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Productions and Operations Management Rupesh Patel

Prof.

Productions and Operations Management: Unit-1: 1) Importance of Operations Management 2) Operations Strategy and Competitiveness 3) Product design and Process Selection 4) Facility layout and location Unit-2: 1) Forecasting 2) Inventory Management 3) Aggregate Planning

Prepared by: Prof. Rupesh Patel

Productio n and Operation s Managem ent

Frequently Asked Questions

Productions and Operations Management Rupesh Patel

Prof.

Que-1: What are responsibilities of Production/Operations Manager? What are 5 Ps of Production and Operations Management?
The following are the major responsibilities of production managers: Planning: Capacity, location, products and services, make or buy, layouts, projects and scheduling Organizing: Degree of centralization, subcontracting Staffing: Hiring/laying off of employees Directing: Incentive plans, issue of work orders, job assignments Controlling: Inventory control, Quality control, Cost control Production managers are responsible for the amalgamation of five Ps namely Product, Plant, Processes, Programs and People. Product: The product is the most obvious interface between production and marketing. It includes characteristics such as performance, aesthetics, quality, reliability, selling price, deliver dates and or lead times. Plant: The plant should have the capacities to meet the present needs as well as that of the future. The considerations are: (i) design and layout of buildings, (ii) performance and reliability of machines and equipment, (iii) maintenance of machines and equipment, (iv) safety of installation and operation of machinery and equipment and (v) environment protection. Process: The processes include the transformation or conversion processes which convert the inputs into outputs. The factors to be examined in deciding upon a process are: (i) available capacity, (ii) available labour skills, (iv) layout of plant equipment, (v) safety requirements in operations and (vi) costs to be achieved. Programs: The programs consist of schedules and timetables which set times for delivery of products or services to customers. These delivery schedules in turn decide the time schedules for various activities such as design, purchase, manufacture, assembly, packing and dispatch etc. People: The people aspect of production management includes the skills, knowledge, intelligence, etc., of labour and managerial personnel which is crucial for the efficient and effective utilization of resources for the production of outputs.

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Productions and Operations Management Rupesh Patel

Prof.

Que-2: What is Production and Operations Management? What is the difference between goods and services?
Any process which involves the conversion of raw materials and bought-out components into finished products for sale is known as Production. Such conversion of inputs adds to the value or utility of the products produced by the conversion or transformation process. The utility or added value is the difference between the value of outputs and the value of inputs. The value addition to inputs is brought about by alteration, transportation, storage or preservation and quality assurance. The term operation refers to a function or system that transforms inputs into outputs of greater value. Operations are often demand as a transformation or conversion process wherein inputs such as materials, machines, labour and capital are transformed into outputs (goods and services). Difference between goods and services: 1) Services are usually intangible whereas goods are tangible 2) Services are often produced and consumed simultaneously, services cannot be stored whereas goods can be produced and inventoried before consumption or use. 3) Services are often unique, for example insurance policies, medical treatment procedures, haircut styles etc. 4) Services have high customer interaction, services are often difficult to standardize and automate because customer interaction demands uniqueness. The service product may have to be customized in most of the service offerings. 5) Services are often knowledge based, for example educational, health-care, legal and consultancy services and, therefore, difficult to standardize and automate. 6) Services are frequently dispersed because services may have to delivered to the client/customer at his/her place or office, a retail outlet or even at the residence of the customer/client. 7) Goods can be inventoried and can be resold whereas reselling of services is unusual and services cannot be inventoried. 8) Some aspects of quality of goods are measurable whereas many aspects of quantity of services are difficult to measure. 9) Selling and production are distinct in case of goods whereas in case of services selling is often a part of the service. 10) Goods can be transported whereas service cannot be transported but the service provider can be transported. 11) Location of facility to manufacture goods, affects costs whereas location of service facility affects customer contact. 12) Manufacturing of goods can be easily automated whereas service is often difficult to automate. -----------------------------------------------------

Que-3: What are the recent trends in Production/Operations Management?


Many recent trends in production/operations management relate to global competition and the impact it has on manufacturing firms. Some of the recent trends are:

Productions and Operations Management Rupesh Patel

Prof.

Global Market Place: Globalization of business has compelled many manufacturing firms to have operations in many countries where they have certain economic advantage. This has resulted in a steep increase in the level of competition among manufacturing firms throughout the world

Production/Operations strategy: More and more firms are recognizing the importance of production/operations strategy for the overall success of their business and the necessity for relating it to their overall business strategy Total Quality Management (TQM): TQM approach has been adopted by many firms to achieve customer satisfaction by a never-ending quest for improving the quality of goods and services. Flexibility: The ability to adapt quickly to changes in volume of demand, in the product mix demanded, and in product design or in delivery schedules, has become a major competitive strategy and a competitive advantage to the firms. Time Reduction: Reduction of manufacturing cycle time and speed to market for a new product provides competitive edge to a firm over other firms. When companies can provide products at the same price and quality, quicker delivery (short lead times) provides one firm with competitive edge over the other. Technology: Advances in technology have led to a vast array of new products, new processes and new materials and components. Automation, computerization, information and communication technologies have revolutionized the way companies operate. Technological changes in products and processes can have great impact on competitiveness and quality, if the advanced technology is carefully integrated into the existing system. Worker Involvement: The recent trend is to assign responsibility for decision making and problems solving to the lower levels in the organization. Reengineering: This involves drastic measures or break-through improvements to improve the performance of a firm. It involves the concept of clean-slate approach or starting from scratch in redesigning the business processes. Environmental Issues: Todays production managers are concerned more and more with pollution and wastes disposal which are key issues in protection of environment and social responsibility. There is increasing emphasis on reducing waste, recycling waste, using less-toxic chemicals and using biodegradable materials for packaging. Corporate Downsizing: Downsizing or right sizing has been forced on firms to shed their obesity. This has become necessary due to competition, lowering productivity, need for improved profit and for higher dividend payment to shareholders. Supply-Chain Management:

Productions and Operations Management Rupesh Patel

Prof.

Management of supply-chain, from suppliers to final customers reduces the cost of transportation, warehousing and distribution throughout the supply chain. Lean Production: Production systems have become lean production systems which use minimal amounts of resources to product a high volume of high quality goods with some variety. These systems use flexible manufacturing systems and multi-skilled workforce to have advantages of both mass production and job production. ------------------------------------------------------

Productions and Operations Management Rupesh Patel

Prof.

Que-4: What is Operation Strategy? How Production/Operations Management is helpful in gaining competitive advantage? What are the various competitive dimensions?
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 organizations resources to support its long-term competitive strategy. Operations management is responsible for managing the resources needed to produce the companys goods and services. Operations is the plan that specifies location, size, and type of facilities available, worker skills and talents required, use of technology, special processes needed, special equipment, and quality control methods. The operations strategy must be aligned with the companys business strategy and enable the company to achieve its longterm plan. Developing competitive dimensions through Operations management: Operations managers must work closely with marketing in order to understand the competitive situation in the companys market before they can determine which competitive priorities are important. Following are the dimensions on which a firm can create a competitive advantage: Cost or Price: Price is the amount a customer must pay for the product or service. If two products are comparable in quality, and differ in price, customers will buy the product or service that has the lower price. Although price is the competitive weapon used in the market place, profitability is related to the difference between price and cost. Hence, the production function must be capable of producing the outputs at low cost. Productions management decisions regarding location, product design, equipment utilization and replacement, labour productivity, inventory control, process technology and tools all contribute to the reduction of costs. Quality: Quality refers to the ability of the product or service to meet the requirements of customers and achieve customer satisfaction for the firm selling the goods or services. Generally quality relates to the customers perceptions of how well the product or service will serve its purpose. Generally customers are often willing to pay more for or wait for delivery of products or superior quality. Product or Service Differentiation: Refers to any special features (such as design, cost, quality, convenience of use, warranty, etc) that causes a product or service to be perceived by the customer as more suitable or attractive than the product or service offered by the competitors. Reliability: A supplier who has a reputation for reliability (i.e. keeping the promised delivery schedule) or who has the capability to meet customer demand through of-the-shelf availability of the product has a strong competitive advantage. Customers are often willing to compromise on cost(i.e., price) or even quality in order to obtain on-time delivery when they need an item. Flexibility: This refers to the ability of a firm to respond to changes demanded by the customers. The changes might relate to increase or decrease in volume demanded or to changes in the design or product or service or changes in the deliver time. A firm having higher flexibility is

Productions and Operations Management Rupesh Patel

Prof.

able to have a competitive advantage over other firms. The ability to be flexible depends a great deal on the design of the productive system and the process technology employed by the firm. Time: Time to perform certain activities refers to several aspects of an organizations operations such as: 1. How quickly a product or service is delivered to a customer 2. How quickly new products or services are designed, developed and launched to the market 3. The rate at which improvements in products or processes are made -----------------------------------------

Que-5: Discuss the historical development of POM.


