Production and Materials Management

LESSON - 1
INTRODUCTION
1.1 Preamble
1.2 Historical perspective of production and materials management
1.3 Significance of production management
1.4 Significance of materials management
1.5 Corporate strategy
1.6 The mission
1.7 The environment
1.8 Distinctive competencies
1.9 Summary
1.10 Key concepts
1.11 Model questions
1.12 Reference books
1.1 PREAMBLE
The historical development of production and materials management is discussed in
this lesson. The important role of production and materials management in the
operation of goods and services is highlighted. The corporate strategy and the
environment in which it has to be achieved are narrated.
1.2 HISTORICAL PERSPECTIVE OF PRODUCTION AND MATERIALS
MANAGEMENT
Humans have been producing goods and services since the beginning of time.
However the formal study of how people can more efficiently and effectively produce
goods and services has been investigated only in the last century. When the dramatic
progress of the last several years in computers with that made in the previous
hundred years, it can be relied about how fast today's society is changing. Changes in
technology and life-style have profound effect on the types and number of products
and services available. Investigation of historical development that relate to the
production of goods and services will lead to insights into the future.
The first recognised attention to production economics was given by the Scottish
economist Adam Smith. In 1776 he wrote the book 'The wealth of the Nations' in
which he observed three basic economic advantages resulting from the division of
labour.
These were:
(i) Development of skill when single task was performed repetitively.
(ii) A saving of time normally lost in changing from one activity to the next.
(iii) Invention of machines or tools normally follows when people specialized their
efforts on tasks of restricted scope.
Smith did not deduce these ideas in theoretical way. Instead, under the factory
system, division of labor was developing as a common sense method of production
when relatively large group of workers were brought together to produce a large
quantity. Smith observed this practice, noted the three advantages and wrote about
them in his book.
After Adam Smith, an English man, Charles Babbage, enlarged Smith's
observations and raised a number of provocative questions about production
organisations and Economics. His thoughts were summarized in the book 'On the
economy of Machinery and Manufacturers' in the year 1832.
After the observations of the Adam Smith and Charles Babbage, the division of labor
continued and then accelerated during the first half of the 20th century. Production
lines carried out the division of labor to its greatest extreme.
Frederick W. Taylor was undoubtedly the outstanding historical figure in the
development of production management field. Smith and Babbage were observers
and writers, but Taylor was both a thinker and a doer. Taylor was an innovator in a
managerial environment where strong traditions existed. Taylor's new philosophy
stated that the scientific method could be applied to all managerial problems and
that the methods by which the work was accomplished should be determined by
management through scientific investigation. He listed four new duties of Scientific
Management for managing which may be summarized as follows.
(1) Development of science for each element of a man's work to replace old rule-of-
thumb methods.
(2) Scientific selection, training and development of workers, instead of the old
practice of following workman to choose his tasks and to train himself as best as he
could.
(3) Development of spirit of co-operation between the workman and management to
ensure that the work would be carried out in accordance with the scientifically
devised procedures.
(4) Division of work between the workers and the management in almost equal
shares, each group taking over the work for which it was best fitted.
These four ideas led to new thinking about the managerial organization. Taylor's
work under the heading of number-1, developed into the field of methods organising
and work measurement. This field is also termed as human engineering which has a
general application in producing management. From the ideas of number 2 and 3 the
field of personnel has developed with its techniques of personnel selection and
placement. From the idea of number 4, the first line foreman and the workman were
left free from the functions of planning and they concentrated on the execution of
carefully laid plans. The basic managerial functions of planning were carried out by
the managerial level.
There were many followers to Taylor. Carl Bosh, Henry L. Gantt, Harrington
Emerson, Frank and Lillian Gilbreth worked within Taylor's general framework and
philosophy.
The development of the Science of production management was slow when it was
looked in the spirit Taylor envisioned it. There were many reasons for this slow
development. Appropriate knowledge and tools were not available. Another great
difficulty that was faced by the serious investigators in the period after Taylor was the
complexity of the large scale problem that appeared. Mathematical techniques were
needed to solve such large scale problem but none was available to give the kinds of
solutions required. Even if they had been available, the time required to develop
solutions manually would be very large. High speed computers were needed, but
these were not available until 1950's.
An attempt of mathematical analysis was made in 1915 by F.W. Haris and he
developed the first economic lot size model for a simple situation. This was further
developed by Wilson and F.E. Raymond. The present activities in the general
field of production management were preceded by two developments in the year
1930. This helped to lay the ground work and pointed the way for the future. These
were the development and introduction to industry of statistical quality control by
Walter Shewart in 1931 and the development of work sampling in 1934 by L.H.C.
Tippett. The acceptance of the basic concepts of sampling and control charts by
workman, foreman and management was an important preliminary development.
Tippett's work-sampling procedure was put to work in the 1950's. Now it is used
extensively and likely to continue to grow in practical usefulness.
The current rate of developments of production management concept, theory and
technique began after World War II. Research in war operations by the armed forces
produced new mathematical and computational techniques. War operations problem
seemed to parallel with the problems of production operations and so the approaches
to war problems began to be applied into industrial use. One significant development
was the introduction of linear programming. It was a solution methodology capable
of handling many of the large scale complex problems of scheduling and allocating
the limited resources of a production system.
Other quantitative and qualitative approaches were evolved in the analysis of
production system. Waiting line theory had been used for some time in telephone
industry to analyze telephone systems. This technique found applications in
production lines, tool booths, machine maintenance, etc. Then more realistic
materials management models developed which included variability and uncertainty
of demand and other conditions. Models of replacement, maintenance and
competitive bidding have been developed for tackling the production problems. With
the development of high speed computers, production systems could be simulated,
modeled after fairly realistic conditions. If a complex systems were simulated the
effect of alternative proposals could be determined quickly without the cost and time
of actually trying the proposals in practice.
1.3 SIGNIFICANCE OF PRODUCTION MANAGEMENT
Production management deals with the products, the goods and services that are
purchased and used every day. Its aim is to acquire and distribute resources
efficiently to achieve an organization's goal. Production management is one of the
most challenging areas of business involving most of the human and financial assets
of an organization.
Production management is the systematic direction and control of processes that
transform inputs into finished goods or services. Production management comprises
a system as shown in Figure 1.1. Inputs can be human resources (workers and
managers), capital (equipment and facilities), materials, land, energy and
information. The circles in figure 1.1 represent operations where resources are
utilized and transformations take place. Often a product passes through several
operations before being finished. An operation can be a machining centre in a
manufacturing plant, a teller counter in a bank, a hospital ward or a department in
an office. These types of transformations vary widely and include physical or
chemical as in a factory, locational as in an airline, educational in a school,
informational as in a computer center and storage as in a distribution center.
Two other inputs are shown as dotted lines in Figure 1.1. The first is the customer,
who may come in first contact with the product's system and sometimes is an active
participant in the transformation. Examples are the shopper in a store or the student
at an university. The second is the information feedback. It can come from external
sources such as reports on economic trends, a telephone call from a vendor on past-
due shipments or new customer orders. It can also come from internal sources, such
as reports on cost variances, customer service or inventors levels. Information from
both of these sources will be helpful in managing the production system.
Please use headphones
Outputs in a production management system include finished product or service.
Outputs from manufacturing operations are goods produced either for consumers or
for other industrial firms. Outputs from service operation range from delivered mail
for a post office to a recovered patient for a hospital. Even though the inputs and
outputs vary between industries, the undergoing process of transforming inputs into
outputs holds true for all product in systems.
1.4 SIGNIFICANCE OF MATERIAL MANAGEMENT
Production management decisions deals with longer-term decisions which includes
the design of production facilities. Production design, process design, capacity,
location and layout are all part of the production management decisions. Materials
management deals with the shorter-range decisions. Material management is
concerned with the operation of facilities after they have been designed and built.
Managing supply of materials, staffing patterns, inventory and schedules come under
material management function. Decision in these areas affects the management of
materials either directly or indirectly.
Since materials management decisions have shorter time decisions, they are by
definition more tactical than strategic. However, they have a major cumulative effect
and at least considerable managerial attention.
There are two reasons why tactical decisions about materials are considered to be so
important.
i. The central role of materials in production, and
ii. The impact of inventories on company success.
Managing materials is common to organisations in every segment of the economy.
Materials are necessary inputs to government, manufacturers, wholesalers and
retailers. Manufacturers make products from materials purchased from outside
supplier. Service industries also need materials in the form of physical items
purchased from suppliers. Materials also are important because of the investment
tied up in them. The approximate ratio of final business sales reserve to inventory
cost was 3:1.
Having a better appreciation for the pivotal role of materials management, the types
of decisions actually involved are now considered. A typical hierarchy for making
materials management decisions is shown in figure 1.2 in the form a block diagram.
The functions associated with materials management are located .in the enclosed box
at the bottom of the figure 1.2. The figure 1.2 also shows materials management
functions are related to production management functions. Beginning at the top of
the hierarchy, corporate strategy sets the general directions of the organizations for
the years ahead. Decisions are made about the goal and the acquisition and
distributions of resources to meet it. Goals are established for growth, market share
and profit margins. Product plans are selected which decide.
(i) plans made by manager of other functions, such as marketing, finance and
engineering,
(ii) the way that production manager select production design strategy, and
(iii) design decisions made by production manager about the work force, processes,
capacity, location and layout.
At this point, top management needs a financial assessment of the organization's
near future for one or two years ahead. This assessment is called a business plan or
financial plan or budget. A business plan is a projected statement of income, costs,
and profits. It is usually accomplished by budgets, a projected balance sheet, and a
projected cash flow statement showings the source and application of funds.
Figure 1.2 shows that level in the hierarchy below the business plan is the domain of
materials management. Preparation of production plan launches the operational
planning process. Production plan sets the monthly output rate for major groups of
items for the next year ahead. Staffing levels, inventory projections and demand
forecasts are all part of the plan. Production plan is not specific as to the weekly
output for each item. To achieve this level of detail, master production schedule,
which is given one step lower in the hierarchy of Figure 1.2, has to be developed.
Master production schedule makes the production plan specific and states the weekly
output quantity for each item, projected weeks or months into the future.
Figure 1.2 shows that the final level of operations planning consists of three areas.
(i) inventory control
(ii) operations and project scheduling
(iii) purchasing and distributing
The best system for inventory control depends on the type of demand involved.
Inventory control is closely related to scheduling issues. After a shop order is
released (an inventory control decision), someone must decide when the item is to be
processed at each of the work centers in its routing (a scheduling decision).
