Sigma efforts.

What Is Kaizen?

The purpose of Kaizen goes beyond simple productivity improvement. When done correctly, the
process humanizes the workplace, eliminates overly hard work, and teaches people how to spot
and eliminate waste in business processes.

The continuous cycle of Kaizen activity has seven phases:

1. Identify an opportunity
2. Analyze the process
3. Develop an optimal solution
4. Implement the solution
5. Study the results
6. Standardize the solution
7. Plan for the future

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8.
Kaizen generates small improvements as a result of coordinated continuous efforts by all
employees. Kaizen events bring together a group of process owners and managers to map out an
existing process and identify improvements that are within the scope of the participants.
The following are some basic tips for doing Kaizen:

 Replace conventional fixed ideas with fresh ones.

 Start by questioning current practices and standards.
 Seek the advice of many associates before starting a Kaizen activity.
 Think of how to do something, not why it cannot be done.
 Don’t make excuses. Make execution happen.
 Do not seek perfection. Implement a solution right away, even if it covers only 50 percent
of the target.
 Correct something right away if a mistake is made.
Kaizen activities cover improvements in a number of areas, including:

 Quality – Bettering products, service, work environment, practice and processes.

 Cost – Reducing expenses and manpower, and use of material, energy and resources.
 Delivery – Cutting delivery time, movement and non-value-added activities
 Management – Improving procedures, training, morale, administration, planning, flow,
information systems, documentation and reporting.
 Safety – Decreasing hazardous situations, unsafe working conditions, chances of
resource depletion and damage to the environment.

Implementing Kaizen

To generate a Kaizen, everyone involved must begin thinking about their work in a new way – in
terms of:

 Now: Present condition

 Next: Desired state
 New: How to reach that state
Typically, implementation of Kaizen occurs in three stages in any organization:

1. Encourage participation: Awareness training sessions for all employees are a must. To
further encourage employee involvement, promote specific Kaizen activities, and consider

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distributing monetary or tangible benefits after solutions from Kaizen activities are
implemented.
2. Training and education: Focused training of associates is required for understanding
what is – and is not – the essence of Kaizen. Team leaders should be trained to understand
Kaizen in an organizational vision context, which needs to be followed thoroughly in order to
achieve desired business objectives. They also must be taught about the necessity of impartial
evaluation and strategy for improving participation.
3. Quality level improvement: After the training stage is completed, practitioners should
continue to focus on long-term implication, widespread application, alignment with
organizational objectives and planning objectives. Management should form a core department
to carry out Kaizen evaluation and implementation.

Using Kaizen with Six Sigma

Through Six Sigma, companies can make breakthrough improvements in existing processes.
Cost savings from breakthrough Six Sigma projects are not always reflected in the bottom line,
however. The reason for this is the absence of small improvements, as well as maintenance –
establishing standard operating procedures and ensuring everyone follows them. Processes can
degrade without systemic monitoring and improvement (Figure 1).

Figure 1: Results of Six Sigma Use without Maintenance

But if a company has a combined system of Six Sigma, a strict adherence to established
processes, and local resources who are constantly looking for ways to make their processes better
(Kaizen), the situation becomes the best. This puts the organization in a better financial position
in the long-run because improvements happen on an ongoing basis in addition to the occasional
breakthrough (Figure 2).

Figure 2: Use of Continuous Improvement by Market Leader

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Case Study: Reducing Sampling Time

The following case study illustrates the importance of combining Six Sigma with Kaizen
activities. At a four-wheeler manufacturer, a Black Belt completed a Six Sigma project on the
cycle time of the sampling inspection of completely built units (CBU) of automobiles. The cycle
time for sampling inspection at the start of the project was about 24 hours, or three workdays.

At the end of the project, during the Control phase, the time was reduced drastically to about 7.7
hours or one workday, thus reducing two-thirds of the cycle time. The Belt handed over the
ownership of the process to a few assigned employees. The associates responsible for the
workstation held several Kaizen activities, which benefited the work process as well as improved
the motivation level of the employees.

One Kaizen event involved a subprocess in the sampling process – measuring for the turning
radius of the car. Before, this part of the sampling process took 20 minutes and required two
employees. One employee sprayed water on the tire of the car while another person was driving
the car and turning the tire. The employees measured the water mark on the ground to calculate
the turning radius. After the Kaizen, the driver would connect a pipe with the water tank under
the hood and used that to spray water on the tires while also turning the tires. This idea did not
come from a skilled Black Belt, but from a trainee helper. It reduced the time needed for that task
from 20 minutes to 5 minutes, and also reduced the manpower needed from two to one.