By the end of the 19th century, the economic structure in most of the developed countries of today was fast changing from a feudalistic economy to that of an industrial or capitalistic economy. The nature of the industrial workers was changing and methods of exercising control over the workers, to get the desired output, had also to be changed. This changed economic climate produced new techniques and concepts. Individual Efficiency: Fredric W Taylor studied the simple output to time relationship for manual labour such a brick laying. This formed the precursor of the present day time study. Around the same time, Frank Gilbreth and his wife Lillion Gilberth examined the motions of the limbs of the workers in performing the jobs, and tried to standardize these motions into certain categories and utilize the classification to arrive at standards for time required to perform a given job. This was the precursor to the present day motion study. Collective Efficiency: Scientists such as Gantt shifted the attention to scheduling of the operations and focused on the aspects of collective efficiency. The considerations of efficiency in the use of materials followed later. It was almost in 1930s, before a basic inventory model was presented by F.W.Harris. Quality: After the progress of application of scientific principles to the manufacturing aspects, the thought process progressed to control over the quality of the finished material itself. Quality which is an important customer service objective, came to be recognized for scientific analysis. The analysis of productive systems, therefore, now also included the effectiveness criterion in addition to efficiency. In 193 Walter Shewart came up with his theory regarding control charts, for quality or what is known as process control. In 1935, H.F.Dode and H.G.Roming came up with the application of statistical principles to the acceptance and rejection of the consignments supplied by the suppliers to exercise control over quality this is now known as acceptance sampling. Effectiveness as a function of internal climate: The Howthorne Experiments brought for the concept of effectiveness as a function of internal climate. These experiments were conducted with purpose with the purpose of increasing the efficiency of the individual worker. These experiments showed that worker efficiency went up when the intensity of illumination was gradually increased, and even when it was gradually decreased, the worker efficiency still kept rising. This puzzle could be

Productions and Operations Management Rupesh Patel

Prof.

explained only through the angle of human psychology; the very fact that somebody cared, mattered much to the workers who gave increased output. Advent of Operations Research Techniques: The advent of Operations Research during the World War II period saw a big boost in the application of scientific techniques in management. Various techniques, such as liner programming, mathematical programming, game theory, quening theory and the like developed by people such as George Dantzig, A chanes, And WW Cooper have become indispensable tools for management decisions making today.

The Computer Age: Around 1955, IBM developed digital computers. This made possible the complex repeated computations involved in various OR and other management science techniques. In effect, it helped to spread the use of management science concepts and techniques in all fields of decision making. Service and Relationships Era: Advances in computing technology, associated software, electronics and communication facilitated the manufacture of a variety of goods and its reach to the consumer. In parallel, the demand for services such as transport, telecommunication and leisure activities also grew at a rapid pace. The service economy came to be treated at par as that of physical goods. In fact, manufacturing started emulating some of the practices and principles of the services industry. Production and Operations Management is now getting to be increasingly relationship oriented. There is a web of relationships between the company, its customers and its business associates. Developments in science and technology give rise to certain social moves. Similarity, the changed social interactions and value systems give rise to changed expectations from the people. The type of products and services that need to be produced would , therefore, keep changing. Today a product represents a certain group of characteristics; a service represents certain other utility and group of characteristics these may undergo changes, perhaps fundamental changes, in the future. Production and Operations Management as a discipline has to respond to these requirements. -------------------------------------------

Que-6: What is Productivity? Measures?

What are various

Productivity

The term productivity describes how well a production manager achieves productive use of the resources of his firm. Productivity is an index or measure of the effective use of resources. It is usually expressed as a ratio or output to input, i.e. Productivity Outputs = ----------Inputs

The outputs are goods and services whereas, the inputs are resources such as materials, labour, energy and other resources used to produce the outputs. Productivity Measures: 1) When productivity ratio is based on a single input it is called partial productivity.

Productions and Operations Management Rupesh Patel

Prof.

2) When the ratio is between more than one input, it is called multifactor productivity. 3) When the ratio is between all inputs and all outputs, it is called total productivity.

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Que-7: Explain Product Development Process in context with Production and Operations Management.
A systematic new product development process has six major steps which are illustrated in following chart.

Productions and Operations Management Rupesh Patel

Prof.

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The six phases of the generic development process are:

Phase 0: Planning: The planning activity is often referred to as phase zero since it precedes the project approval and launch of the actual product development process. This phase begins with corporate strategy and includes assessment of technology developments and market objectives. The output of the planning phase is the project mission statement, which specifies the target market for the product, business goals, key assumptions, and constraints. Phase-1: Concept Development: In this phase the needs of the target market are identified alternative product concepts are generated and evaluated, and one or more concepts are selected for further development and testing. A concept is a description of the form, function and features of a product and is usually accompanied by a set of specifications, an analysis of competitive products, and an economic justification of the project. Phase-2: System-level design: The system-level design phase includes the definition of the product architecture and the decomposition of the product into subsystems and components. The final assembly scheme (which we discuss later in the chapter) for the production system is usually defined during this phase as well. The output of this phase usually includes a geometric layout of the product, a functional specification of each of the products subsystems, and a preliminary process flow diagram for the final assembly process. Phase-3: Design detail: This phase includes the complete specification of the geometry, materials, and tolerances of all the unique parts in the product and the identification of all the standard parts to be purchased from suppliers. A process plan is established and tooling is designed for each part to be fabricated within the production system. The output of this phase is the drawings or computer files describing the geometry of each part and its production tolling, the specifications of purchased parts and the process plans for the fabrication and assembly of the product. Phase-4: Testing and refinement: The testing and refinement phase involves the construction and evaluation of multiple preproduction versions of the product. Early prototypes are usually built with parts with the same geometry and material properties as the production version of the product but not necessarily fabricated with the actual processes to be used in production. Prototypes are tested to determine whether the product will work as designed and whether the product satisfies customer needs. Phase-5: Production ramp-up: In the production ramp-up phase, the product is made using the intended production system. The purpose of the ramp-up is to train the workforce and to work out any remaining problems in the production processes. Products produced during production ramp-up are sometimes supplied to preferred customers and are carefully evaluated to identify any remaining flaws. The transition from production ramp-up to ongoing production is usually

Productions and Operations Management Rupesh Patel

Prof.

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gradual. At some point in the transition, the product is launched and becomes available for widespread distribution. --------------------------------------------

Que-8: Explain various Production Processes.


There are 1. 2. 3. 4. 5. mainly five basic process types: Job shop production Batch production Repetitive or assembly line production Continuous production Project production

1) Job Shop Process: It is use din job shops when a low volume of high-variety goods are needed. Processing is intermittent; each job requires somewhat different processing requirements. A job shop is characterized by high customization (made to order), high flexibility of equipment and skilled labour and low volume. A tool and die shop is an example of job shop where job process is carried out to produce one-of-a-kind of tolls. Firms having job shops often carryout job works for other firms. A job shop uses a flexible flow strategy, with resources organized around the process. 2) Batch process: Batch processing is used when a moderate volume of goods or services is required and also a moderate variety in products or services. A batch process differs from the job process with respect to volume and variety. In batch processing, volumes are higher because same or similar products or services are repeatedly provided. Examples of products produced in batches include paint, ice cream, soft drinks, books and magazines.

3) Repetitive Process/Assembly line process:


This is used when higher volumes of more standardized goods or services are needed. This type of process is characterized by slight flexibility of equipment (as products are standardized) and generally low labour skills. Products produced include automobiles, home appliances, television sets, computers, toys, etc. Repetition process is also referred to as line process a sit include production lines and assembly lines in mass production. Resources are organized around a product or service and materials move in a line flow from one operation to the next according to a fixed sequence with little work-in-progress inventory. This kind of process is suitable to manufacture-to-stock strategy with standard products held in finished goods inventory. However, assemble-to-order strategy and mass customization are also possible in repetitive process. 4) Continuous Process: This is used when a very highly standardized product is desired in high volumes. These systems have almost no variety in output and hence, there is no need for equipment flexibility. A continuous process is the extreme end of high volume, standardized production with rigid line flows. The process often is capital intensive and operate round the clock to maximize equipment utilization and to avoid expensive shutdowns and start-ups. Example of

Productions and Operations Management Rupesh Patel

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products made in continuous process systems include petroleum products, steel, sugar, flour, paper, cement, fertilizers, etc. 5) Project Process: It is characterized by high degree of job customization, the large scope for each project and need for substantial resources to complete the project. Examples of projects are, building a shopping centre, a dam, a bridge, construction of a factor, hospital, developing a new product, publishing a new book, etc. Projects tend to be complex, take a long time and consist of a large number of complex activities. Equipment flexibility and labour skills can range from low to high depending on the type of projects. ------------------------------------------------

Que-9: Two types of cars (Deluxe and Limited) were produced by a car manufacturer in 2005. Quantities sold, price per unit, and labour hours follow. What is the labour productivity for each car? Explain the problems associated with the labour productivity.
Quantity 4000 units sold 6000 units sold 20,000 hours 30,000 hours Rs/Unit Rs. 3,20,000/car Rs. 4,00,000/car Rs. 30/hour Rs. 40/hour

Deluxe car Limited Car Labour, Deluxe Labour, Limited

Solution: 1) Deluxe car Productivity


capital) = = = (4000 x 320000) (1280000000) 2133 = = (Deluxe car sales/year)

(Deluxe car labour

/ (20000 x 30)
(600000)

2) Limited car productivity


capital) = = =

(Limited car sales/year)

(limited car labour

(6000 x 400000) (2400000000) 2000

/ (30000 x 40)

/ (1200000)

The labour productivity for deluxe car is better than that of limited car The price of limited car is higher than that of deluxe car, even the labour rate for limited car is also at higher side, which clearly indicates that the car manufacturer is more conscious about quality of limited cars than that of deluxe cars. If any organization is focusing on quality of its products that there will be trade-off with productivity.