Operations scheduling and project scheduling both deal with establishing starting
and completion times for activities, jobs or customers. This leads to the functions of
purchasing and distribution, which deal with the flow of materials into and out of the
production system.
1.5 CORPORATE STRATEGY
An organization can be a major corporation, federal agency or bank. It can even be a
business segment organized around a particular set of customers who share common
resources. Whatever the type of organization may be, its top management should
deliberately relate the efforts of the whole organization to its future. Corporate
strategy is sometimes called as long-range planning or organizational strategy. It is
the process of determining the organization's, central purpose, deciding how best to
acquire and allocate resources to carry out the mission and establishing objectives
against which to evaluate how well the mission is being achieved. This process
involves designing organisation's mission, monitoring and adjusting to changes in
the organization's environment and identifying the organization's distinctive
competencies.
1.6 THE MISSION
Determining an organization's mission require answers to fundamental questions
such as:
(i) What business are we in? What should it be ten years from now?
(ii) Who are our customers or clients?
(iii) What are our basic beliefs and philosophy?
(iv) What are our greatest strengths? How can we use these to maximum advantage?
(v) What are our key performance objectives, such as growth or profits, by which to
monitor success?
1.7 THE ENVIRONMENT
An organization needs to continually adapt to its changing external environment.
Adaption begins with environmental scanning, whereby managers monitor the
environment for opportunities or threat that need a response. One key
environmental element is competition. Competitors may gain advantage by
broadening product lines, improving quality or lowering costs. New entrants in the
market or product substitutes may pose a threat to continued profitability. The
bargaining power of suppliers or customers can become a threat or opportunity. In
addition to competition, environmental elements include economic trends,
technological changes, political conditions, social changes and the availability of key
resources.
The impact of these changes on current strategies can reveal shortcoming in
planning and product development that need attention. Markets mature and decline,
technology changes and competitors find ways to achieve lower costs. These all
requires adjustments in corporate strategy.
1.8 DISTINCTIVE COMPETENCIES
Environmental impacts cannot be controlled away. Corporate strategies must change
to meet them and the organization's unique resources and strength must be taken
into account. It is usually better to go after, a settlement in the market because it
gives an advantage of what the firm can do particularly well. The distinctive
competencies might include the following:
(i) The size and ability of the work force. An available and competent work force is a
strength.
(ii) Well located facilities such as offices, stores or plants. The availability, of such
facilities is a major advantage because of long lead time required to build new
facilities.
(iii) The ability to easily change output levels, attract capital from stock sales, market
and distribute the product or differentiate the product from those by competitors.
1.9 SUMMARY
The recognised attention to production management was first given by Adam Smith.
Charles Babbage extended the views of Adam Smith. Then F.W.Taylor, Gilbreth,
Gantt, Harrington Emerson and all paved the way for the development of production
management field. Production management decision deals with longer term
decisions, whereas materials management deals with shorter-range decisions.
Corporate strategy is a process which involves designing organizations mission,
monitoring and adjusting to changes in the organizations environment and
identifying the organizations distinctive competencies.
1.10 KEY CONCEPTS
Division of labor
Scientific management
Statistical quality control
Work sampling
Linear programming
Waiting line theory
Inventory control
Replacement analysis
Competitive bidding
Corporate strategy
Mission
Environment
1.11 MODEL QUESTIONS
1. Discuss the historical development of production and materials management.
2. Explain the different contributions made by scientists in the field of production
and materials management.
3. State the significant importance of production and materials management.
4. What do you mean by corporate strategy? How it is achieved?
5. What is mission? Explain the environment under which the mission has to be
achieved.
1.12 REFERENCE BOOKS
1. Buffa, "Modern production management", John Whiely.
2. Krajewski and Ritzman, "Operations management" Addison-Wesley.
- End of Chapter -
LESSON - 2
PRODUCT PLANNING
2.1 Preamble
2.2 Product planning
2.3 Product life cycles
2.4 Entrance-Exit strategies
2.5 Product planning stage
2.6 Summary
2.7 Key concepts
2.8 Model questions
2.9 Reference books
2.1 PREAMBLE
The coverage of product planning in this lesson begins with a discussion of product
life cycles. Then the entrance-exit strategies are discussed. The four steps involved in
product planning stage are explained.
2.2 PRODUCT PLANNING
Corporate strategy defines the firm's mission, company's business .and its customers.
It also defines the products to be offered. The products may be goods or services.
Product planning is the whole spectrum of activities involving up to the introduction,
revision or dropping of products. After knowing the product characteristics, the
production system can be effectively designed and operated.
Greater interest in product planning has been given recently by intense competition
and the rapid pace of technological innovation. Product planning is an ongoing
process a job that is never finished. Many small companies start with a limited
number of products, often based on a process or product innovation of the founding
entrepreneur. As time passes, the firm must add new products either to replace those
being phased out or to expand its market penetration. Larger firms, which have many
more products, face the same challenge. A considerable amount of budget is spent
each year to create new products or improve old ones.
2.3 PRODUCT LIFE CYCLES
The concept of a product life cycle best illustrates the need for introducing new
products. If a firm does not introduce new products periodically, it will eventually
decline. Since sales and profits from any given product eventually decrease, new
products should be introduced before existing products hit their peak. A typical
product life cycle is given in Fig.2.1. The five stages of the product life cycle are
product planning, introduction, growth, maturity and decline.
During the product planning stage, ideas for new goods or services are generated,
screened and translated into final designs. Profits to a product are negative at this
point, because sales have not begun and no revenues are generated. Only
development costs are being incurred at this stage. During the introductory stage,
sale begins and profits are generated. Production efforts are still being refined and
they are fluid and evolving. Since sales volumes have not reached their high point,
annual profits are relatively small. Successful products next enter a rapid growth
stage. Sales and profits rise as in the introductory stage, but the jump in sales is
particularly dramatic. The order for production during this stage is to keep up with
demand and the efficiency is of less concern. Sales level-off and profits begin 'to
decline during the maturity stage. New competitors enter the market and create
pressures to cut costs. Because of this profit margin is squeezed. Although the
intensified marketing efforts to differentiate the product can give pressure, the
production operations must now be stressed for efficiency. Ultimately, the product
enters the decline stage and the product becomes obsolete. Sales and profits decrease
to the point where the product is dropped by the firm. Either the demand for the
product disappears or a better and/or less expensive product is now available to
satisfy the demand.
The length of product life cycle varies widely from product to product The demand
for a product may last for 30 years whereas the demand for another product may last
only for three years.
Product life cycles have been particularly short in the high-tech computer and
microchip industry. The effect of short product life cycles requires special
management skills. Quick, independent action is more highly required in this type of
situation than it is at companies enjoying longer product life cycles.
2.4 ENTRY-EXIT STRATEGIES
The life cycle of a product can be quite different for a company than for a whole
industry. A company may move out of the market of a particular product, even
though these products may be produced by other firms for years to come. Table 2.1
shows the three basic strategies for entering and exiting the market. The choice of the
entrance-exit strategy has important implication for the production operations
function.
Table 2.1 - Entry - Exit Strategies
Strategy
Stage to
Enter
Stage to
Exit
Implications for Production
Operations
A - Enter
Early Exit
Late
Introduction Decline
Transition from low volume
flexible producer to high volume
low cost producer
B - Enter
Early Exit
Early
Introduction Maturity Low volume flexible producer
C - Enter Late
Exit Late
Growth Decline High volume low cost producer
STRATEGY A: The most natural strategy is for a firm to enter the market when the
product is first introduced and stay with it until the end of its life cycle. This strategy
requires operations to evolve from a low-volume, flexible production system into a
high volume, low-cost system. Such a shift is always a challenge because it requires
changing over to a whole new way of doing things. But this strategy can have a big
advantage. By entering the market early, the firm gets a first start. This early learning
and added experience may allow the early entrant to produce a better product at a
lower cost than late entrants can produce initially.
STRATEGY B: Small, product-Innovative firms often choose to stay in low-volume,
customized business. This strategy requires no painful transition. When the product
reaches the maturity stage and profit margin begins to be squeezed, the firm drops
the product and introduces new ones. Throughout the product life cycle, production
management maintains a smaller, flexible production system that is adaptable to
changing products.
STRATEGY C: A firm waits until other innovative firms introduce a new product.
After it is clear that the product has significant market appeal and will achieve high
sales volumes, the firm- enters the market with an automated, efficient production
facility. Some companies even accompany their entry by setting prices considerably
lower than those of their competitors. This ensures the high volumes necessary for
low unit costs. This strategy also avoids transition and is likely to be selected by large
firms. Large firms can exploit their mass marketing capabilities, established
distribution channels and easier access to capital markets to finance the massive
investment needed for top efficiency in capital-intensive productive operations.
2.5 PRODUCT PLANNING STAGE
Product planning is a four-step process. The process is most active during the first
stage of the product life cycle. Steps In product planning is shown in Fig. 2.2.
STEP 1. IDEA GENERATION:
New product ideas can come from within the firm-from managers, employees or
research and development (R&D) laboratories. They can also come from the outside-
from company distributors and inventors.
New ideas may be either market- oriented or technology-oriented. The most obvious
source of new ideas is marketing, which must be in tune with the needs of customers.
Market studies may reveal better ways of serving established markets. Technological
innovations can affect either the product or the processes. Inventories can also
improve processes within the production system, which in turn may create new
products.
STEP 2: SCREENING:
There may be a number of new product ideas but it has to be decided about which
one will be the worthwhile. Some ideas do not fit the company's mission. Others are
dismissed for failing to meet
(i) market criteria
(ii) production operations criteria or
(iii) financial criteria
Marketing criteria include competitors, effects on current products, marketability to
present customers, promotional requirements and changes in distribution channels.
Operations criteria Include technical feasibility and compatibility with current
processes, work force, equipment and facility locations. Financial criteria include
investment requirements, risk, expected annual sales, profit margin per unit and
anticipated length of product's life cycle.
STEP 3: DEVELOPMENT AND TESTING:
Next, the ideas technical feasibility is thoroughly pre-tested, which often involves
considerable engineering work. Prototypes may be built for testing and analysis of
the products features. Beyond engineering, production operation gets involved in
assessing process, facility and material needs. Finally, marketing tests are needed to
obtain customer response. Trial tests in limited markets may help to gauge customer
reactions to the specific features of the product and packaging choices. Result of
these tests may lead to changes in the product and the way it is presented before it is
actually marketed. The end result may give an assurance that the product is
technically feasible, can be economically produced in quantity and has customer
appeal.