What was gained was not merely a few minutes in a day-long process, but idea generation in the
form of innovative participation. The confidence gained by the employee opened doors to many
more Kaizen activities, adding up to sustained improvement after the end of the Six Sigma
project.

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Statistical Quality Control

Statistical Quality Control (SQC) is the term used to describe the set of statistical tools used
by quality professionals. SQC is used to analyze the quality problems and solve them.
Statistical quality control refers to the use of statistical methods in the monitoring and
maintaining of the quality of products and services.
All the tools of SQC are helpful in evaluating the quality of services. SQC uses different
tools to analyze quality problem.

1) Descriptive Statistics
2) Statistical Process Control (SPC)
3) Acceptance Sampling

Descriptive Statistics involves describing quality characteristics and relationships. SPC

involves inspect random sample of output from process for characteristic. Acceptance
Sampling involve batch sampling by inspection.

Improsys's strategic approach to problems make us understand the root causes of

problems and helps our customer to come up with a long lasting and effective solution.
With our expertise in understanding the business and its all aspects we provide solutions
that will satisfy our customers deeply. Improsys has successfully implemented the quality
control solutions in various organizations.

total quality management (TQM) addresses organizational quality from managerial and
philosophical viewpoints. TQM focuses on customer-driven quality standards, managerial
leadership, continuous improvement, quality built into product and process design, quality
identified problems at the source, and quality made everyone’s responsibility. However,
talking about solving quality problems is not enough.

We need specific tools that can help us make the right quality decisions. These tools come
from the area of statistics and are used to help identify quality problems in the production
process as well as in the product itself. Statistical quality control is the subject of this
chapter. Statistica1 quality control (SQC) is the term used to describe the set of statistical
tools used by quality professionals. Statistical quality control can be divided into three
broad categories: 1.

Descriptive statistics are used to describe quality characteristics and relationships.

Included are statistics such as the mean, standard deviation, the range, and a measure of
the distribution of data.

2. Statistical process control (SPC) involves inspecting a random sample of the output from
a process and deciding whether the process is producing products with characteristics that
fall within a predetermined range. SPC answers the question of whether the process is
functioning properly or not.

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3. Acceptance sampling is the process of randomly inspecting a sample of goods and

deciding whether to accept the entire lot based on the results. Acceptance sampling
determines whether a batch of goods should be accepted or rejected.

Objective of Statistical Quality Control

Quality Control is very important for a every company. Quality control includes service
quality given to customer, company management leadership, commitment of management,
continuous improvement, fast response, actions based on facts, employee participation and
a quality driven culture.
The main objectives of the quality control module are to control of material reception,
internal rejections, clients, claims, providers and evaluations of the same corrective actions
are related to their follow-up. These systems and methods guide all quality activities. The
development and use of performance indicators is linked, directly or indirectly, to customer
requirements and satisfaction, and to management.

Benefits of Statistical Quality Control

1) It provides a means of detecting error at inspection.
2) It leads to more uniform quality of production.
3) It improves the relationship with the customer.
4) It reduces inspection costs.
5) It reduces the number of rejects and saves the cost of material.
6) It provides a basis for attainable specifications.
7) It points out the bottlenecks and trouble spots.
8) It provides a means of determining the capability of the manufacturing process.
9) It promotes the understanding and appreciation of quality control.

Improsys's strategic approach to problems make us understand the root causes of problems and
helps our customer to come up with a long lasting and effective solution.
With our expertise in understanding the business and its all aspects we provide solutions that will
satisfy our customers deeply. Improsys has successfully implemented the quality control
solutions in various organizations.

Methodology & Tools of Statistical Quality Control

Statistical Quality Control (SQC) is the term used to describe the set of statistical tools used by
quality professionals. SQC is used to analyze the quality problems and solve them.
Statistical quality control refers to the use of statistical methods in the monitoring and
maintaining of the quality of products and services.
All the tools of SQC are helpful in evaluating the quality of services. SQC uses different tools to
analyze quality problem.
1) Descriptive Statistics
2) Statistical Process Control (SPC)
3) Acceptance Sampling

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Descriptive Statistics involves describing quality characteristics and relationships. SPC involves
inspect random sample of output from process for characteristic. Acceptance Sampling involve
batch sampling by inspection.