Productions and Operations Management Rupesh Patel

Prof.

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So, the case presented here is a normal scenario. ----------------------------------------------

Que-10: A US manufacturing company operating a subsidiary in an LDC (less developed country) shows the following results:
Sales(units) Labour(hours) Raw materials (currency) Capital equipment (hours) US 100,000 20,000 $20,000 60,000 LDC 20,000 15,000 FC 20,000 5,000

a) Calculate partial labor and capital productivity figures for the parent and subsidiary. Do the results seem misleading? b) Compute the multifactor productivity figures for labour and capital together. Are the results better? c) Calculate raw material productivity figure (units/Re where Re 1 = FC 10). Explain why these figures might be greater in the subsidiary.
Solution:

Case a:
Parent Company:

1) Labour productivity =
/ Input = 20000 = 5

Output /

2) Capital productivity = Output / Input = 20000 / 5000 = 4 a) There is huge difference between labour productivities of Parent company and subsidiary company b) Capital productivity of subsidiary is higher than that of the Parent company, which is contradictory.

100000

2) Capital productivity = Output / Input = 100000 / 60000 = 1.66

Subsidiary Company:

1) Labour productivity =
/ Input = 15000 = 1.33 20000

Output /

Case b:Parent Company: 1) Multifactor productivity = = = Subsidiary Company: 1) Multifactor productivity = = = = Output / (Labour + Capital) 100000 / (20000+60000) 100000 / 80000 1.25

= Output / (Labour + Capital) 20000 / (15000+5000) 20000 / 20000 1

Yes, the multifactor productivity of labour and capital of parent company and its subsidiary is very much similar to each other.

Case c:Rate of exchange is Therefore, 1 Re = 10 FC $ 1 = 10 FC (Foreign Currency) $2000 = 20000 FC

Parent Company: 1) Raw materials productivity = = = Subsidiary Company: 1) Raw materials productivity = = = Output / Input 20000 / 2000 10 Output / Input 100000 / 2000 5

The raw-materials productivity is better n subsidiary than that of parent company. The reasons might be as following: The capital equipment productivity of subsidiary is greater than that of parent company. Which clearly suggests that the machineries and equipments are used in optimum manner in subsidiary as compared to parent company. o More output from the available capital equipment hours o Less damaged products o Less wastage of raw-materials So the better capital equipment usage leads the subsidiary to better rawmaterials productivity

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Que-11: Various financial data for 2004 and 2005 follow. Calculate the total productivity measure and the partial measures for labor, capital, and raw-materials for this company for both years. What do these measures tell you about this company?
Output Input Sales Labor Raw materials Energy Capital Other 2004 Rs. 200000 30,000 35,000 5,000 50,000 2,000 2005 Rs. 220000 40,000 45,000 6,000 50,000 3,000

Solution:

2004
1) Total Productivity
Input = 200000 /
(30000+35000+5000+5000 0+2000)

2005
= Output /

1) Total Productivity
Input =

Output /

220000 /

(40000+45000+6000+5000 0+3000)

= 200000 / 122000 = 1.64

= 220000 / 144000 = 1.52

2) Labour Productivity
Input = =

Output /

2) Labour Productivity
Input = =

Output /

200000 / 30000 6.66 = Output /

220000 / 40000 5.55 = Output /

3) Raw Materials Prod.


Input = =

3) Raw Materials Prod.


Input = =

200000 / 35000 5.71

220000 / 45000 4.88

During 2004 to 2005, the productivity of the company has been decreased because of fall in labour and raw-materials productivity While the capital productivity has been improved in 2005 than that of in 2004 -----------------------------------------------

Que-12: An electronics company makes communication devices for military contracts. The company just completed two contracts. The navy contract was for 2300 devices and took 25 workers two weeks (40 hours per week) to complete. The army contract was for 5500 devices that were produced by 35 workers in three weeks. On which contract were the workers more productive? Contract - 1 Contract - 2
No. of Output devices No. of Worker workers No. of hrs/week No. of week consumed No. of man-hours = x = = 2300 25 No. of Output devices No. of Worker workers No. of hrs/week No. of week consumed No. of man-hours = = = 5500 35

= 40 hrs = 2 weeks No. of workers x No. of hrs/week

= 40 hrs = 3 weeks No. of workers x No. of hrs/week No. of weeks 35 x 40 x 3 4200 man-

x No. of weeks = 25 x 40 x 2 = The productivity in contract-2 manis better than that of contract-1. = 2000 = hours hours Productivity = = = Output / Input Productivity 2300 / 2000 ------------------------------------1.15 = = =

Output / Input 5500 / 4200 1.31

Que - 13: A retail store had sales of Rs.45000 in April and Rs.56000 in May. The store employs eight full-time workers who work a 40hour week. In April the store also had seven part-time workers at 10 hours per week, and in May the store had nine part-timers at 15 hours per week (assume four weeks in each month). Using sales value as the measure of output, what is the percentage change in productivity from April to May? May April
Sales = Rs.45000 Fulltime workers = 8 (@ 40 hrs/week) Part-time workers = 7 (@ 10 hrs/week) Total Man-hours = ((8x40)+(7x10)) Months x 4 weeks = (320+70)x4 = 1560 man-hrs Productivity = Output / Input = 45000 / 1560 % change in productivity = 28.84 Sales = Rs.56000 Fulltime workers = 8 (@ 40 hrs/week) Part-time workers = 9 (@ 15 hrs/week) Total Man-hours = ((8x40)+(9x15)) Months x 4 weeks = (320+135)x4 = 1820 man-hrs Productivity = Output / Input = 56000 / 1820 = [(30.76 28.84) / 28.84] x 100 = 30.76

6.65 %

The productivity of May is increased by 6.65 % than that of April

A parcel delivery company delivered 1,03,000 packages in 2004, when its average employment was 84 drivers. In 2005 the firm handled 112,000 deliveries with 96 drivers. What was the percentage change in productivity from 2004 to 2005?

Que 14: What are the factors influencing while selecting a Facility Location?
Following are the factors influencing the selection of Facility location: 1) Deciding on domestic or international location: First the management must decide whether the facility will be located internationally or domestically. Nowadays, with the globalization of business this choice is significant because a location in any country in the world will be considered to have competitive advantages derived from location. If the decision is to choose an international location, the next logical step is to decide about the country for location. The choice of a particular country for location depends on such factors as: (i) political stability, (ii) export and import quotas, (iii) exchange rates, (iv) cultural and economic considerations, (v) availability of natural resources, eliminate, cost of labour etc. 2) Regional location decision: The selection of a particular region may involve choosing among many national regions or among several regions within a much smaller geographical area. The factors affecting the selection of a particular region are: Availability of raw materials and nearness to the sources of raw materials: This will reduce the cost of transportation of raw materials from its source to the place where the plant is located. For example, steel, sugar, paper and cement industries which use bulky raw materials should be located near the sources of raw materials. Nearness to the market: For many firms producing consumer non-durable items such as bread, ice-cream, packed foods, etc, it is necessary to be located near the market to reduce the transportation costs as well as reduce the time required of transportation. Also, when finished goods are bulky, heavy, fragile or perishable, the firms must be located nearer to market to increase the speed of delivery. For instance, bottling plants of soft-drink companies are located within the cities. Proximity to suppliers: Firms are located near their suppliers because of perishability, transportation costs, or bulkiness of materials. Availability of Power: Power is essential for any manufacturing firm. Coal, oil and natural gas are sources of electric power in addition to generation of power through hydro electric power stations.

Some industries such as Aluminum extraction plants consume heavy amount of electricity and hence, require adequate supply of electricity at a cheap rate. Transport Facilities: Transport facilities are essential for transportation of raw materials and supplies and employees to the plant as well as for carrying finished goods from the plant to the market place. The location of the plant must be well connected by rail, road and sea. For example, petroleum refineries and fertilizer plants are located near the ports because they need shipping facility either to bring raw materials (such as crude oil) to the plant or ship the finished products (fertilisers) to other destinations (ports). Suitability of Climate: Certain industries require particular climatic conditions because of the nature of their production. For example, humid climate is required for cotton textile and jute industries. Also, dust free climatic conditions are favorable for electronic industries. Even though the desired climatic conditions can be provided artificially, it would be quite costly to do so and hence, natural climatic conditions are preferred. Government Policy: Some states in backward regions of our country, have encouraged industrialists to locate their industries in the backward regions (economically backward states). The central government may influence plant location in backward states by their licensing policy, freight rate policy, institutional finance and subsidies, etc. Competition between states: Many states compete among themselves to attract new industries by offering investment subsidies, cheap power and land, sales tax exemption, longer loan repayment period and low interest rates, etc., small and medium sized plants are attracted by these incentives.