STEP 4: FINAL PRODUCT DESIGN:
During final product design, product characteristics are designed in detail. This
detail may include the specifications, process formulae and drawings. Substantial
investments in financial and human resources are committed at this stage.
Production begins and marketing starts its promotional program with sales meeting
and preview presentations at trade exhibits.
2.6 SUMMARY
Product planning is an ongoing activity that defines the products to be produced.
Product life cycles consist of five stages that is product planning, introduction,
growth, maturity and decline. There are three strategies for when to enter and exit a
product's life cycle. Each one places a different demand on the production system.
Entering early and exiting late forces a transition from flexibility to low cost. A
product planning stage involves idea generation, screening, development and testing
and final product design.
2.7 KEY CONCEPTS
Product planning
Product flexibility
Process-focused strategy
Product-focused strategy
Entrance-Exit strategy
Product life cycle
Volume flexibility
2.8 MODEL QUESTIONS
1. How does the concept of product life cycles illustrate the ongoing need for
product planning?
2. How does the decision on when to enter and exit a product's life cycle affect the
operation function?
3. With which entrance-exit strategy would a product focus make most sense?
4. Discuss the four-step procedure in product planning stage.
5. Explain the entrance-exit strategies.
2.9 REFERENCE BOOKS
1. Buffa, "Modern production management", John Whiely.
- End of Chapter -
LESSON - 3
PRODUCTION DESIGN AND PROCESS PLANNING
3.1 Preamble
3.2 Production design
3.3 Processes
3.4 Processes involving transformation
3.4.1 Chemical processes
3.4.2 Processes to change shape or form
3.4.3 Assembly processes
3.4.4 Transport processes
3.4.5 Clerical processes and information systems
3.5 Process planning
3.6 Product analysis
3.7 Assembly charts
3.8 Operation process chart
3.9 Analysis of existing operations
3.10 Product flow process chart
3.11 Route sheets and operation sheets
3.12 Process planning for continuous industries.
3.13 Summary
3.14 Key concepts
3.1 PREAMBLE
Production design and process planning are closely allied to the preliminary stages
production planning. When a new product is projected the designer has to bear in
mind the available resources of the plant and the possible implications of the plant
having to acquire, modify or substitute existing machines and equipment or sub-
contract various components to other suppliers. This is why production design and
process planning are some of the fundamental elements of management policy.
3.2 PRODUCTION DESIGN
The minimum possible cost of producing a product is established originally by the
designer. The production engineer cannot change this situation, because he can only
minimize the production cost within the limitations of the design. Therefore the
obvious time to start thinking about basic modes of production for product is while
they are still in the design stage. This conscious effort to design for low
manufacturing cost is referred to as production design which is different from
functional design. The designer's first responsibility is to create something that
functionally meets requirements. There may be a number of alternative designs
which meet this functional requirement. Then a design which minimizes the
production cost has to be chosen.
Given the design, process planning for manufacturer must be carried out to specify
the processes required and their sequence. Production design first sets the minimum
possible cost that can be achieved through the specification of materials, tolerances,
basic configurations, methods of joining parts, etc. Final process planning then
attempts to achieve that minimum through the specification of processes and their
sequence which meet the exacting requirements of the design specification. Here, the
process planner may work under the limitations of available equipment in small lot
manufacture. If the volume is high or the design is stable, special purpose machine
may be considered and in this case the layout will be of special type. In performing
such functions, the process planning stage will decide basic design of the productive
system.
There is a relationship that exists between the product design and the production
cost. In general, design engineers are trained in the technical aspects of their
specialties such as mechanical design and electronics. They are not trained in
manufacturing methods and costs. On the other hand, production may often ignore
the functional requirement of a part and meet the exact specification.
To overcome this problem, some companies have tried to train their designer in the
basic manufacturing processes and costs. In some other companies, production
engineer consult with design engineer at the time of critical decisions. Functional
design is entrusted to an entirely different group in some companies. The
responsibility of this group is production design.
3.3 PROCESSES
The scope of production processes covers the entire spectrum of the manual task,
man-machine systems and automated processes. Manual task is combination with
mechanical aids account for a large share of productive activity. Manual operations
or man-machine operations have a strong manual component and they are typical of
assembly work, offices, super markets, and so on. The metal working industries,
wood working industries, plastics and chemicals are representative of production
processes which have a considerable technological base.
3.4 PROCESSES INVOLVING TRANSFORMATION
The basic nature of processing is one of transformation, that is, something happens
that, in some way, transforms the thing being worked on. In general these
transformation processes may be of following types:
3.4.1 Chemical Processes: Chemical processes are common in industries such as
petroleum, plastics, steel making and aluminum. Industrially, these processes occur
both as batch processes and continuous processes. Illustration of batch processes is
the operation of a blast furnace in the steel industry. An example of continuous
chemical process may be processing of petroleum industry.
3.4.2 Processes to Change Shape or Form: The most common processes of this
general type are found in the metal-forming, metal-machining industries, the wood-
working industry and in plastic molding. In metal-forming industries forming
operations may take place such as rolling of basic shapes in steel, aluminum or other
metals. The results of these forming operations are bars, sheets, billets, I-beams and
other shapes. Metal-machining is accomplished through basic machine tool
processes which involve the generation of cylindrical surfaces, flat surfaces, complex
curves and holes. These metal-machining processes are performed in machines like
lathe, shaper, planner, mill and grinder. For high volume products, automatic
machines and numerically controlled processes are employed.
3.4.3 Assembly Processes: The processes used to assemble parts and materials
are welding, soldering, riveting, screw fastening and adhesive joining. Assembly
processes are common in automotive industry, electronics industry and many others.
They are common in all mechanical-electrical industries. In general for assembly
operations, a considerable amount of manual work will be involved supplemented by
mechanical aids. The automation is involved only in high volume electronics
assembly. With the development of printed circuitry, automatic equipment are used
for assembling the parts. Most of the analysis in the assembly types of operations
depends on the analysis of hand motions and the relationship between the operator
and his tools.
3.4.4 Transport Processes: The transformation taking place in a transport
process is the transformation of place. Transform processes are of extreme
importance in most production systems. In distribution management transport
operations is of central interest. In manufacturing, internal material handling
represents kind of transport operations performed.
3.4.5 Clerical Processes and Information Systems: The mechanical kind of
processes tend to change the shape or form whereas the clerical processes transform
information. The volume of clerical activity has grown to a large extent. The
techniques involved are clerical activity that extends from purely manual to
automated data processing system.
3.5 PROCESS PLANNING
The basic process planning must begin during the production stages where selection
of materials and initial forms such as casting, forging takes place. The accepted
points for the production design are cleared by the drawing release, which
summarizes the exact specifications of what is to be made. Process planning takes
over from this point and develops the broad plan of manufacture for the product.
Another distinction that must be drawn is the relation of process planning to layout
and facilities planning. Process planning necessarily mixed together, with the layout
of physical facilities. Some process planning takes place during the layout phases of
the design of a production system. To accommodate the physical and sequential
limitations to take advantage of available space or to improve methods or sequence
modification of the original process plans may be made. The division between
process planning and layout is cleared by documents such as route sheets and
operation sheets. These sheets summarizes the operations required, the preferred
sequence of operations, auxiliary tools required, estimated operation times etc.
Process plans may be regarded as input to the development of the layout.
The drawings or other specifications which indicate what is to be made are taken as
input to the process planning. Also the forecast, orders or contracts which indicate
how many are to be made, are also taken as inputs. The drawings are then analysed
to determine the overall scope of the project. If it is a complex assembled product,
considerable effort may be made in exploding the product into its components and
sub-assemblies. This overall planning may take the form of special drawings that
show the relationship of the parts, cutaway models and assembly diagrams.
Preliminary decisions about sub-assembly groupings to determine which part to
make and which to buy may be made at this point. The general level of tooling
expenditure may also be determined. Then for each part a detailed routing would be
developed. For this technical knowledge of processes, machining and their
capabilities would be required. Since there are a range of processing alternatives
would be considered, the selection should be influenced by the overall volume and
the projected stability of the design. Fig.3.1 shows the overall conceptual frame work
of process planning in diagrammatic form.
3.6 PRODUCT ANALYSIS
Consider the problem of the initial setting up to manufacture the switch assembly
shown in Fig. 3.2.
3.7 ASSEMBLY CHART
When the product is a complex one, assembly charts can help to visualize the flow of
material and the relationship of the parts. The details like where the parts flow into
the assembly process, which parts make up sub-assemblies and where the purchased
parts are used in the assembly sequence, are given in the assembly chart in Fig 3.3.
With the help of the switch assembly shown in Figure 3.2, an assembly chart would
be prepared as a first step. This chart is sometimes called as 'Gozinto' chart (meaning
'goes into'). Figure 3.3 is an assembly chart for the switch assembly. The chart clearly
shows the relationship of the parts, the sequence of assembly and which groups of
parts make up the sub-assemblies. The assembly chart is a schematic model of the
entire manufacturing process at one level of information and detail. The switch
assembly would be simple enough so that assembly chart could be eliminated in this
case. However, for a complex product such as an airplane or a missile it would be
difficult to understand the plan of manufacture without an assembly chart. The
assembly chart can be useful in making preliminary plans regarding probable sub-
assemblies and appropriate general methods of manufacture. For making
preliminary decisions with respect to design of product line, type of layout (process
or product), assembly chart would be helpful.
3.8 OPERATION PROCESS CHART
Assume that the product is already engineered, complete drawing and specifications
of parts and their dimensions, tolerance, and materials to be used have been
finalised. From the specifications, a plan of manufacturing can be developed.
Decisions with respect to which parts to purchase and which to manufacture in the
plant, have to be made. The engineering drawings specify the locations, sizes and
tolerances for holes to be drilled, surfaces to be finished etc. for each part. With this
information and the knowledge of the quantity to be produced and manufacturing
process, the most economical equipment, process and sequence of processes could be
specified.
The result of this work is a partial specification of "how to manufacture". This is
usually summarized on 'route sheet' or 'operation sheet'. This sheet specifies for each
manufactured part the operations required in the preferred sequence, equipment to
be used, special tools, fixtures and gauges. Estimates of the required setup time and
processing time are often added. All the information can be summarised in the form
of operation process chart. Such a chart for the switch assembly is shown in Figure
3.4.
Operation process chart is a summary of all the required operations and inspection
for switch assembly. A circle (O) for an operation and a square () for an inspection
has been adopted in the construction of the chart. The operation process chart has
been constructed with the basic framework of the assembly chart. This chart is of
great value in the development of a layout plan. It shows clearly the operations to be
performed, their sequence and the equipment required.