The seven major tools used for Statistical Process Control are,

1) Histogram
2) Pareto Chart
3) Cause and Effect Diagram
4) Defect Concentration Diagram
5) Control Chart
6) Scatter Diagram
7) Check Sheet

Improsys's strategic approach to problems make us understand the root causes of problems and
helps our customer to come up with a long lasting and effective solution.
With our expertise in understanding the business and its all aspects we provide solutions that will
satisfy our customers deeply. Improsys has successfully implemented the quality control
solutions in various organizations.

Tools for Statistical Quality Control

very process depends on gathering and analysis of data what are profuse in any organization that
is involved in the process problem. The basic tools are:

 Data Collection
 Data Display
Data Collection
A check sheet is useful in assembling and compiling data concerning a problem. It uses for data
collection to view for any unwanted element. The functions of a check sheet are

 Production process distribution checks

 Defective item checks
 Defect location checks
 Defect cause checks
 Checkup confirmation checks
Data Display
When a company collects data it is converted on to various types of charts and forms for the
purpose of display and analysis of data. Charts have different types as:

 A bar graph (present simple data and easy understood)

 A scatter diagram (relationship between two types of data)
 A histogram (distribution of data in term of frequency)
 A Pareto diagram (statistical tool in problem analysis)

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Control Charts for Variables and Attributes | Quality Control

After reading this article you will learn about the control charts for variables and attributes.

Control Charts for Variables:

A number of samples of component coming out of the process are taken over a period of time.
Each sample must be taken at random and the size of sample is generally kept as 5 but 10 to 15
units can be taken for sensitive control charts.

For each sample, the average value X̅ of all the measurements and the range R are calculated.
The grand average X̅ (equal to the average value of all the sample average, X̅) and R (X̅ is equal
to the average of all the sample ranges R) are found and from these we can calculate the control
limits for the X̅ and R charts.

Therefore,

LCLR = D3 R̅

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Here the factors A2, D4 and D3 depend on the number of units per sample. Larger the number, the
close the limits. The value of the factors A2, D4 and D3 can be obtained from Statistical Quality
Control tables. However for ready reference these are given below in tabular form.
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As long as X and it values for each sample are within the control limits, the process is said to be
in statistical control.

where d2 is a factor, whose value depends on number of units in a sample. Its value is seen from
S.Q.C. Tables 63.1.

Process Out of Control:

After computing the control limits, the next step is to determine whether the process is in
statistical control or not. If not, it means there is external causes that throws the process out of
control. This cause must be traced and removed so that the process may return to operate under
stable statistical conditions.

he various reasons for the process being out of control may be:
(i) Faulty tools,

(ii) Sudden significant change in properties of new materials in a new consignment,

(iii) Breakdown of lubrication system,

iv) Faults in timing of speed mechanisms etc.

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Tracing of these causes is sometimes simple and straight forward but when the process is subject
to the combined effect of several external causes, then it may be lengthy and complicated
business.

Process in Control:

If the process is found to be in statistical control, a comparison between the required speci-
fications and the process capability may be carried out to determine whether the two are com-
patible. Should the specified tolerances prove to be too tight for the process capability?

There are three possible alternatives:

(a) Re-evaluate the specifications. Whether the tight tolerances are actually needed or they can
be relaxed without affecting quality.

(b) If relaxation in specifications is not allowed then a more accurate process is required to be
selected.

(c) If both the above alternatives are not acceptable then 100% inspection is carried out to trace
out the defectives.

Conclusions:

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When the process is not in control then the point fall outside the control limits on either X or R
charts. It means assignable causes (human controlled causes) are present in the process. When all
the points are inside the control limits even then we cannot definitely say that no assignable
cause is present but it is not economical to trace the cause. No statistical test can be applied.

Even in the best manufacturing process, certain errors may develop and that constitute the
assignable causes but no statistical action can be taken. This leads to many practical difficulties
regarding what relationship show satisfactory control.

One of the most common causes of lack of control is shift in the mean X. X chart is also useful
for the purpose of detecting shift in production. Tool wear and resetting of machines often
account for such a shift. It is necessary to find out when machine resetting becomes desirable,
bearing in mind that too frequent adjustments are a serious setback to production output.

Fig. 63.1 snows few examples of X charts. The charts a, b and c shows the relation between the
process variability and the specifications. The Fourth illustrates that there is an adequate process
from the point of view of the specifications but there is constant shift in X It means periodic
resetting of machine is needed to bring down the value of X to the control limits, if the original
conditions are to be regained.