3) Selection of Community: The selection of a locality or a community in a region is influenced by the following factors: Availability of Labour: Labour having the appropriate levels of skills needed for the industry is an important consideration. The skilled labour influences the plant location (their availability and cost). This factor may not be very important if the skilled labour are mobile (i.e., willing to move). The attitude of labour (workers), union activities and industrial disputes play a major role in attracting an industry to be located in a community. Civic Amenities for Employees: Employees need facilities such as housing, medical facilities, sports and recreational facilities, educational facilities. Such facilities will attract skilled labour and other employees to the plants which are located in places where all employee amenities are available. Existence of Complementary, Ancillary and Competing Industries: Complementary and ancillary industries can accept job orders which are subcontracted by major industries. Also, the big industries can get raw materials, tools and supplies from the small scale industries located in the vicinity of in the same community. Competing industries which encourage healthy competition are advantageous to the new plants because they can jointly tackle certain problems regarding raw materials, labour, power, wastage, disposal,

pollution control, etc., and also collectively negotiate with labour unions or government agencies. Finance and Research Facilities: Availability of banks, financial institutions, and research and development laboratories is also a factor which attracts new industries to a location. Availability of Water: Some industries such as chemical and paper industries require plenty of water for industrial use and hence must be located where water is available in abundance. Regularity of supply, cost and purity are considered regarding water supply to the plant.

Availability of Fire Fighting Facilities: Since industrial units are prone to fire hazards, adequate fire fighting facilities must be available Local taxes and restrictions: The municipality or local administration has its own tax structure for industries and regulations waste disposal, effluents and smoke emanated from the industries. 4) Selection of Exact Site: The selection of exact site for a plant is influenced by the following considerations: Area of land available, soil, topography and cost of land: For certain industries such as Agro industries, fertile soil is necessary. For industries requiring large area of land, availability of land and cost of land are important considerations. Topography is also considered because a hilly, rocky and rough terrain is unsuitable and involves expenditure to level the site. Disposal of waste: Some industries such as chemical plants, leather industries, breweries, steel plants etc. have the problem of disposal of effluents and the site selected should have provision for this. Community Attitude: The people living in the nearby areas surrounding the proposed site for the industry should not oppose the location of the plant. The reasons for negative attitude could be pollution, health hazards (such as radiation) dangerous fumes emanating from the industries etc.

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Que 15: What is facility layout? What are the needs for facility layout planning?
Plant layout, also know as Facility Layout refers to the configuration of departments, workcenters and equipment and machinery with focus on the flow of materials or work through the production system. Plant layout or facility layout means planning for location of all machines, equipment utilities, work stations, customer service areas, material storage areas, tool servicing areas, tool cribs, aisles, rest rooms, lunch rooms, coffee/tea bays, offices, and computer rooms and

also planning for the patterns of flow of materials and people around, into and within the buildings. The need for layout decisions: The need for layout planning arises both in the process of designing new plants and the redesigning of existing plants or facilities.

Reasons for design of new layouts: 1) Layout is one of the key decisions that determine the long-run efficiency in operations. 2) Layout has many strategic implications because it establishes an organizations competitive priorities in regard to capacity, processes, flexibility and cost as well as quality of work life, customer contact and image (in case of service organization). 3) An effective layout can help an organization to achieve a strategic advantage that supports differentiation, low cost, fast response or flexibility. 4) A well designed layout provides an economic layout that will meet the firms competitive requirements. Reasons for redesign of layout: 1) Inefficient operations (high cost, bottleneck operations) 2) Accidents, health hazards and low safety 3) Changes in product design/service design 4) Introduction of new products/services 5) Changes in volume of output or product-mix changes 6) Changes in processes, methods or equipment 7) Changes in environmental or legal requirements 8) Low employee morale

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Que 16: Discuss various types of Facility Layout.


A layout essentially refers to the arranging and grouping of machines which are meant to produce goods or services. Grouping is done on different lines. The choice of a particular line depends on several factors. The methods of grouping or the types of layout are: 1) Product or Line Layout 2) Process or Functional Layout 3) Fixed position or static Layout 4) Cellular layout or Group Technology Layout 1) Line of product layout

The position and order in the sequence for a machine performing particular operation is fixed. Once a machine is in line, it cannot perform any operation, which is not designated in the sequence of operations. There is a continuous flow of material during the production process from start to finish.

Advantages of line of production layout: 1. Ensures smooth and regular flow of material and finished goods. 2. Provides economy in materials and labour by minimizing waster.

3. Short processing time. 4. Reduces material handling. 5. Low cost labour procurement and lesser training requirements 6. Lesser Inspection. 7. Floor area is more production 8. Easy production control. 9. Minimum need for buffer stock. Disadvantages of line of production layout: 1. Product layout is inflexible in nature. 2. Chances of production line to shut down. 3. Supervision is more difficult. 4. Requires heavy capital investment

2) Functional or process layout

Here machines performing same type of operations are installed at one


place .i.e. plant is grouped according to functions e.g. all drilling machines are located at one place known as drilling section. This type of layout is most appropriate for intermittent (JOB and BATCH ) type of mfg systems where small qtys of a large range of products are to be manufactured e.g. machine tools etc. Advantages of process layout: 1. Each production unit of the system works independently and is not affected by the happenings in another section of the plant. 2. Scope for more skilled labour leads to better quality in production. 3. Wide flexibility in production facilities. 4. Effective supervision. 5. Machine breakdown doesnt disrupt production. 6. Lower capital investment. (less duplication of machines). Disadvantages of process layout: 1. More material handling. 2. Longer processing time, as more time s required for material handling, transportation and inspection.. 3. Requires substantial production planning and control. 4. Requires more floor space. 5. Inspections more frequent and costlier. 6. Requires highly skilled labour creating difficulty in labour procurement.

3) Stationary layout This type of layout is used in situations where the semi finished goods are of such a size and weight that their movement from one place to the other is not possible. Here men, equipment and the raw-material is moved to a place where all the mfg activities are carried out e.g. Ship building, constructions of dams etc..

Advantages of Fixed Layout: 1. This layout is flexible with regard to change in design, operation sequence, labour availability etc. 2. It is essential in large project jobs, such as construction and shipbuilding etc., where large capacity mobile equipment is required 3. Very cost effective when similar type products are being processed, each at a different stage of progress. Disadvantages of Fixed layout: 1. Capital investment may be for a one-off product, which can make it expensive. 2. Due to long duration to complete a product, average utilization of capital equipment is limited. 3. Space requirements for storage of material and equipment are generally large 4) Cellular Layout Cellular Layout is a layout based on Group technology principles. In this layout, components that are similar in design or manufacturing operations, are groped into one family, called part-family. It is a combination of both process and product layout and incorporates the strong points of both.

Advantages of Cellular Layout: 1. Lower work-in-progress inventories 2. A reduction in materials handling costs 3. Shorter flow times in production 4. Simplified scheduling of materials and labour 5. Quicker set-ups and fewer tooling changes 6. Improved functional and visual control Disadvantages of Cellular Layout: 1. Reduced manufacturing flexibility 2. Unless the forecasting system in place is extremely accurate, it also has the potential to increase machine downtime 3. There is also the risk that the cells that may become out-of-date as products and processes change, and the disruption and cost of changing to cells can be significant 4. There is increased operator responsibility, and therefore behavioral aspects of management become crucial -------------------------------------------

Que 17: What is forecasting? Explain various forecasting methods.


Forecasting is the first step in planning. Forecasting is defined as estimating the future demand for products and services and the resources necessary to produce these outputs. Estimating of future demand for products or services are commonly referred to as sales forecasts. The sales forecasts or demand forecasts are the starting point for the entire planning in production and operations management. For example, material planning, capacity planning, manpower planning, financial planning and production scheduling, all depend on sales forecasting. Forecasting methods:

The two general methods to forecasting are: (i) Qualitative, and (ii) Quantitative. Qualitative methods consist mainly of subjective inputs, often of non-numerical description. Quantitative methods involve either projection of historical data or the development of association models which attempt to use causal variables to arrive at the forecasts. Qualitative Methods 1. Jury of Executive Opinion: It is a forecasting technique in which the opinions of a small group of high-level executives (managers) are taken, based on which a group estimate of demand is obtained as the forecast. Advantage: Uses experience and knowledge of two or more managers to arrive at a single forecast. Can be used for technological forecasting. Can be used for forecasting the demand for new products Can be used to modify an existing forecast to account for unusual circumstances Disadvantages Executive opinion can be costly because it takes valuable executive time. It sometimes gets out of control or gets delayed. Difficult to obtain consensus opinion of several experts. 2. Sales Composite Method: This is also known as Pooled Sales force Estimate method. Each sales person estimates what sales will be in his or her territory. These estimates are then reviewed to ensure that they are realistic. Then they are combined at the district and national level to arrive at the overall forecast. Advantages: The sales force is the group closest to the customers. The sales persons are most likely to know which products or services, customers will be buying in the near future and in what quantities. Sales territories often are divided into districts or regions and forecasts for districts or regions will be useful in inventory management, distribution and sales force staffing. Disadvantages Individual biases of sales people may affect the sales forecast (some are optimistic and some are pessimistic). Sales people may be unable to distinguish between what customers would like to do and what they actually will do. Sometimes, sales people may be overly influenced by their recent experiences. If the firm uses individual salespersons estimate as a performance measure, sales people may deliberately underestimate their forecasts so that their performance will look good when they exceed their quotas which are fixe based on their estimates. 3. Market Research / Consumer Survey Methods: This is a systematic approach to determine consumer interest in a product or service by conducting a consumer survey and sample consumer opinions. This method may be used to forecast demand for the short, medium and long-term. Advantages

Consumers opinion regarding their future purchasing plans are better than executive opinion or sales force opinion because it is the consumers who ultimately determine demand. Also, information that might not be available elsewhere can be obtained by consumer surveys. Disadvantages It may not be possible to contact every customer or potential customer and opinions are obtained from sample customers which may lead to forecast error if the sample size is inadequate Surveys require considerable amount of knowledge and skill to handle correctly. Surveys can be expensive and time consuming. The response rate for mailed questionnaire may be poor. The survey results may not reflect the opinions of the market.