3.9 ANALYSIS OF EXISTING OPERATIONS
The operation process chart have been discussed in terms of the development of the
plan for manufacturing a new product and developing new facilities, but it is equally
applicable to the analysis of existing operations. As time passes, changes may occur
in the manufacturing plans because of re-design, the addition or elimination of
products and advances in manufacturing technology.
Sometimes operations would be added to meet a temporary emergency. Then they
would become permanent because no one would take action to delete them when the
need has gone. Reviews of existing operations would be often giving good results for
elimination, duplication and illogical flow. The breakdown of overall manufacturing
process into its operations and eliminating of logical structure of the operation
process chart, form the basis for questioning the existence of every activity as well as
the relationship of the activities.
3.10 PRODUCT FLOW PROCESS CHART
The flow process chart is similar in concept to the operations process chart, except
that it adds more detail and has a slightly different field of application. The flow
process chart adds transportation and storage activity to the information already
recorded on an operation process chart. Thus, operation process chart focuses only
on the productive activity, the flow process chart focuses on both productive activity
as well as non-productive activity.
The non-productive activities of the material from place to place and storing it, while
it waits for men and equipment, represent major amount of the total time spent in
the manufacturing cycle in industry. These non-productive activities require labour
and equipment transportation, loading and unloading, capital investment for plant
storage space and carrying charges on inventory. Naturally, production manager
would be strongly motivated to focus attention on these activities so that these
expenditures could be minimised. In general, the operation process that would be
used at a broadest level dealing with complex products and the flow process chart
would be used with a smaller segment of the product.
The flow process chart requires additional symbols in order to include non-
productive activities. An arrow mark () denotes transportation and inverted
triangle () denotes storage and letter 'D' denotes delay.
As an example, machining of a casting would be taken. The completed flow process
chart would be constructed by actually following the progress of the parts through
the machine and gathering the required information. Constructing flow process chart
without going through the actual process in shops would not give accurate results, as
shown in Figure 3.5.
Fig.3.5 Flow Process Chart For Machining A Casting
It is often helpful to supplement the flow process chart with a flow diagram. The flow
diagram would be obtained by drawing the flow lines on a floor plan of the work area.
The process chart symbols would be inserted in-between the flow lines. The spatial
relationship would be better visualised by this type of flow diagram. The flow
diagram to the above example is shown in Figure 3.6.
3.11 ROUTE SHEETS AND OPERATION SHEETS
At each stage of its processing, every part is analysed in order to determine the
operations required and to select and specify the process that perform the functions
required. This information would be summarised on route sheets. The route sheet,
(i) shows the operation required and the preferred sequence of these operations,
(ii) specifies the machine or equipment to be used,
(iii) gives the estimated setting time and run time per piece.
When a part is standard part, which is run and re-run periodically to fill the need, the
standard routing sheets would be maintained as the accepted manufacturing
methods. More precise specification of manufacturing methods would be often
developed in the form of operation sheets. These operation sheets give greater detail
about the operations to be accomplished and In other words they give a standard
method.
The route sheet together with operation sheet specifies the methods of
manufacturing the products. These documents are basic to the manufacturing
organisations. Route sheet and operation sheet take the same relative positions to the
design of a production system as the blueprint or drawing does to the design of a part
or product. The drawing specifies what is to be made, where as the route sheet and
operation sheet specify how to make it.
3.12 PROCESS PLANNING FOR CONTINUOUS INDUSTRIES
The situation that has been discussed is generally applicable to industrial process
planning. However in high volume, continuous types of industries, these would have
been a comment on the lack of route sheets. This lack would be a common one. But,
originally the task of process planning and routing would have been performed by
someone. Once the process planning is done and the system is installed, route sheets
would serve no purpose because routes are either standardised or follow mechanical
paths and so operation sequence is not a problem.
Similarly although operation sheets exist, they would be maintained as records of job
conditions and methods. They would be refused to only when it would be necessary
to train new personnel in the standard procedures of the job. Alterations to the
standard routing would be required only periodically to incorporate product design
changes or to take advantage of some advance in production technology.
3.13 SUMMARY
The product designer establishes the constraints within which the production system
designer must function. A broad knowledge of processes and their capabilities
provide the basis for the rational consideration of alternatives available. These
processes involve all types of transformations including physical, chemical, plays,
information content etc. The production design and process planning stages are
discussed. Transformation processes are also discussed. Various charts for analysing
the processes are explained.
3.14 KEY CONCEPTS
Production design
Process planning
Assembly chart
Operations process chart
Route sheet
Operation sheet
1. Discuss the relationship of functional design and production design in
determining a product design that meets functional requirements, cost
considerations and the limitations of available resources.
2. Discuss about the various transformation processes.
3. What is process planning? Relate it to product design, and production design.
4. What are route sheets and operation sheets? What information do they contain?
5. Does process planning in continuous industries follow the same general pattern
as in intermittent industries?
1. Buffa, "Modern Production Management", John Whiely.
2. Krajewski and Ritzman, "Operations Management" Addison-Wesley.
3. Menipaz, Ehed, "Essentials of Production and Operations Management", Prentice
Hall.
- End of Chapter -
LESSON-4
BREAKEVEN ANALYSIS - AN INTRODUCTION
4.1 Preamble
4.2 Breakeven analysis
4.3 Methods for lowering breakeven point
4.4 Profit-Volume chart
4.5 Contribution ratios
4.6 Summary
4.7 Key concepts
4.8 Model Questions
4.9 Reference books
4.1 PREAMBLE
The breakeven point is the minimum volume of sales in units of output or in rupees
that must be produced and sold in order for the firm to breakeven after paying all
expenses. This volume is called "breakeven point". Obviously the firm is interested in
producing and selling more than the breakeven point in order to make profits. Profit-
Volume chart is a similar chart as that of breakeven chart. Contribution ratios are
sometimes helpful for deciding the product which gives the maximum profit.
4.2 BREAKEVEN ANALYSIS
Breakeven analysis is a helpful tool used in analyzing managerial economic
problems. It shows how much sales volume, in units or rupees, a company needs to
have in order to breakeven financially. Breakeven analysis also shows how much
profit the company would earn or suffer loss at various volumes above and below the
breakeven point. The breakeven point is the minimum volume of sales, in units of
output or in rupees, which must be produced and sold in order for the firm to
breakeven after paying all expenses. This volume is called the "breakeven volume".
In order to calculate breakeven point, it is necessary to determine fixed and variable
costs for various sales volumes. Fixed costs are the expenses that remain constant
regardless of the volume of products or services. Examples of fixed costs are rent,
property taxes, depreciation, insurance, and salaries to the staff. Variable costs are
the expenses that fluctuate directly with changes in the output volume of products or
services. Examples of variable costs are labour and material.
Let Q = breakeven quantity, F = fixed cost, P = price per unit, V = variable costs per
unit
As per the definition given above, the total sales revenue equals the total cost at
breakeven point (BEP).
At BEP, total revenue = total cost (= fixed cost + variable cost)
P x Q = F + (V x Q)
Therefore BEP, Q = F/(P - V)
The Fig. 4.1 shows how the BEP is determined graphically.
In Fig 4.1 the total cost is given by the summation of fixed cost and variable cost. The
point of intersection of 'total cost' line with the 'total sales income' is the breakeven
point, and corresponds to a sales volume Q. Activity below Q results in a loss, and
activity above Q gives profit.
Example 1:
A company is considering the products of the new energy saving light bulb. The
selling price is Rs.10 and the variable cost is about Rs.2 per light bulb. If the fixed
costs total to Rs.2 crores, what is the BEP in terms of units of light bulbs?
BEP quantity Q = F/(P - V), where F is the fixed cost, P is selling price per unit, V is
variable cost per unit
Fixed cost F = Rs.2,00,00,000, Variable Cost per unit V = Rs.2, Selling price per unit
P = Rs.10
Therefore, BEP in units = 2,00,00,000 / (10 - 2) = 20000000 / 8 = 2500000 units
Thus, in this example when the company produces 25 lakh light bulbs, total cost
equals revenue. This result can be checked as this...
Total revenue = P x Q = Rs.10 x 25,00,000 units = Rs. 2,50,00,000
Total cost = F + V x Q = Rs.2,00,00,000 + Rs.2 x 25,00,000 = Rs.2,50,00,000
In this example, if the company set the price of the light bulbs as Rs.12, then
obviously the breakeven point will be lower:
BEP = 2,00,00,000 / (12 - 2) = 2,00,00,000 / 10 = 20,00,000 units instead of
25,00,000 units earlier.
Mar gi n of Safety:
If a plant is operating at point Q1 (where Q1 > Q), it can be said that the plant is
working with a margin of safety m. which can be determined as follows:
m = (Q1 - Q) / Q = (Q1/Q) - 1
It can be shown that
m = Z / F, where Z is the profit of the plant
The desirable level of the plant activity can be expressed in terms of the safety margin
or the profit as:
Q1 = Q (1 + m) = Q (1 + Z/F)
The margin of safety is a measure of healthiness at the point of operation. When the
margin is too small (i.e.) when the product is manufactured near the breakeven
point, the plant is subject to market fluctuations.
Example 2:
The selling price for a new solar heating panel is Rs.100 per unit and the direct
materials and labour costs are Rs.80 per unit.
a. If the fixed costs are Rs.20000, how many units have to be sold in order to
breakeven?
b. What is the volume of sales to get a profit of Rs.5000?
c. Determine the margin of safety of the plant at this point.
a. Fixed cost F = Rs.20000, Selling price per unit P = Rs.100, Variable cost per unit V
= Rs.80
Therefore, Breakeven point Q = F/(P - V) = 20000 / (100 - 80) = 20000/20 =
1000 units
b. Profit of Rs.5000 will happen when total sales income - total cost = Rs.5000
Let Q1 is the quantity to be sold for making this much profit, then
Q1 x Rs.100 - (Q1 x Rs.80 + Rs.20000) = 5000
20 x Q1 = 25000
Q1 = 1250 units
There's a quicker way to calculate the same...
In the BEP formula, the term (P - V) is called the contribution. It is the amount by
which the selling price per unit exceeds the variable cost per unit. In the above
example, the sale of one solar heating panel contributed Rs.20 to offset the fixed cost
until the breakeven point of 1000 units was reached. Above 1000 unit, this Rs.20
would be the profit per unit. These relationships can be used by production
managers in their planning. For example, they can determine the effects on profits or
losses of changes in sales quantities.