Therefore, it can be said that the problem of resetting is closely associated with the relationship
between process capability and the specifications. Case (a) in Fig. 63.1 would require a smaller
number of machine resets than case (b).

This can further be illustrated in Fig. 63.2. In case (a) the mean X can shift a great deal on either
side without causing a remarkable increase in the amount of defective items. In case (b) the
process capability is compatible with specified limits. In case (c) the process spared + 3a is
slightly wider than the specified tolerance so that the amount of defectives (scrap) become quite
large whenever there is even a small shift in X. This needs frequent adjustments.

To illustrate how x and r charts are used in process control, few examples are worked out as
under.

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Example 1:
The table 63.2 give record of 5 measurements per sample from lot size of 50 for the critical
dimension of jeep valve stem diameter taken every hour, (i) Compare the control limits, make
plot and explain plotting procedure, (ii) Interpret plot, make decision regarding quality of
product, process control and cost of inspection.

From S.Q.C. table 63.1 the values of A2, D4 and D3 can be recorded from the 5 measurement
sample column.
A2 = 0.58

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and

D3 = 0
D4 = 2.11.

Now charts for X̅ and R are plotted as shown in Fig. 65.3 taking abscissa as sample number and
ordinate as X̅ and R. X̅ and R charts must be drawn one over the other as shown, i.e. R chart
must be exactly under X̅ chart.

What the X̅ and R charts tell?

Sometimes X̅ chart does not give satisfactory results. This may occur due to old machine, or
worn out parts or misalignment or where processing is inherently quite variable. Here the
“Range” chart is used as an additional tool to control.

The purpose of this chart is to have constant check over the variability of the process. Process
variability demonstrated in the figure shows that though the mean or average of the process may

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be perfectly centred about the specified dimension, excessive variability will result in poor
quality products.

The use of R-chart is called for, if after using the X̅ charts, it is found that it frequently fails to
indicate trouble promptly.

The R-chart does not replace the X̅ -chart but simply supplements with additional information
about the production process.

The R-chart is also used for high precision process whose variability must be carefully held
within prescribed limits. Similarly many electro-chemical processes such as plating, and micro
chemical biological production, such as fermentation of yeast and penicillin require the use of R-
chart because unusual variability is quite inherent in such process.

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Example 2:
The following record taken for a sample of 5 pieces from a process each hour for a period
of 24 hours.

Now X̅ and R charts are plotted on the plot as shown in Fig. 63.4 taking abscissa as sample
number and ordinates as X̅ and R respectively.

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Inference:
Let us look at the Fig. 63.4.

In the chart, most of the time the plotted points representing average are well within the
control limits but in samples 10 and 17, the plotted points fall outside the control limits.

It means something has probably gone wrong or is about to go wrong with the process and a
check is needed to prevent the appearance of defective products.

If the cause has been eliminated, the following plotted points will stay well within the control
limits, but if more points fall outside the control limits then a very thorough investigation should

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be made, even if it is necessary to shut down production temporarily until everything is adjusted
again and no more points fall outside.

The various control charts for attributes are explained as under:

1. Attribute Charts for Defective Items: (P-Chart):

This is the control chart for percent defectives or for fraction defectives. This is used whenever
the quality characteristics are expressed as the number of units confirming or not confirming to
the specified specifications either by visual inspection or by ‘GO’ and ‘NOT GO’ gauges.

The Centre Line Value:

It is denoted by P̅ (P bar) and may be defined as the ratio between the total number of defective
(non-conforming) products observed in all the samples combined and the total number of
products inspected. For example, 15 products are found to be defective in a sample of 200, then
15/200 is the value of P̅.

Fraction and Percent Defectives:

The fraction defective value is represented in a decimal as proportion of defectives out of one
product, while percent defective is the fraction defective value expressed as percentage. As in the
above example, fraction defective of 15/200 = 0.075, and percent defective will be 0.075 x 100 =
7.5%.

Standard Deviation:
The standard deviation for fraction defective denoted by σ P is calculated by the formula.

where n = sample size and P̅ = fraction defective.

Trial Control Limits:

Just as the control limits for the X and R-charts are obtained as + 3σ values above the average.
The two control limits, upper and lower for this chart are also calculated by simply adding or

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subtracting 3σ values from centre line value. These trial limits are computed to determine
whether a process is in statistical control or not.