4. Judgmental Method/Delphi Method: In this method opinions are solicited from a number of other managers and staff personal. The decision makers consist of a group of 5 to 10 experts who will be making the actual forecast. Each new questionnaire is developed using the information extracted from the previous one, thus enlarging the scope of information on which participants can base their judgments. Advantages This method can be used to develop long-range forecasts of product demand and sales projections for new products. A panel of experts may be used as participants (respondents) Disadvantages: The process can take a long time Responses may be less meaningful because respondents are not accountable due to anonymity. High accuracy may not be possible Poorly designed questionnaire will result in ambiguous or false conclusions.

Quantitative Methods There are five quantitative forecasting methods, all of which use historical data. They fall into two categories. Time series models 1. Nave approach 2. Moving averages method 3. Exponential smoothing method Causal models 1. Trend projection 2. Linear regression analysis

Time Series Models 1. Nave Approach

The simplest way to forecast is to assume that forecast of demand in the next period is equal to the actual demand in the most recent period (i.e. the current period). For example: If the actual sales for a product in January 2011 is 100 units, the forecast demand for February 2011 will also be 100 units. 2. Moving Averages Method 1. Simple Moving Average Method A moving average forecast uses a number of most recent historical actual data values to generate a forecast. The moving average for n number of periods in the moving average is calculated as: Moving average = demand in previous n periods n n may be 3, 4, 5 or 6 periods for 3, 4, 5 or 6 period moving average 2. Weighted Moving Average Method Each historical demand in the moving average can have its own weight and the sum of the weight equals one. For example, in a 3 period weighted moving average model, the most recent period might be assigned a weight of 0.50, the second most recent period might be assigned a weight of 0.30 and the third most recent period with a weight of 0.20 Then forecast, F t+1 = (0.40Ft + 0.30Ft-1 + 0.20Ft-2 + 0.10Ft-3) / (0.4+0.3+0.2+0.1) 3. Exponential Smoothing Method It is a sophisticated weighted moving average method that is still relatively easy to understand and use. It requires only three items of data This periods forecast, The actual demand for this period which is referred to as smoothing constant and having a value between 0 and 1. Ft = Ft-1 + (At-1 - Ft-1) Ft Ft-1 At-1 = = = = Forecast for the this period (t) Forecast for the previous period (t-1) Actual demand for the previous period (t-1) Smoothing constant (value varies from 0 to1)

Causal Models 1.Trend Projection Method (TPM) The trend component of a time series reflects the effect of long-term factors on the series. Analysis of trend involves developing an equation that will suitably describe trend. The trend component may be liner or may not. A simple plot of the data can often reveal the nature of a trend. Trend Equation : A linear trend can be expressed as Y = a + bx

x = Specified number of time periods from x = 0 y = Forecast for period x a = Value of yt at x = 0 b = Slope of the straight line 2. Linear Regression Model In a simple linear regression model, the dependent variable (Y) is a function of only one independent variable (x) and the theoretical relationship is linear or a straight line. Y = a + bx Y = Dependent variable X = Independent variable A = A constant value (a constant value) B = Slope of the line (a constant value) --------------------------------------------

Que - 18. The number of cans of soft drinks sold in a machine each week is recorded below. Develop forecasts using a three period moving average. 338, 219, 278, 265, 314, 323, 299, 259, 287, 302
Let Xt denote the number of cans of soft drinks sold in a machine of th the t week. Now the 3 month moving average of the t+1th week is given by

Ft=

Xt + Xt-1 + Xt-2 3
, t=3, 4, & 5

Now the three periods moving average forecast is given in the following table
Three-period moving average Forecast Week (t) Xt (Ft) 1 2 3 4 5 6 7 8 9 10 338 219 278 265 314 323 299 259 287 302 278.33 254.00 285.67 300.67 312.00 293.67 281.67

Que 19: Use a four period moving average to forecast attendance at baseball games. Historical records show 5346, 7812, 6513, 5783, 5982, 6519, 6283, 5577, 6712, and 7345
th

Let Xt denote the number of viewers of baseball game of the t th 4 period mov- ing average of the t+1 period is given by

period. Now the

Xt + Xt-1 + Xt-2 + Xt-3 Ft= 4


, t= 4, 5, 6 & 7

Now the four periods moving average forecast is given in the following table

Four period moving average Perio Forec d X ast 1 5346 2 7812 3 6513 4 5783 5 5982 6363. 5 6 6519 6522. 5 7 6219 6199. 25 8 6283 6125. 75 9 5577 6250. 75 1 6712 6149. 0 5 1 7345 6197. 1 75

Que 20: A hospital records the number of floral deliveries its patients receive each day. For a two week period, the records show 15, 27, 26, 24, 18, 21, 26, 19, 15, 28, 25, 26, 17, 23 Use exponential smoothing with a smoothing constant of .4 to forecast the number of deliveries.

The formula is Ft=*At-1+ (1- ) Ft-1


Here, = 0.4 A=actual data F=forecasted data t=period number

Week

Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Delive Ft by exponential ry15 smoothing 27 26 24 18 21 26 19 15 28 25 26 17 23 15 19.8 22.28 22.96 8 20.980

8 21.3958528 18.83751168 22.50250701 23.5015042 24.50090252 21.50054151

8 20.9884 8 22.99308

Que 21: The number of girls who attend a summer basketball camp has been recorded for the seven years the camp has been offered. Use exponential smoothing with a smoothing constant of .8 to forecast attendance for the eighth year. 47, 68, 65, 92, 98, 121, 146
A

Ft=Ft-1+ (At-1-Ft-1) Here; = 0.8

Year 1 2 3 4 5 6 7 8

Attendan Ft by exponential ce 47 smoothing 68 65 92 98 121 146 47 63.8 64.7 6 86.55 2 95.710

4 115.9420 8 139.988416

Que 22: The number of pizzas ordered on Friday evenings between 5:30 and 6:30 at a pizza delivery location for the last 10 weeks is shown below. Use exponential smoothing with smoothing constants of .2 and .8 to forecast a value for week 11. Compare your forecasts using MSE. Which smoothing constant would you prefer? 58, 46, 55, 39, 42, 63, 54, 55, 61, 52

Ft=Ft-1+ (At-1-Ft-1)
No of Pizza 58 46 55 39 42 63 54 55 61 52 0.2 MSE 84.1234472 5 Squar ed Erro 144 0.36 271.5904 103.71385 6 165.194467 8 1.64413941 8 4.10383322 7 58.0740564 7 8.43027229 8

Week 1 2 3 4 5 6 7 8 9 10 11

Ft by exponential 58 55. 6 55.4 8 52.18 4 50.147 2 52.7177 6 52.9742 08 53.37936 64 54.903493 12 54.32279 45

Error -12 -0.6 -16.48 -10.184 12.852 8 1.2822 4 2.02579 2 7.62063 4 2.90349

No of Pizza 58 46 55 39 42 63 54 55 61 52

0.8

MSE

107.170372 1 Squared Error 144 43.56 215.5024 0.004096 441.537763 8 23.0154305 5 0.00164122 2 36.0972944 5 60.8147231 4

Week 1 2 3 4 5 6 7 8 9 10 11

Forecast using exponential 58 48. 4 53.6 8 41.93 6 41.987 2 58.7974 4 54.9594 88 54.99189 76 59.798379 52 53.55967 59

Error -12 6.6 -14.68 0.064 21.012 8 4.79744 0.04051 2 6.00810 2 7.79838

It is clear by MSE that if value increases the error is also increase.

Que 23: What is Aggregate Production Planning?

It Is the process of determining output levels (units) of product groups over the next 6 to 18 months period on a weekly or monthly basis. The plan indicates the overall level of outputs level of outputs supporting the business plan. Aggregate production planning involves planning the best quantity to produce during time periods in the intermediate-range horizon (often 3 months to 1 year) and planning the lowest cost method of providing the adjustable capacity to accommodate the production requirements. For manufacturing operations, aggregate planning involves planning workforce size, production rate (work hours per week) and inventory levels. ----------------------------------------

Que 24: What are the objectives of Aggregate Production Planning?


1. To develop plans that are (a) Feasible: The plans should provide for the portion of demand that the firm intends to meet and should be within the capacity of the firm (b) Optimal: The firm should aim for plans which will ensure that resources are used as wisely as possible and cost kept as low as possible. 2. To increase the range of alternatives of capacity use that can be considered by the management of the firm ----------------------------------------

Que 25: What are the purpose and scope of Aggregate Planning?
Aggregate planning begins with a forecast of aggregate demand for a product, over the intermediate time horizon. Then general plan in prepared to meet the demand requirement by setting output, work force and finished goods inventory levels. Alternate plans must be examined in light of feasibility and cost. Within the intermediate time horizon (6 to 12 months) of the production plan, it is usually not feasible to increase capacity by building new facilities or purchasing new equipment. However, it is feasible to hire or lay-off workers, increase or reduce the working hours (add an extra shift, sub-contract, use overtime) or build up or deplete inventory levels.

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Que 26: What are the Inputs and Outputs for Aggregate Production Planning?

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Que 27: Explain the process of Aggregate Planning?

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Que 28: What is Materials Requirements Planning?