Extending the above discussion for the above problem, to find out the volume of sales
for selling a profit of Rs.5000, it has to be done is to divide Rs.5000 by Rs.20. In
doing so it can be found that 250 more units or 1250 in total would have to be sold to
get a profit of Rs.5000.
Putting this in formula to get the total number of sales needed for getting a profit of
Rs.5000 is.
Q1 = (F + desired profit) / (P - V) = (20000 + 5000) / (100 - 80) = 25000 / 20 =
1250 units
c. Margin of safety at this point can be calculated as:
m = (Q1 - Q) / Q = (1250 - 1000) / 1000 = 250/1000 = 0.25 = 25%
It can be said that at a sales volume of 1250, the plant is operating at a margin of
safety of 25 percent.
To be realistic, the company's manager should allow for income taxes, because all
profits generated by sales above the breakeven point are taxed. The formula for total
number of sales needed when tax rate is given is,
F + desired profit x 1/(1 - tax rate)
Qt = -------------------------------------------------
P - V
In the above example, if the tax rate is taken as 40 percent (0.4), then each Rs.20 of
profit will shrink to Rs.12. Therefore, in order to earn Rs.5000 after taxes, Rs. 5000 /
Rs.12 = 417 units above the breakeven point or 1417 in total will have to be sold
instead of 1250 units.
20000 + 5000 x 1 / (1-0.4) 20000 + 5000 / 0.6
Qt = ------------------------------ = -----------------------------------
100 - 80 20
= 28333 / 20 = 14166.67 ~ 14167 units
By manipulating the variable in the equation many questions can be answered. For
example, if the direct material cost were to increase by 12 percent what will happen
to the breakeven point? Or if the competition is forced to cut the selling price from
Rs.100 to Rs.90 what will be change in the BEP? Answers to such questions can be
calculated.
4.3 METHODS FOR LOWERING BREAK EVEN POINT
A low BEP is highly desirable because it increases the safety margin of the product.
From the equation for BEP, Q = F/(P - V), it is obvious that the breakeven point
can be lowered by three methods:
(i) By reducing Fixed Costs from F to F'
This situation is shown in Fig 4.2. In this case, the BEP is reduced from Q to Q' by
reducing the fixed cost from F to F'.
The reduced BEP, Q' = Q x (F' / F)
(ii) By reducing the unit Variable Cost from V to V'
This situation is shown in Fig 4.3. In this case, the BEP is lowered by reducing the
variable cost from V to V'. Therefore, the reduced BEP,
(iii) By increasing the unit Selling Price from P to P'
This situation is shown in Fig 4.4. Here, the BEP is lowered by increasing the unit
selling price from P to P'. Therefore,
4.4 PROFIT VOLUME CHART
A similar diagram to the breakeven chart is called the profit volume chart which is
shown in Fig. 4.5.
In this chart, the fixed costs are marked as a negative quantity on the Y-axis. The
BEP is given by the intercept of the income line on the X-axis. Operating below the
X-axis incurs a loss and operating above it is a profit.
The probability of the profit is indicated by the slope of the income lines called the
Profit-Volume Ratio or P/V Ratio, and is given by
The profit Z = Sales revenue - Total cost
= P x Q - (F + V x Q)
= Q (P - V) - F
Z = Q - F
The Profit-Volume rate at a point above BEP is,
Therefore, the profit Z = Q1 - F
4.5 CONTRIBUTION RATIOS
It is sometimes useful to know the contribution ratio or as it is sometimes called the
'profit variation' for individual products. This ratio measures the products'
contribution as a percentage of its price per unit. The formula for its calculation is,
For example 2, Contribution ratio, CR = [(100 - 80) / 100] x 100 = 20%
Low contribution ratios come from labour and material costs making up most of the
cost and thus using the most of the income. Changes in total volume do not affect
profit very much because the variable costs are so high relative to the selling price.
Conversely, if fixed cost is a bigger part of the total cost, then the contribution ratios
of individual products are higher and volume changes cause greater swings in profits.
This can be explained with the same example 2. In that example,
F = Rs.20000, V = Rs.80, P = Rs.100
For the sales volume of 1250 units, Profit = Total sales income - Total cost
= 1250 x 100 - (20000 + 1250 x 80)
= Rs. 5000
If the sales volume is increased from 1250 to 1500 units,
Profit = 1500 x 100 - (20000 + 1500 x 80) = Rs. 10000
In this above calculation, variable cost forms a major part in the total cost when
compared to fixed cost. The contribution ratio for this situation is,
[(P - V) / P] x 100 = [(100 - 80) / 100] x 100 = 20%
Now consider another situation where fixed cost forms a major part in the total
cost...
Let F = Rs. 95000, V = Rs.20, P = Rs.100
For the sales volume of 1250,
Profit = (1250 x 100) - [95000 + (1250 x 20)]
= 125000 - [95000 + 25000] = Rs.5000
If the sales volume is increased from 1250 to 1500,
Profit = (1500 x 100) - [95000 + (1500 x 20)]
= 150000 - [95000 + 30000] = Rs.25000
The contribution ratio for this situation is, [(P - V) / P] x 100 = [(100 - 20) / 100] x
100 = 80%
From the above illustration it can be seen that there is a greater swing in profit for
volume changes when fixed costs forms a greater part of total costs, because the
contribution ratio will be higher in such situations.
These relationships are important since, once a manager knows the contribution
ratio of his products, the products which contribute the profit can be pushed through
and the products which have low contribution ratio can be removed from the product
line. These contribution ratios can also help the production manager to make
decision whether to take on jobs at prices which cover variable costs but only part of
fixed costs.
An example will illustrate how the different contribution ratios are important in
determining the overall results. Suppose a company makes three models of
typewriters, each of which has different contribution ratios as given below:
If a sales increase of 10,00,000 units comes from selling more portable manual
typewriters, this would increase the profits by Rs.250,000. But if the same 10,00,000
units of sales comes from selling more regular electric models, it would add
Rs.450,000 to profits. Obviously in this case, greater sales efforts should go into
selling more of regular electric typewriters.
Often it is more meaningful to express contribution values on per labour-hour basis.
This can be explained from the following illustrations:
In the above example, the following additional data is considered:
With the addition of this data, the sales for each type of typewriter are:
Portable manual = 1000000 / 100 = 10000 units
Portable electric = 1000000 / 200 = 5000 units
Regular electric = 1000000 / 300 = 3333 units
The contribution (P-V) per unit for the models can be calculated as this -
We know that,
Hence, Contribution (P-V) = Contribution Ratio x P / 100
Portable manual = 25 x 100 / 100 = 25
Portable electric = 35 x 200 / 100 = 70
Regular electric = 45 x 300 / 100 = 135
Contribution per labour-hour is:
Portable manual = 25 / 10 = 2.50
Portable electric = 70 / 15 = 4.61
Regular electric = 135 / 25 = 5.40
The above calculation also shows that the regular electric typewriters should be
pushed because the contribution per labour-hour is higher for regular electric models
as compared to the other models.
But it may not come out like this always. For example, in the above illustration, if the
labour required per unit of electric typewriters is 35 hours instead of 25 hours, then
the contribution per labour-hour for the regular electric model is 135 / 35 = 3.86. In
such case, it will be more profitable to push the electric portable model, since it gives
higher contribution per labour-hour as compared to the other models.
Hence it would be more useful to express contribution on per labour-hour basis.
4.6 SUMMARY
Breakeven point is determined by taking into consideration the fixed cost, variable
cost per unit, and sales revenue per unit. To get higher profit, BEP should be
lowered. There are three ways to lower the BEP. Contribution Ratio measures the
product's contribution as a percentage of its price per unit.
4.7 KEY CONCEPTS
Breakeven Point
Breakeven Quantity
Margin of Safety
Profit-volume chart
Contribution Ratio
4.8 MODEL QUESTIONS
1. Describe the breakeven analysis.
2. What are the ways for lowering the breakeven point?
3. A new word processing machine is contemplated by company to accommodate
insurance policy typing and printing. The fixed cost of energy, depreciation, labor,
printing paper and disc supply amount to Rs.19,700 and the variable costs are Rs.3
per policy. The average revenue from an insurance policy drafted is Rs.200.
(a) How many policies should be drafted in order to breakeven?
(b) What is each policy's contribution to fixed cost and profit?
4. A product involves Rs.6000 per annum as fixed cost and yields Rs.3500 profit.
The sales income is Rs.16,000. Draw a profit-volume chart and find the P/V ratio.
5. The following table presents a major decision that has to be made. The company
could develop either as an integrated resource company that includes exploration,
drilling, production, refining and distribution functions (Alternative A), or could
specialize in exploration and drilling only (Alternative B). The impact on fixed and
variable costs as well as selling price per barrel is provided.
Alternative A Alternative B
Fixed cost
Variable cost
Selling price
Rs.5,00,00,000
Rs.25/barrel
Rs.35/barrel
Rs.2,00,00,000
Rs.18/barrel
Rs.25/barrel
If the company is interested in realising a profit with a smaller breakeven volume,
which alternative should be chosen?
6. The breakeven point of a product occurs at a sales income of Rs.1,20,000 but
normally the sales income is Rs.1,80,000, the fixed cost being Rs.1,00,000. A new
product involved additional cost of Rs.20,000 but the P/V ratio was improved by
20% and sales income increased to Rs.2,40,000. What net profit did the new design
yield?
4.9 REFERENCE BOOKS
1 Buffa, "Modern production management", John Whiely.
3. Menipaz, Ehed, "Essentials of production and operations management", Prentice
Hall
4. Eilon, Samuel, "Elements of production planning and control". Macmillan
Company.
- End of Chapter -
LESSON-5
BREAKEVEN ANALYSIS AND DECISION MAKING
5.1 Preamble
5.2 Mechanisation decisions
5.3 Choices among process alternatives
5.4 Make-buy decisions
5.5 Economic analysis
5.6 Non-economic and intangible factors
5.7 Make-buy policies
5.8 Cautions in the use of breakeven analysis
5.9 Summary
5.10 Key concepts
5.1 PREAMBLE
Breakeven concepts can be applied as an aid to managerial decision making in
number of areas. Mechanisation decisions, choosing among process alternatives, and
make-buy decisions are some of the areas where breakeven analysis can be applied
effectively.