Mostly the control limits are obtained on the basis of about 20-25 samples to pick up the problem
and standard deviation from the samples is calculated for further production control.

Example 3:
The table shows that successive lots of spindle are coming out of the machine. The spindles are
subject to inspection for burrs. The spindles are inspected in samples of 100 each.

Presence of a single or more burrs discriminates the value to be as defective. Compute and
construct the chart.

Computation and Construction:

Here the maximum percent defective is 7% and the total number of samples inspected is 20. On
graph paper, make abscissa for samples number 1, 2, 3, up to 20. Make ordinate as percent

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defective so as to accommodate 7%. Next go on marking various points as shown by the table as
sample number vs. percent defective.

Draw three firm horizontal lines, one each for central line value, upper limit and lower limit after
obtaining by calculations.

Variable Sample Size:

Now consider an example of a P-chart for variable sample size. This is because, hourly, daily or
weekly production somewhat varies. Therefore, it is not always feasible to take the samples of
constant sizes.

Such problems can be solved as under:

Example 4:

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Here the average sample size will be = 900/10 = 90

It is a common practice to apply single control limits as long as sample size varies ± 20% of the
average sample size, i.e., ± 20% of 90 will be 72 and 108. Therefore, mark the samples with ɸ
which are below 72 and above 108.

P̅ the fraction defective = 21/900 = 0.023

As the samples on dates 12, 16, 17, 18, 19 and 20 are covered within ± 20% of the averages, we
have now the following sample sizes for which control limits are to be calculated separately.

Attribute Charts for Number of Defects per Unit: (C-Chart):

This is a method of plotting attribute characteristics. In this case, the sample taken is a single
unit, such as length, breadth and area or a fixed time etc. In some cases it is required to find the
number of defects per unit rather than the percent defective.

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For example take a case in which a large number of small components form a large unit, say a
car or transistor. The transistor set may have defect at various points. In this case, it seems
natural to count the number of defects per set, rather than to determine all points at which the
unit is defective.

This attempt to use P-charts to locate all the points at which transistor is defective seems to be
wrong, impossible to some extent and impracticable approach to the problems. Such a condition
warrants the necessity for the use of a C-chart.

Examples of C-Chart:
The distribution of the variables in C-chart very closely follows the Poisson’s distribution.

The examples given below show some of representative types of defects, following Poisson’s
distribution where C-chart technique can be effectively applied:
(i) Number of blemishes per 100 square metres.

(ii) Typing mistakes on the part of a typist.

(iii) Number of spots on a distempered wall.

(iv) Air gap between two meshing parts of a joint.

(v) Welding defects in a truss.

(vi) Unweaven points on a piece of a textile cloth.

(vii) Leakage in water tight joints of radiator.

(i) The Average Number of Defects:

t is denoted by C̅ (C bar) and is the ratio between the total number of defects found in all samples
and the total number of samples inspected.

(ii) Standard Deviation:

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The sigma of standard deviation for number of defects per unit production is calculated from the
formula σc =
Trial Control Limits:
The control limits can be calculated as ± 3σc from the central line value C.

i.e., UCLc = C̅ + 3
LCLc = C̅ – 3
Example 5:
The following table shows the number of defects on the surface of bus bodies in a bus depot, on
21 Sept. 2013.

Computation:
(i) Compute the average number of defects C̅ = 110/20 = 5.5.

(ii) Compute the trial control limits, UCLc = 5.5 + 3 = 12.54

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LCLc = 5.5 – 3 = – 1 .74 = 0, as -ve defects are not possible.

Construction:
1. Mark abscissa as the body number to a suitable scale (1 to 20).

2. Mark ordinate as number of defects say upto 15. Looking to the table, the maximum number
of 14 defects are in body No. 8.

3. Mark various points for the body number and the number of defects in that body.

4. Join all the 20 points with straight lines and also draw one line each for average control line
value, upper control limit and lower control limit, i.e. 5.5, 12.54 and 0 respectively.

Interpretation:
As shown in the chart, one point No. 8 having 14 defects fall outside the upper control limit. The
data relate to the production on 21/5/2014. then C̅ value requires recalculation which will be 100
+ 14/19 = 5.03. The value 5.03 will be the standard value of C̅ for next day’s production.
Consequently the control limits are also revised if it decided to apply the data in next day’s
production, i.e., 22/5/2014.

BEST OF LUCK!
by
SRCEM Palwal

Prepared By: - Ms.Shivangi Kulshrestha - Assistant Professor, SRCEM, Palwal