For a manufacturing company to produce end items to meet demand, the availability of materials, fabricated parts or sub-assemblies are required. One approach to manage the availability of these items is to keep a high stock of all the items that might be needed to produce the end items. An alternative approach to managing these requirements is to plan for procurement or manufacture of the specific components that will be required to produce the required quantities of end products as per the production schedule indicated by the master production schedule(MPS). The technique is know as material requirements planning technique.

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Que 29: What are the objectives of Materials Requirements Planning?


The objectives of MRP in operations management are: 1) To improve customer service by meeting delivery schedules promised and shortening delivery lead times 2) To reduce inventory costs by reducing inventory levels 3) To improve plant operating efficiency by better use of productive resources.

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Que 30: What are the Inputs and Outputs of MRP system?

MRP system Inputs:

1. Master Production Schedule: MPS specifies what end products are to be produced and when. 2. Bill of Material File or Product Structure File: Provides the information regarding all the materials, parts and sub assemblies that go into the end product. 3. Inventory Status File: Gives complete and up-to-date information on the on-hand quantities, gross requirements, schedules receipts and planned order releases for the item. It also includes other information such as lot sizes, lead times, safety stock levels and scrap allowances, etc. MRP system Outputs: 1. Two primary outputs are: Planned order schedule which is a plan of the quantity of each material to be ordered in each time period. The order may be a purchase order on the suppliers or production orders for parts and sub-assemblies on production departments Changes in planned orders i.e., modification of previous planned orders. 2 The secondary outputs are: Exception reports which list items requiring management attention to control Performance reports regarding how well the system is operating, e.g., inventory turnovers, percentage of delivery promises kept and stock-out incidences. Planning reports such as inventory forecasts, purchase commitment reports, etc. -------------------------------------

Que 31: Explain Materials Requirements Planning process?

The Materials Requirements Planning portion of manufacturing activities most closely interacts with the master schedule, bill of materials file, inventory records file, and the output records as shown in the above chart. 1) Demand For Products: Product demand for end items comes primarily from two main sources. The first is known customers who have placed specific orders, such as those generated by sales personnel, or from interdepartmental transactions. These orders usually carry promised delivery dates. There is no forecasting involved in these orders-simply add them up. The second source is forecast demand. The demand from the known customers and the forecast demand are combined and become the input for the master production schedule. In addition to the demand for end products, customers also order specific parts and components either as spares or for service and repair. 2) Bill of Materials File: The bills of materials (BOM) file contains the complete product description, listing not only the materials, parts, and components but also the sequence in which the product is created. This BOM file is one of the three main inputs to the MRP program. The BOM file is often called the product structure file or product tree because it shows how a product is put together. It contains the information to identify each item and the quantity used per unit of the item of which it is a part.

3) Inventory Status File: This file contains important information such as what items should be ordered, and when orders should be released. The inventory status file keeps data about the projected use and receipts of each item and determines the amount of inventory that will be available in each time bucket. If the projected available inventory is not sufficient to meet the requirement in a period, the MRP program will recommend that the item be ordered. -----------------------------------

Que 32: What is Inventory? What is Nature and Importance of Inventory management?
The term inventory refers to any resource that has certain value, which can be used at a future occasion when the demand arises. Alternatively inventory may be defined as stock of items kept on hand by an organization to be used to meet customer demand. Virtually every type of organization maintains some form of inventory. A department stores or retail store carries inventories of all the retail items it sells, a family household maintains inventories of food, clothing, medical supplies, an automobile dealer maintains inventory of automobiles, a manufacturing firm maintains inventory of raw materials, bought-out components, semi finished goods or work-in-progress items, finished goods, spare parts for maintenance of equipment and machinery, inventory of skilled labour, liquid funds such as cash and also inventory of plant and equipment. In an organization, the importance of inventory management can be recognized for the following reasons. 1) Inventories represent resources acquired at a cost, thereby locking up substantial working capital. 2) Inventories allow for smooth flow of production process by ensuring that adequate supply of raw materials, components and manufactured items are available to the production lines. 3) Inventories serve as buffers against uncertain and fluctuating usage and reduce stockout situations, thereby avoiding production hold-ups and loss of customer goodwill. ------------------------------------

Que 33: What are the types of different inventories needs to be managed in an organization?
Inventories are usually classified as: (a) Raw materials, (b) Bought-out components or subassemblies, (c) Semifinished goods or work-in-process, (d) Consumable stores, (e) maintenance spare parts, (f)Finished goods stored or in transit to warehouses or customers. Following are lists of various types of inventories: (A) Based on nature of materials: Production Inventories: Raw materials, parts and component which become part of the firms finished product in the production process.

MRO Inventories: Maintenance, repair and operating supplies which are consumed in the production process, but which do not become part of the finished product (e.g. lubricants, grease cotton waste, spare parts for machine repars). In-process Inventories: Also known as work-in-process or work-in-progress or semifinished goods inventories these are parts or sub assemblies found at various stages in the production process. Finished Goods Inventories: Completed products kept in stores ready for shipment. (B) Classified by how it is created Cycle Inventory: The position of total inventory which varies directly with lot size (i.e., quantity ordered). For example, if Q is the order quantity or the lot size and the supply is received exactly when the stock is nil, then the minimum inventory is nil, maximum inventory is Q and the average cycle inventory is half of quantity ordered. Safety Stock Inventory: Safety stock inventories are held to avoid stock-out conditions which cause production stoppages and to project against uncertainties in demand, lead time, supply and consumption rates. Anticipation Inventory: Inventory of materials purchased in bulk quantities in anticipation of price rise and products having seasonal demand produced in quantities more than the demand during off-seasons and held in inventory to meet higher demand rate (more than production rate) during seasons of high demand. Pipe-line Inventory: Inventory moving from point to point in the materials flow system. Materials move from supplier to a plant, from one operation to the next in the plant and from the plant to the warehouse or distribution centre of to the customer. Pipe line inventories also include materials that have been ordered but not received. Fluctuation Inventory: Inventory held as reserve stock to meet the unexpected fluctuating demand over a period which cannot be predicted accurately. --------------------------------------

Que 34: What are the functions of Inventory Management?


The objective of maintaining inventories in organizations is that it is rarely possible to predict sales levels, production levels, demand and usage patterns exactly. In such situations, inventory serves as a buffer against uncertain and fluctuating and keeps a supply of items available in case items are needed by the organization or its customers. The many functions that inventories perform can be summarized as follows: 1) Smoothing out irregulations in supply: Inventories provide a buffer to overcome the problems of uncertainties in supplies such as delayed deliveries and supply of short quantities by vendors as against the promised delivery schedules and quantities. Also, the customer demand for the goods may increase suddenly which affects the ability of the manufacturer to meet the customer demand. In such cases also, an inventory of finished goods held in the warehouses will act as a buffer against the uncertainties in demand. Thus, inventories fill the gap between supply and demand.

2) Buying or producing in lots or batches: When the demand for an item does not justify its continued production through-out the year, it is produced in batches or lots on an intermittent basis. During the time when the item is not being produced, demands are meet from the inventory which is accumulated by batch production. 3) To meet seasonal or cyclical demand: Companies will produce items at a constant production rate more than the demand rate in order to meet the seasonal demand occurring at a later period for which the production capacity its insufficient. 4) To take advantage of price discounts while buying items: A company will often purchase large amounts of inventory to take advantage of price discounts, as a hedge against anticipated price increase in the future. In some cases large quantities are ordered becaue the cost of an order may be very high and it is more cost-effective to have higher inventories than to order small quantities several numbers of times in a year. 5) To maintain continuity to operations in production processes: Many companies find it necessary to maintain in-process inventories at different stages in a manufacturing process to provide independence between operations and to avoid work stoppages or delays and to continue production smoothly if there are temporary machine breakdowns or other work stoppages. ---------------------------------

Que 35: Explain the techniques of inventory control


The various techniques of inventory control are: 1) ABC analysis: The most recent technique for controlling the inventory is a value item analysis (which is based on annual usage value), popularly known as ABC analysis which attempts to relate how the inventory value is concentrated among the individual items. 2) VED analysis (Based on criticality of the items): VED stands for Vital Essential and Desirable. It is ideally suited for classification of maintenance spare parts. Vital means items that, when not available, production is held up. These are also called insurance items. Essential means non available items, which dislocate production work. Desirable means items that are necessary, but do not cause any immediate loss in production. 3) SDE analysis (Based on procurement aspects): S means scarce items which are generally imported. D means difficult to procure items for which reliable supply source is not available. E means easily available items. 4) HML analysis (Based on unit cost):

ABC analysis works on the basis of total annual usage value, but the individual items cost is ignored. In HML analysis, unit cost in considered. H means high unit cost items. M means medium unit cost items. L means low unit cost items. 5) FSN analysis (Based on consumption rate): This analysis helps in arrangement of the stock in stores and its distribution and handling methods. F means fast moving items. S means slow moving items. N means non moving items (not issued over a 2 year period).