5.2 MECHANISATION DECISIONS
Suppose a new glass cutting machine would decrease the amount of glass breakage
and the labour required in the manufacture of a solar heating panel which was
discussed in Example 2 of Lesson-4. A decision has to be taken whether to go for the
new machine or not. The decision will be based on the new cost estimates. For the
new machine there will be an additional fixed cost of Rs.3000 would have to be
invested in addition to the fixed cost of Rs.20000, but the variable cost would reduce
to Rs. 75 per unit from Rs.80 per unit. With this new information on cost data, the
breakeven point,
Q = F
P V
= 23000 _
100 - 75
= 920 units.
The installation of this new machine would reduce the breakeven volume (BEP) to
920 units from the previous 1000 units. This would be an important outcome, and
the decision would be taken to buy the new machine.
5.3 CHOICES AMONG PROCESS ALTERNATIVES
Breakeven analysis can also be used to aid in making choices from among the
alternative processes by comparing relative advantages of each. In a manufacturing
situation, processing requires simple machines which are easy to setup, are usually
slow, and costly to operate. On the other hand, larger volumes of output may allow
the use of faster machines which are costly to setup but once setup they are less
costly to operate. Often there are several alternative methods, each of which may be
the most economical for certain ranges of output. The method which must be used
depends upon the expected volume of output.
Deciding the choices among processing alternatives can be best explained with an
illustration. A decision has to be taken about the processing methods among the
alternatives for making a small bush. This bush can be made on an ordinary general
purpose lathe which is easy to setup but not very efficient in production. The bush
can also be made on a turret lathe which is more costly to setup but it can produce at
lower unit cost once it is setup. However, when the requirement of bush increases,
the automatic screw machine is preferable. Setup costs are much higher for such
automatic machines but the operating costs are much lower.
The following cost data may be taken for the three processing alternatives:
Setup cost (F) Operating cost per unit
(V)
Lathe Rs.250 Rs.5
Turret lathe Rs.500 Rs.2.50
Automatic screw machine Rs.1450 Re.1
If 'x' is the quantity to be made each time the machine is setup, the cost formula for
the three alternatives becomes,
Lathe : 250 + 5x
Turret lathe : 500 + 2.5x
Automatic screw machine : 1450 + 1.0x
Fig. 5.1 shows graphically the comparison of costs for making the bush on these three
machines. Lathes are the least costly for very small quantities, then turret lathes and
then automatic screw machines for larger quantities. The chart shown in Fig. 5.1
would be needed for deciding the method to be used for a given volume of
production. The exact crossover points A, B, and C can be calculated from the cost
formula of different alternatives. The equations for the two methods being compared
are set equal to each other and solved for 'x'.
The comparison of lathes to turret lathes is:
250 + 5x = 500 + 2.5x
2.5x = 250
x = 100 units
Thus point A on the chart of Fig 5.1, which is the point of indifference between lathe
and turret lathe, is at a volume of 100 units.
The comparison of lathes to automatic screw machines is:
250 + 5x = 1450 + 1x
4x = 1200
x = 300 units
Thus point B on the chart of Fig 5.1, which is the point of indifference between lathe
and automatic screw machines, is at a volume of 300 units.
The comparison of turret lathes to automatic screw machines is:
500 + 2.5x = 1450 + 1x
1.5x = 950
x = 633 units
Thus point C on the chart of Fig 5.1, which is the point of indifference between turret
lathe and automatic screw machines, is at a volume of 633 units.
From the above calculation, we can say that a lathe should be used for orders fewer
than 100 units, a turret lathe should be used if 100 to 633 units are to be produced,
and an automatic screw machine should be used for above 633 units of production.
Assuming, all the turret lathes are tied up on some other work and are not available,
then a lathe should be used for up to 300 units, and automatic screw machines for
orders of more than 300 units.
Crossover charts can also be used in new equipment purchase choices. The lines on
the charts would compare the costs of doing the work in the present way against
what they would be if a machine were bought.
5.4 MAKE-BUY DECISIONS
The breakeven concepts can also be used in make-buy decisions. Make-buy decisions
are those where a company's manager chooses between 'making' a part inside or
'buying' it ready made from outside.
Make-buy questions can come up at any time. When such a question comes up and if
the company has idle capacity, then the decision to 'make' is almost automatic since
the cost of machine does not need to be considered. The real make-buy questions
come up when making would involve the purchase of more equipment. Breakeven
analysis can help in such situations.
Factors affecting Make or Buy decision
Every manufacturing concern must decide whether to use its product skill and effort
to make each of multiple items or whether to buy them. The possibilities are
tremendous when all of the materials, supplies and finished products with which a
manufacturing concern deals are considered. Fortunately manufacturing a large
share of these items need not be considered. For supply items as paper clips, pencils,
and erasers, specialisation makes their manufacture uneconomical to all concerns
except to those in that particular field. As a matter of fact real opportunities are
sometimes overlooked because of this pattern of buying items.
The product has been designed and its specifications are summarised on blueprints
or drawings. Analysis of the product may reveal that, the product may have 1, 10,
100, 1000, or 10000 parts for making it. A large transport aircraft is made up of over
50000 parts. Out of these parts, it has to be decided which are to be made and which
are to be bought. Also it has to be decided about the valid criteria for making these
decisions.
5.5 ECONOMIC ANALYSIS
Most businessmen would agree that major criterion for decision making in the make-
buy area is cost. If a part could be bought cheaper than it could be made, buy it.
When it comes to the kind of needed cost comparison, there is often much confusion
because no standard cost comparison fits each case. Every situation must be analysed
in terms of the incremental cost involved and the nature of these costs varies
tremendously.
If the parts are purchased instead of making them, what costs would actually be
reduced, and are these reductions in costs greater than the costs assumed for buying
the item? If yes, then a decision would be taken to 'buy'. This could be illustrated
with an example.
Example: Suppose a part is made in the plant at a cost of Rs.100 per piece, which
includes Rs.50 for overhead expenses and the remaining Rs.50 for direct costs. If this
part is purchased, then there would be a reduction of Rs.50 per piece. When the cost
of purchasing is Rs.40 per piece, then the reduction in cost of making if the part is
bought (i.e, Rs.50), is greater than the cost of buying (Rs.40) the component. In that
case, decision would be taken to 'buy'.
Now let's assume that the buying cost is Rs.60 per piece instead of Rs.40, then the
reduction in making cost (Rs.50) if the part is bought, is less than the cost of buying
(Rs.60) the component. In this case, decision would be taken not to buy, but to
continue 'making' the components inside.
Conversely, if the part is being purchased presently instead of making it, then actual
cost added for making the component has to be calculated and compared with the
cost reduced by not purchasing the component. This could be illustrated with an
example.
Example: Suppose the part is purchased presently at a cost of Rs.50 per piece. If the
part is made, then there would be an additional cost of Rs.40 per piece. Since this
additional cost is less than the reduction of cost (Rs.50) by not purchasing the item,
decision would be taken to 'make' the part.
In another case, if the part is made, then the additional cost incurred in making the
part is Rs.60 per piece. Since this additional cost is greater than the reduction of cost
(Rs.50) expressed in stopping the purchase of the part, decision would be taken not
to make the part and to continue with 'purchasing' the part.
The above discussion would look simple but the difficulties come in the
interpretation of them. For example, if there is idle capacity in the necessary
equipment, the cost of making would be more attractive because the allocation of
overhead cost for equipment for space, supervision etc. to new product could not be
justified. On the, other hand, if it is necessary to acquire equipment, floor space and
supervision would have to be reflected on these facts. Conversely if the item is
considered for buying, then overhead items in the manufacturing cost would have to
be looked closely. It is likely that these overhead cost items would actually be reduced
by purchasing the part. The supervision floor space and general factory overhead
would remain as continuing cost items. If the equipment involved is general purpose,
then it would have to be retained. The sunk costs of equipment and building and the
realistic facts of idle capacity would be strong economic pressures for making the
part instead of buying.
The types of cost factors that could enter into a make-buy decision are often
surprising. For example, once company found that they had not included extra
material-handling costs for the buy situation. Since this part was a heavy and bulky,
the material-handling cost turned out to be important. The simple price per unit of
purchased parts does not necessarily reflect the incremental cost for comparison of
alternative plans of make or buy. Another company failed to consider that there were
incremental paperwork costs for its make program. Previously the part was bought as
a single assembled item and placed it in storage to await assembly into their final
product. Now for making, several component parts would have to be purchased plus
the raw material for the parts. Shop orders have to be written, inventories have to be
controlled for several parts and assembly orders have to be written. Some of these
costs would be measurable and greater than the cost of buying the part. The
important thing is that the cost analysis must fit the particular case and each case
would be different.
5.6 NON-ECONOMIC AND INTANGIBLE FACTORS
There would be some other factors other than economic that influence a company to
follow a given make-buy policy. These other factors could be: quality, reliability,
availability of supply, control of trade secrets, patents, research and development
facilities, flexibility. These are some of the factors entering into a make or buy
decision.
5.7 MAKE-BUY POLICIES
Most concerns wish to follow a basic policy that gives the economic criterion. They
would vary from this policy only when a limiting condition such as quality
consideration, supply, patent etc. seem to dictate a course of action. The decision
rules for make-buy situations used by process planners would be based on a variety
of reasons and logic. Any one of the following combinations of several may be the
basis for these decision rules: economic advantage, quality consideration, reliability
of supply, control of trade secrets, research and development facilities of a supply,
retention of goodwill, desire to specialize activities, and imposed sub-contracting.
The decision rules may also depend on the company, its policies, and the nature of
the specific items under consideration. The breakeven analysis may be helpful in
taking quantitative decisions for make-buy policies.
To illustrate this, an example is considered.
Example: A panel manufacturer is making a decision about whether to make or buy
a part. If Rs.3500 is invested in a new die, the company will be able to make this part
in the plant itself for an added cost of Rs.1 per unit in variable cost. However, if the
part is bought, the vendor has quoted two prices, Rs.1.55 each for quantities up to
10,000 units and Rs.1.30 each for all orders over 10,000. Because of two quoted
prices, two breakeven points, one comparing each purchase price with inside
manufacturing cost have to be calculated. These two breakeven points are calculated
as follows:
Let's say, the manufacturer requires x units of the part.
The see comparison of costs of 'buying' and 'making' quantities up to 10,000 units:
1.55x = 3500 + 1x
0.55x = 3500
x = 6364 units
This quantity of 6364 units is shown at point A in Fig.5.2.
Let's see comparison of costs of 'buying' and 'making' quantities over 10,000 units:
1.30x = 3500 + 1x
0.30x = 3500
x = 11,667 units
This quantity of 11,667 units is shown at point B in Fig.5.2.