6) For fast moving items, rate contracts will be of great help in arranging for ready
procurement. Non moving items are examined with a view to their disposal as early as possible. 7) AX, BY, CZ or AV, BE, CD analysis: These combine 2 of the above mentioned classifications and give a more powerful analysis. 8) Economic Order Quantity (EOQ): When the size of an order minimizes the total inventory cost it is known as the EOQ. Some costs increase as inventory increases and others decreases; there is no ideal order size. The best lot size will result in adequate inventory to reduce some costs, yet will not be so large that it results in needless expenses for holding inventory. A compromise must be drawn b/w conflicting costs. EOQ is an important factor in inventory control. It is also known as standard order quantity, economic lot size or economic ordering quantity. 9) Minimum-Maximum technique: The minimum maximum system is used for manual inventory control system. The minimum quantity in established in the same way as at any re-order point. Maximum is worked out as the total of minimum quantity and the optimum lot size. 10) Two Bin Techniques: An earlier system of inventory control, a crude method is the 2 bin system. It was used for c group inventories (ABC analysis). Stock of each item is put into two bins. One bin is just enough for the stock to last from the date of placement of a new order to the date of receipt of inventory. The next bin covers a quantity of stock large enough to satisfy probable demand during the period of replenishment. 11) Material Requirements Planning (MRP): MRP is a technique of working backward from the scheduled quantities and need dates for end items specified in a master production schedule to determine the requirements for components needed to meet the master production schedule. 12) Just-in-time (JIT): It is a broad philosophy to seeking excellence and eliminating waste in the manufacturing process. It includes, (i)People involvement (ii) Total Quality Control (iii) JIT production

The JIT philosophy of continuous improvement and minimization of waste considers waste to be any activity that does not add value to the product or serve the customers in some way.

Que 36: Discuss in detail the EOQ model and ABC analysis as the two important techniques of inventory management.
Effective inventory management is essential in the operation of any business.

EOQ Model:
EOQ is a widely used technique for inventory control. EOQ is also known as Economic batch Quantity or economic lot size. EOQ seeks to balance order quantity is the best quantity techniques; it tries to equate both procurement and carrying costs. It is that quantity where these costs are equal or least, both together. EOQ Assumptions: o Demand is known, constant and independent o Lead time is known and constant o Receipt of material Instantaneous o No quantity discounts o Only order (set up) cost and holding cost o No stock-outs if orders are placed at the right time o Order quantity received all at once. The nature of ordering costs is that per order the cost remains same: However the move the number of orders. Placed during a year, more will be the total costs. Hence, it pays to procure more at point so that least orders can be placed. Inventory carrying costs related to those costs which are incurred to hold the stock. By holding less quantity, these costs can be reduced.

EOQ Model Equations: Optimal Order Quantity Q = Expected number of orders N = D/Q

Where, D=Demand per year S=Setup (order) cost per order H=Holding (carrying cost) ---------------------------------

Que 37: When to reorder EOQ ordering:


Re-order point It is the level where the stock level reaches a stage indicating the replenishment of over consuming stock because there is always a gap between placing an order and actually getting it. The idea is not to place the order too early or too because in both the cases the form is danger zone.

ABC Analysis:
The principle of management by exception is better suited here items inventory are classified into A,B,C stand for three different classes. ABC analysis is based on the relative importance of the materials. Conventionally, ABC analysis refers to the annual consumption value of the items, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management. By ranking the inventory items in rupee terms A items being the most expensive to C items being the least expensive, managing inventory, investment can be broken down to a manageable level A items usually make up 50 to 60% of inventory rupees, however they only account for normally 10 to 20% of inventoried items B items usually make up 30 to 40 of inventory rupees and only account for normally 30 to 40% of inventoried items. C items usually make up 5 to 50% of inventory rupees and account for normally 40 to 50% of inventories items. By managing the A items, a positive impact can be made in inventory investment reduction reducing one or two A items can and will have a bigger impact on inventory reduction. --------------------------------

INVENTORY MANAGEMENT SUMS Que - 38:


Stock Number J24 R26 L02 M12 P33 T72 S67 Q47 V20 ABC Analysis Annual $ Volume Percent of Annual $ Volume 12,500 46.2 9,000 33.3 3,200 11.8 1,550 5.8 620 2.3 65 0.2 53 0.2 32 0.1 30 0.1

= 100.0

What are the appropriate ABC groups of inventory items?

Solution:
ABC Groups Annual Volume 21,500 4,750 800

Class A B C

Items J24, R26 L02, M12 P33, T72, S67, Q47, V20

Percent of $ Volume 79.5 17.6 2.9

= 100.0

Item P33 is a judgment call. It might be considered a B item by some organizations. However, the modern tendency is to move items to as low a level as possible thereby reducing inventory management costs. ---------------------------------

Que - 39 A firm has 1,000 A items (which it counts every week, i.e., 5 days), 4,000 B items (counted every 40 days), and 8,000 C items (counted every 100 days). How many items should be counted per day? Solution:
Item Class A B C Quantity 1,000 4,000 8,000 Policy Number of Items to Count Per Day Every 5 days 1000/5 = 200/day Every 40 days 4000/40=100/day Every 100 days 8000/100=80/day Total items to count: 380/day

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Que - 40 Assume you have a product with the following parameters: Annual Demand = 360 units Holding cost per year = $1.00 per unit Order cost = $100 per order What is the EOQ for this product? Solution:

EOQ =

2* Demand *Order Cost 2*360*100 = = 72000 = 268.33 items Holding cost 1

The EOQ model assumes any real quantity is feasible. The actual quantity ordered may need to be an integer value and may be affected by packaging or other item characteristics. In the following Problems an EOQ of 268 is assumed. ---------------------------------

Que - 41 Given the data from Problem 3, and assuming a 300-day work year, how many orders should be processed per year? What is the expected time between orders? Solution: N= T= Demand 360 = = 1.34 orders per year Q 268

Working days = 300 /1.34 = 224 days between orders Expected number of orders
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Que - 42 What is the total cost for the inventory policy used in Problem 3? Solution: TC = Demand *Order Cost (Quantity of Items) *(Holding Cost) + Q 2 360*100 268*1 = + = 134 + 134 = $268 268 2

Notice that at the EOQ Total Holding Cost and Total Ordering Cost are equal. ---------------------------------

Que - 43 Based on the material from Problems 3 5, what would cost be if the demand was actually higher than estimated (i.e., 500 units instead of 360 units), but the EOQ established in problem 3 above is used? What will be the actual annual total cost? Solution:

TC =

Demand *Order Cost (Quantity of Items) *(Holding Cost) + Q 2 500*100 268*1 = + = 186.57 + 134 = $320.57 268 2

Note that while demand was underestimated by nearly 50%, annual cost increases by only 20% (320 / 268 = 1.20 ) an illustration of the degree to which the EOQ model is relatively insensitive to small errors in estimation of demand.

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Que - 44 If demand for an item is 3 units per day, and delivery lead-time is 15 days, what should we use for a simple re-order point? Solution:
ROP = Demand during lead-time = 3 * 15 = 45 units ---------------------------------

Que - 45 Assume that our firm produces Type C fire extinguishers. We make 30,000 of these fire extinguishers per year. Each extinguisher requires one handle (assume a 300 day work year for daily usage rate purposes). Assume an annual carrying cost of $1.50 per handle, production setup cost of $150, and a daily production rate of 300. What is the optimal production order quantity? Solution:
The equation used differs from the basic EOQ model by allowing for gradual replenishment, which affects the average level of inventory.

Q* = p

2* Demand *Order Cost (2)(30, 000)(150) = = 3000 units 100 Daily Usage Rate 1.50 1 Holding Cost 1 300 Daily Production Rate
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Que - 46 We use 1,000 electric drills per year in our production process. The ordering cost for these is $100 per order and the carrying cost is assumed to be 40% of the per unit cost. In orders of less than 120, drills cost $78 per unit; for orders of 120 or more the cost drops to $50 per unit. Should we take advantage of the quantity discount? Solution: Q* ($78) = p Q* ($50) = p (2)(1000)(100) = 80 units (0.4)(78) (2)(1000)(100) = 100 units = 120 to take advantage of quantity discount. (0.4)(50)

Ordering 100 units at $50 per unit is not possible, the discount does not apply until 120 units are ordered. We need to compare the total costs for the two alternatives, Q($78) and Q = 120. In this situation, the Total Cost equation must include the cost of the item since this is not a constant.

Total cos t = Demand * Cost + Total cost($78) = (1000)(78) +

Demand * Order Cost ( Quantity of Items) * ( Holding cos t ) + Q 2

(1000)(100) (80)(0.4)(78) + = 80 2 $78, 000 + $1, 250 + $1, 248 = $80, 498 (1000)(100) (120)(0.4)(50) + = 120 2 $50, 000 + $833 + $1, 200 = $52, 033 Total cost($50) = (1000)(50) +
Therefore, we should order 120 each time at a unit cost of $50 and a total cost of $52,033. Notice that Total Holding Cost is not equal to Total Ordering Cost at the lowest cost alternative (Q = 120) since this is not an EOQ. ---------------------------------

Que - 47 Litely Corp sells 1,350 of its special decorator light switch per year and places orders for 300 of these switches at a time. Assuming no safety stocks, Litely estimates a 50% chance of no shortages in each cycle and the probability of shortages of 5, 10, and 15 units as 0.2, 0.15, and 0.15 respectively. The carrying cost per unit per year

is calculated as $5 and the stockout cost is estimated at $6 ($3 lost profit per switch and another $3 loss of goodwill or future sales). What level of safety stock should Litely use for this product? (Consider safety stock of 0, 5, 10, and 15 units.) Solution: Safety stock = 0 units:
Carrying cost equals zero. Total Stockout Costs = (stockout costs * possible units of shortage * probability of shortage * number of orders per year)

S0 = 6*5*0.2*

1350 1350 1350 + 6*10*0.15* + 6*15*0.15* = $128.25 300 300 300

Safety stock = 5 units: Carrying cos t = $5 per unit * 5 units = $25


Stockout cost:

S5 = 6*5*0.15*

1350 1350 + 6*10*0.15* = $60.75 300 300

Total Cost = Carrying cost + Stockout cost = $25 + $60.75 = $85.75 Safety stock = 10 units: Carrying cos t = 10 * 5 = $50.00
Stockout cost:

S10 = 6* 5* 015* .

1350 = $20.25 300

Total Cost = Carrying cost + Stockout cost = $50.00 + $20.25 = $70.25 Safety stock = 15: Carrying cos t = 15* 5 = $75.00 Stockout cos ts = 0 (There is no shortage if 15 units are maintained) Total Cost = Carrying cost + Stockout cost = $75.00 + $0 = $75.00
Therefore: Minimum cost comes from carrying a 10 unit safety stock.

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Que - 48 Presume that Litely carries a modern white kitchen ceiling lamp that is quite popular. The anticipated demand during lead-time can be approximated by a normal curve having a mean of 180 units and a standard deviation of 40 units. What safety stock should Litely carry to achieve a 95% service level? Solution:
To find the safety stock for a 95% service level it is necessary to calculate the 95th percentile on the normal curve. Using the standard Normal table from the text, we find the Z value for 0.95 is 1.65 standard units. The safety stock is then given by:

(165* 40) + 180 = 66 + 180 = 246 Ceiling Lamps .


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Que 49: What is Operation Schedule? Explain its significance also explain scheduling.
Scheduling is the next technique of production control after routing. Work scheduling is defined as the assignment of starting and completion time for the various operations to be performed. It involves developing and assigning specific dates for the start or completion of the necessary work tasks. Scheduling is performed in two stages: a) Loading b) Dispatching Loading is assigning to a particular work centre the task to be performed during some gross scheduling period, say a week. Objective of scheduling: 1) To meet the pre-determined demand 2) To keep the inventory of raw materials at the optimum level. 3) To minimize the production cost 4) Co-ordination with other departments 5) To arrange for product development and design 6) To arrange the activities of the quality control and inspection department 7) To determine economical batch size and ascertain sequence of operations so that the set up cost is reduced. 8) To eliminate delays in production. 9) To arrange for proper guidance and control 10) To work out a schedule

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Que 50: Discuss various methods of operation scheduling

Scheduling pertains to establishing both the timing and use of resources within an organization. Under the operations function (both manufacturing and services), scheduling relates to use of equipment and facilities, the scheduling of human activities and receipt of materials. While issues relating to facility location and plant and equipment acquisition are considered long term and aggregate planning is considered intermediate term, operations scheduling is considered to be a short-term issue. As such, in the decision-making hierarchy, scheduling is usually the final step in the transformation process before the actual output (e.g., finished goods) is produced. Generally, scheduling objectives deals with tradeoffs among conflicting goals for efficient utilization of labor and equipment, lead time, inventory levels, and processing times.

There are two general approaches to scheduling: forward scheduling and backward scheduling. As long as the concepts are applied properly, the choice of methods is not significant. In fact, if process lead times (move, queue and setup times) add to the job lead time and process time is assumed to occur at the end of process time, then forward scheduling and backward scheduling yield the same result. With forward scheduling, the scheduler selects a planned order release date and schedules all activities from this point forward in time. With backward scheduling, the scheduler begins with a planned receipt date or due date and moves backward in time, according to the required processing times, until he or she reaches the point where the order will be released. Of course there are other variables to consider other than due dates or shipping dates. Other factors which directly impact the scheduling process include: the types of jobs to be processed and the different resources that can process each, process routings, processing times, setup times, changeover times, resource availability, number of shifts, downtime, and planned maintenance.

LOADING Loading involves assigning jobs to work centers and to various machines in the work centers. If a job can be processed on only one machine, no difficulty is presented. However, if a job can be loaded on multiple work centers or machines, and there are multiple jobs to process, the assignment process becomes more complicated. The scheduler needs some way to assign jobs to the centers in such a way that processing and setups are minimized along with idle time and throughput time. Two approaches are used for loading work centers: infinite loading and finite loading. With infinite loading jobs are assigned to work centers without regard for capacity of the work center. Priority rules are appropriate for use under the infinite loading approach. Jobs are loaded at work centers according to the chosen priority rule. This is known as vertical loading.
Finite loading projects the actual start and stop times of each job at each work center. Finite loading considers the capacity of each work center and compares the processing time so that process time does not exceed capacity. With finite loading the scheduler loads the job that has the highest priority on all work centers it will require. Then the job with the next highest priority is loaded on all required work centers, and so on. This process is referred to as horizontal loading. The scheduler using finite loading can then project the number of hours each work center will

operate. A drawback of horizontal loading is that jobs may be kept waiting at a work center, even though the work center is idle. This happens when a higher priority job is expected to arrive shortly. The work center is kept idle so that it will be ready to process the higher priority job as soon as it arrives. With vertical loading the work center would be fully loaded. Of course, this would mean that a higher priority job would then have to wait to be processed since the work center was already busy. The scheduler will have to weigh the relative costs of keeping higher priority jobs waiting, the cost of idle work centers, the number of jobs and work centers, and the potential for disruptions, new jobs and cancellations. If the firm has limited capacity (e.g., already running three shifts), finite loading would be appropriate since it reflects an upper limit on capacity. If infinite loading is used, capacity may have to be increased through overtime, subcontracting, or expansion, or work may have to be shifted to other periods or machines.

SEQUENCING Sequencing is concerned with determining the order in which jobs are processed. Not only must the order be determined for processing jobs at work centers but also for work processed at individual work stations. When work centers are heavily loaded and lengthy jobs are involved, the situation can become complicated. The order of processing can be crucial when it comes to the cost of waiting to be processed and the cost of idle time at work centers.
There are a number of priority rules or heuristics that can be used to select the order of jobs waiting for processing. Some well known ones are presented in a list adapted from Vollmann, Berry, Whybark, and Jacobs (2005): Random (R). Pick any job in the queue with equal probability. This rule is often used as a benchmark for other rules. First come/first served (FC/FS). This rule is sometimes deemed to be fair since jobs are processed in the order in which they arrive. Shortest processing time (SPT). The job with the shortest processing time requirement goes first. This rule tends to reduce work-in-process inventory, average throughput time, and average job lateness. Earliest due date (EDD). The job with the earliest due date goes first. This seems to work well if the firm performance is judged by job lateness. Critical ratio (CR). To use this rule one must calculate a priority index using the formula (due datenow)/(lead time remaining). This rule is widely used in practice. Least work remaining (LWR). An extension of SPT, this rule dictates that work be scheduled according to the processing time remaining before the job is considered to be complete. The less work remaining in a job, the earlier it is in the production schedule. Fewest operations remaining (FOR). This rule is another variant of SPT; it sequences jobs based on the number of successive operations remaining until the job is considered complete. The fewer operations that remain, the earlier the job is scheduled. Slack time (ST). This rule is a variant of EDD; it utilizes a variable known as slack. Slack is computed by subtracting the sum of setup and processing times from the time remaining until the job's due date. Jobs are run in order of the smallest amount of slack. Slack time per operation (ST/O). This is a variant of ST. The slack time is divided by the number of operations remaining until the job is complete with the smallest values being scheduled first.

Next queue (NQ). NQ is based on machine utilization. The idea is to consider queues (waiting lines) at each of the succeeding work centers at which the jobs will go. One then selects the job for processing that is going to the smallest queue, measured either in hours or jobs. Least setup (LSU). This rule maximizes utilization. The process calls for scheduling first the job that minimizes changeover time on a given machine.

These rules assume that setup time and setup cost are independent of the processing sequence. However, this is not always the case. Jobs that require similar setups can reduce setup times if sequenced back to back. In addition to this assumption, the priority rules also assume that setup time and processing times are deterministic and not variable, there will be no interruptions in processing, the set of jobs is known, no new jobs arrive after processing begins, and no jobs are canceled. While little of this is true in practice, it does make the scheduling problem manageable.

GANTT CHARTS Gantt charts are named for Henry Gantt, a management pioneer of the early 1900s. He proposed the use of a visual aid for loading and scheduling. Appropriately, this visual aid is known as a Gantt chart. This Gantt chart is used to organize and clarify actual or intended use of resources within a time framework. Generally, time is represented horizontally with scheduled resources listed vertically. Managers are able to use the Gantt chart to make trial-and-error schedules to get some sense of the impact of different arrangements. There are a number of different types of Gantt charts, but the most common ones, and the ones most appropriate to our discussion, are the load chart and schedule chart. A load chart displays the loading and idle times for machines or departments; this shows when certain jobs are scheduled to start and finish and where idle time can be expected. This can help the scheduler redo loading assignments for better utilization of the work centers. A schedule chart is used to monitor job progress. On this type of Gantt chart, the vertical axis shows the orders or jobs in progress while the horizontal axis represents time. A quick glance at the chart reveals which jobs are on schedule and which jobs are on time. Gantt charts are the most widely used scheduling tools. However, they do have some limitations. The chart must be repeatedly updated to keep it current. Also, the chart does not directly reveal costs of alternate loadings nor does it consider that processing times may vary among work centers.

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