Because there is no start-up cost involved and no machine to buy, buying the part
would always be less costly for all small quantities. But the breakeven formula and
the graphical plot of Fig. 5.2 show that although 'buying' would be less costly up to
6364 units, 'making' is less costly thereafter.
The quoted purchase price reduction for over 10,000 units forces to change the
decision. For quantities just over 10,000 units, again, 'buying' is cheaper but only up
to 11,667 units. After this quantity of 11,667 units, again, it is profitable to 'make'. All
these relationships are shown in Fig. 5.2.
5.8 CAUTIONS IN THE USE OF BREAKEVEN ANALYSIS
Breakeven analysis should be used with proper judgment because of the many
assumptions made in carrying out the analysis.
First, it is difficult to separate fixed cost from variable cost in many operations. Often
the estimates of fixed and variable costs are made roughly.
Second, variable costs per unit are not always constant for any volume of sale or
production. But the variable cost line is assumed as straight line on breakeven chart.
Sometimes economies of scale cause variable costs to be less per unit as the volume
increases. At other times, diseconomies of scale work the other way and cause
variable costs per unit to increase as volume increases.
Third, fixed costs also may not be always constant over the full range of volume
under consideration.
And finally, greater volume may be profitable only at reduced prices.
These interacting relationships are shown in Fig. 5.3.
Fixed costs may rise as volumes increase because of the need to add to capacity in a
lumpy sort of way. This may be due to the purchase of more machines to produce the
added volume.
The variable cost may not be a straight line. Because of the economies of scale the
increase in the total cost would not be linear to that of the volume, and hence the
total cost curve takes the non-linear shape.
And also the sales income line would not be a nice straight line as it was depicted in
the previous breakeven chart. As the firm tries to increase the sales volume, it may
have to cut the prices on some items in order to sell more. This has the effect of
flattening out the income line on the right side of the chart.
When the Fig.5.3 is analysed, it would be seen that the volume which would produce
the greatest profit would be just below point A, that is, the point where there is a
great spread between sales income and total cost. However, a manager looking at this
chart shown in Fig. 5.3 and knowing the inexact nature of the figures that were used
in the construction of the chart, would probably conclude that it would be most
profitable to produce at a volume somewhat above point B but somewhat less than
point C's volume but not necessarily just below the point A.
5.9 SUMMARY
In this lesson, applications of breakeven concept in mechanisation decisions,
choosing process alternatives and in make-buy decisions have been discussed.
Breakeven analysis should be used with discretion because of the many assumptions
which are made.
5.10 KEY CONCEPTS
Mechanisation decision
Process selection
Make-buy policy
1. Is a breakeven chart reliable enough as a managerial tool for a manager in making
a major business decision? Discuss.
2. What is the nature of the economic analysis for a make versus buy decision?
3. Discuss the nature of non-economic and intangible factors that may bear on the
make-buy decision.
4. How does the breakeven concept apply in process selection?
5. Discuss the limitations and cautions which should be taken in using breakeven
analysis.
2. Krajewski and Ritzman, "Operations Management", Addison-Wesley.
Hall.
4. Eilon, Samuel, "Elements of Production Planning and Control", Macmillan
Company.
5. Moore, F.G. and Hendrick.T.E., "Production/Operations Management", D.B.
Taraporval Sons & Co., Bombay.
- End of Chapter -
LESSON-6
PLANT LOCATION FACTORS
6.1 Preamble
6.2 Aspects of plant location
6.2.1 Process inputs
6.2.2 Process outputs
6.2.3 Process characteristics
6.2.4 Personal preferences
6.2.5 Tax incentives and legal aspects
6.3 Steps in the plant location study
6.4 Area selection
6.5 Community selection
6.6 Site selection
6.7 Influence of location on plant layout
6.8 Common errors in plant location analysis
6.9 Summary
6.10 Key concepts
6.1 PREAMBLE
Very early in the planning phase, the operations manager is faced with a plant
location decision. The small entrepreneur, when considering a location for his
welding shop, is concerned with easy access to the shop by potential clients and with
building costs and rental rates. The major national producer of chain saws considers
his markets, the availability of skilled personnel, the supply of raw materials, energy
and so on.
The location of a plant is a major decision and is affected by many factors both
internal and external to the organizations operations. Internal factors include the
technology used, the capacity, the financial position and the work force required.
External factors include the economic, political and social conditions in the various
localities.
Most of the fixed and some of the variable costs of the operations are determined by
the location decision. Thus the efficiency, effectiveness, productivity and profitability
of the plant are affected by the plant location decision. While some aspects of
location analysis can be dealt with quantitatively, the final decision is based largely
on informed qualitative judgment
6.2 ASPECTS OF PLANT LOCATION OR VARIOUS FACTORS AFFECTING
PLANT LOCATION
The location of a facility, be if a manufacturing or services, is largely affected by the
following aspects:
6.2.1 Process inputs
Process inputs involve raw material, personnel, and other inputs. So far as raw
materials are concerned, transportation costs are important. These costs are
significant when bulky and heavy raw materials are involved in the process.
When there is only one raw material source and many dispersed markets, one
considers locating the facility near the raw material source. However, when
there are various raw materials that are to be used for the production of one
single marketable product, one considers locating the facility near the market.
Inputs other than raw materials are also involved in the operation process. For
example work force availability and wages are of far more important to an
operation than are raw materials. Service organisations and labour intensive
industries are very sensitive to the availability, the skill level, and the pay rate
of the workforce. However, to a certain extent increased mechanisation has
contributed to the reduced importance of the labor aspects of location analysis.
Another consideration in the context of human resources is the availability of
manpower. Generally the workforce consists of skilled, semi-skilled, and un-
skilled personnel. All of these skill-levels are represented in organisations. For
example, if a plant is to be located in a low skill, low wage area, the degree of
mechanisation must be increased. The work assistants and habits of locally
recruited personnel are also important.
6.2.2 Process outputs
Process outputs involve distribution costs. The more bulky and heavy the
finished product, the costlier becomes the distribution. Also, if the operation is
more service-oriented, it is important that the plant is located near its market.
For industries where services are not directly consumed, such as automobile
repair shops and headquarters of mortgage & trust companies, location is not
so crucial. However, services that are directly connected, such as those of bank
branches , theaters, restaurants, apartment buildings, and public parks,
locations near the consuming public is crucial. As matter of fact proximity to
the market is possibly the most important consideration in location services
that are directly consumed.
When the process requires a great deal of energy, as does the steel industry, it
should be located next to a major source of power. When the process requires a
great deal of water, as does the sugar industries, it should be located where
water is available in ample supply.
6.2.3 Process characteristics
These are concerned with the equipment or conditions. Noise or odour or
chemical producing plants should be located far away from urban or sub-urban
communities. Certain weather conditions are advantageous for varies
processes. For example, a certain humidity level is favourable for sanitary
operations. A certain humidity level is required for the printing industry
because of the paper sheet feeding technology which is based on vacuum cups.
The facility location is thus affected by the process requirements.
6.2.4 Personal preferences
Personal preferences of the entrepreneur or top executives of the company also
affect the location decision.
6.2.5 Tax incentives and legal aspects
These are very important factors; corporate taxes, personal income taxes and
sales tax, all affect the location decision. Obviously, the corporate tax structure
is built into any location feasibility study made by the corporation. Personal
taxes determine how attractive the move to the new location is and what the
wage structure should be. Various communities, states and the government
offer incentives for facility location by providing industrial parks, properly
zoned land at favorable tax rates and rebates based on capital allowances, and
per worker outright grants. At times loans and loan guarantees are offered.
Certain industries are banned from certain localities. Certain products might be
legally banned from certain localities. These aspects of facility locations should
be checked and confirmed.
6.3 STEPS IN THE FACILITY LOCATION STUDY
In most cases, a location analysis should begin with a preliminary survey of the
aspects indicated above to determine whether or not the use of new plant site is
justified. When it is not justified, the study simply ends. If the survey indicates that
new sites may be desirable, a detailed analysis that carefully evaluates all possible
alternatives is to be undertaken.
Usually, the analysis is undertaken in several stages. Three levels of problems must
be attacked when considering plant location. They are:
(i) Selection of general territory or area
(ii) Selection of a specific community
(iii) Selection of specific site
Sometimes, the second and third levels are confined. Although some location factors
may be applicable at all the three levels, there are certain unique considerations
when selecting a general area, community and site. The selection of factors
considered at each stage is to an extent arbitrary. Some factors may be evaluated at
different stages and some are evaluated in all the three stages. What is important is
that all the factors be considered at same point in the analysis.
Numerous sources of information are available to assist the firms with the analysis.
Location informatics of a general nature may be obtained from the following sources:
(i) Central Government
(ii) State Government
(iii) Chamber of Commerce
(iv) Electricity Board
(v) Gas authorities
(vi) Railways
(vii) Transport Corporation
(viii) Engineers and Builders
(ix) Consultants
6.4 AREA SELECTION
Area or territory selection calls for the information of a more general nature. In this
initial phase, management is involved in selecting region or general area in which the
plant should be located. The following are some of the important factors that
influence its selection.
1. Market : The market is a location of the buyers. It is a factor to be considered in
plant location. Depending on the product, market may be concentrated or widely
dispersed.
When a market is concentrated, the market factor may tend to influence the
investigator to locate close to this concentration. For a product servicing a
dispersed market the influence of the market factor becomes less obvious.
It is possible to determine the center of the market, which is a statistical
device helpful in approximating that point which will provide the lowest cost
for distribution. The center of the market can be used only as a guide for plant
location. The method used to locate a market center is analogous to locating
the center of gravity of a two dimensional object in mechanics.
Locating plant near the markets for this products and services is of primary
importance in a plant location decision. Particularly this factor should be
considered if the manufacturing increases the bulk or weight of the product,
renders it more fragile or make it capable of being easily spoiled. Besides
adding transportation costs, distance adds to transmit time and slows down
delivery, thus affecting promptness of service.
If the product is relatively inexpensive and transportation costs (e.g. bricks,
cement) add substantially to the price, a location near the market is desirable.
Also if the product is custom-made, close customer contact is essential.
In assembly type industries, many raw materials are gathered together from
diverse locations and assembled into single units. Such industries tend to
locate near the market.
2. Raw materials : The location of raw material is influential in the location
problem. Some industries by the nature of their manufacturing process are forced to
locate the near raw material sources. The steel industry has traditionally located
close to the coal fields since it uses coal in large quantities. However since new
processes have been developed for basic steel refining which eliminate the need for
coal , this change in the raw material demand could lead to a complete relocation of
the steel industry.
The raw material could be treated in three classes:
(i) Pure material which are included in the manufacturing part without loss of
weight.
(ii) Weight losing materials, only a part of whose weight is represented in the weight
of the finished article.
(iii) Materials found virtually everywhere.
By assuming uniform rates per distance traveled, which is an oversimplification, the
following generalisation regarding the effect of raw material on plant location may be
made:
When a single raw material is used without loss of weight, locate the plant at
the raw material source, at the market, or at any point in between them.
When a weight losing material is demanded for the plant, then locate the plant
at the raw material source.
When a material found everywhere is used, locate close to market area.
Ease of access to suppliers of raw materials, parts, tools, equipment, etc. may be
important. Promptness and regularity of delivery from suppliers and minimization of
freight costs are important. In general, this factor is most likely to be important in
transportation of materials and parts that represent the major portion of unit costs,
and these inputs are available only in a particular region.
If the raw material is bulky and if it is greatly reduced in bulk by transferring
into various products and by-products in processing, then location near raw
material sources is important.
If the raw material is perishable and processing makes it less, then also
locating near raw material source is important.
If raw material comes from a variety of locations, the plant may be situated so
as to minimize total transportation cost. In calculating transportation costs,
the fact that should be considered is that these costs are not simply a function
of distance, but they vary depending upon specific routes and specific product
classifications.
3. Transportation : The problem of transportation is an important factor in plant
location. The movement of material can consume a very high percentage of the final
cost to the customer. One plant location analysis done by an analyst for a specific
plant showed that locating the plant as little as 400 kilometers from the best location
caused lost potential projects of as much as Rs.30 lakhs per year. This penalty
included higher cost of labour, power and fuel as well as higher transport costs.
The different transportation medium may be:
(i) Railroads - all classes of traffic.
(ii) Water carriers - all classes of traffic
(iii) Highway vehicles - all classes of traffic.
(iv) Pipelines - bulk liquid and gases.
(v) Aircraft - where speed is essential and where access by the surface agencies is
difficult.
(vi) Pack animals - in different terrain.
(vii) Belt, cable, or rail conveyers of various types - short distances.
(viii) Human carriers - short distances and small quantities.
(ix) Electric cables - electric energy.
(x) Telecommunications - information commercial negotiations.
Each of the above transportation mediums has its advantages and limitations. In
order to select the proper transportation media, the shipper should consider the
following:
Type and extent of material-handling facilities at origin and destination,
The relation cost of the various media,
The urgency of the shipment,
The demand for special services, e.g. refrigeration.
Transportation costs vary with the type of route, type of media selected, as well as the
length of distance travelled. In general, the cost of moving material per unit distance
travelled tapers off, as the length of distance travelled increases.
FIG. 6.1 Hypothetical Comparison of Costs for Various Transportation
Media
Fig. 6.1 shows an analysis involving breakeven point to select a transportation media
for a particular situation. In this case, truck transportation appears to be the most
economical up to a distance of approximately 80 kms. Transportation by waterway
appears to be most economical for long distance, greater than about 700 kms. For
traveling distances between 80 to 700 kms, the railroad appears to be most efficient
carrier.
The breakeven chart shown in Fig. 6.1 is a hypothetical one. However, such a chart
can be constructed if real data is available for taking the decision with respect to the
selection of transport media.
Adequate transportation facilities are essential for the economic operations of a
production system. The bulk of all freight shipment is made by rail. Rail transport
offers a great deal of flexibility and speed. Most firms require access to railways
which they consider to be essential carriers of their products.
For companies that produce or buy heavy and bulky commodities, water
transportation is an important factor in locating plants.
Truck transport is also important particularly for inter-city transport.
Availability of pipelines may also influence location.
Use of aircraft is also expanding and so the proximity to airports is becoming vital.
Traveling expenses of management and sales personnel should also be considered.
4. Labour supply and wages : Not only the labour force must be available but
also it must have the skills required for the particular manufacturing process. The
history of labour relations in a prospective area for location should be studied. For
obvious reasons, it is difficult to secure objective comments from area leaders and
local government officials particularly if they are promoting their community. The
rate of labour turnover is a good indication of the relationship between management
and labour. A high turnover rate shows up in a high labour cost and it is directly
related to productivity.
If the labour force required by a particular industry is predominantly female, the
location problem takes on some different aspects compared to a plant whose labour
force is predominantly male. Wage levels must also be considered. Wages and skills
available may be lower in a particular region and therefore industries requiring many
unskilled workers, which pay low wages, are attractive to such regions.
Manpower is one of the most important and costly inputs in production
systems. An ample supply of labour is essential.
Firms often look at the areas in which the permanent job applicants available
are more than three or four times of the required numbers.
It is also advantageous to locate in places where there is diversification
between industries and business. It is not desirable to have more than 50% of
the available workforce in manufacturing.
The type and level of skills possessed by the labour force is important. If
company requires particular skills that are not widespread, it may have to
locate near the particular areas where these skills are available. Otherwise,
training costs might be more and inadequate productivity would result. In
these cases, skilled labour is desirable but not essential since all the workers
will require some training anyway. It should be noted that a firm can relocate
from a high skill/high cost to a low skill/low cost operation if sufficient
process mechanization is achieved to permit trading off the higher investment
in machinery for less manpower and lower wages and level of skills.
The existence of regional wage rate differentials may be important particularly
in those cases in which labour cost represents the bulk of total production
cost, as in the textile industries. This factor must be considered in light of the
skills available in the area, the size of the labour force, productivity levels, etc.
The extent of unionizations, prevailing labour- management attitudes, history
of labour relations, turnover rates, absenteeism, etc., should also be
considered.
5. Climate and fuel : Climate greatly influences human efficiency and behaviour. A
plant whose production process requires a constant temperature of 20C will find no
such situation. It should be located on a site that has a mean temperature of 20C
and standard deviation of 5. This will call for the least amount of artificial heating
and cooling. Heating engineers can compute heating costs on the basis of the
temperature data.
In addition to fuel costs, climate can influence the selection of a territory because of
the amount of precipitation or air pollution.
Wind velocity and direction can also influence plant location. These become very
important factors when the possibility of radioactive fall out resulting from an attack
upon a distant city is considered.
6. Location of other plants and warehouse : Firms always try to place new
plants where they will complement sister plants and warehouses, and minimize total
cost. They look for market needs and supply-demand disparities, and locate where
major markets have been served by long distance travels.
The location of competitors' plants and warehouses must also be considered, the
objective being to obtain an advantage in both freight costs and the level of customer
service.
6.5 COMMUNITY SELECTION
Once the general territory for location has been selected, it becomes necessary to
choose a community and a site. A decision must be made regarding the size of the
community in which the plant is to be located. The alternative choices can be
classified as:
i. City location
ii. Suburban location
iii. Country location
1. City vs. Suburban vs. Country
The advent of the automobile has brought new mobility to the working force. This is
one of the reasons for the present day industrial rush in the country. Wide open
spaces and freedom to expand are probably two of the biggest inducements.
The type of manufacturing process may dictate the site relation. For example, a
country location is desirable for a plant producing explosives. Some of the general
conditions leading to the selection of an appropriate type of community might be
listed as follows:
(a) Conditions suggesting a city location -
(i) Large skilled labour required
(ii) Process heavily dependent upon availability of city utilities
(iii) Multi floor building desirable
(iv) Close contact with suppliers is demanded
(v) Rapid public transportation is available
(b) Conditions suggesting a suburban location -
(i) Semiskilled labour force required
(ii) Avoidance of heavy city taxes and insurance desired
(iii) Labour force residing close to the plant
(iv) Plant expansion is easier than in city
(v) Community close to but not in large population center
(c) Conditions suggesting a country location -
(i) Large site required for either present demand or expansions
(ii) Lowest property taxes available desired
(iii) Unskilled labour force required
(iv) Low wages required to meet competition
(v) Morale of working force improved by country location
(vi) Manufacturing process is dangerous or objectionable
The choice of the community depends upon the region already chosen. Most
community selection factors cannot be quantified and can only be evaluated
subjectively.
2. Managerial preferences
This often plays an important role in plant location decision. Many times due to
community ties, companies will not relocate. When firms do relocate, the location
selection in some cases is heavily influenced by the preferences of the managers who
will be transferred.
3. Community facilities
This involves such factors as quality of life, which in turn is a function of the
availability of such facilities as schools, churches, medical services, police and fire
protection, cultural, social and recreational opportunities, having good streets and
highways. Also important are the communication facilities and the range frequency
and reliability of transportation facilities.
4. Community attitudes
Community attitude is another factor to be considered in locating a site for the plant.
The cultural, social, and educational community atmosphere is being given more
attention by plant location investigation, since management has recognised that
these aspects are often important to key employees.
The political climate of a community might well be investigated. The tendency of
government bodies to encroach on the privilege of business has caused management
to carefully study the political climate in a prospective location. The back issues of
the local newspaper over a period of time can reveal such aspects.
These can be difficult to evaluate. Unless the industry is for some reason of an
offensive nature, most communities welcome new industries. However, the
formation of anti-industrial pressure groups or lack of co-operation, interest and
enthusiasm on the part of community can result in poor relation between the
relocating firm and local government, labour and the general public.
5. Community, government laws and taxation
State and local laws should be studied when considering various location. Labour
laws, workmen's compensation laws, etc., vary widely from one location to another.
Some of the aspects of industrial operation regulated by law are hours of work,
minimum wages, and working conditions for women employees. The respective laws
should be investigated which may penalise certain types of industry in certain areas.
Waste disposal, smoke reduction, and nuisance regulations should be studied for the
various alternative locations.
Some industrial concerns pay excessive taxes. Taxes should be considered in
selecting a site but a plant location analysis says that tax incentives are relatively
unimportant secondary factor of location. Given the governing factor, the tax
incentive may induce a specific location within the area defined by the basic factor. If
the location offering tax incentives is not within the area set by the governing factor,
it is simply not considered.
Stable, honest, and co-operative government, are important assets, as most of the
local legislations affecting industry is under its control. Restricting, unreasonable
local ordinary concerning building codes, zoning, pollution control etc., can seriously
inhibit operations.
Tax rates are important but must be considered in terms of services provided. There
should be some attempt to forecast these charges. If future expansion of community
services and facilities is likely, taxes will probably increase.
6. Financial inducements
Many central and state governments offer subsidy and financial inducements to
companies to influence them to build plants in their areas. Government may provide
loans for plants for newly established plants within their regions. However, the
companies should not allow temporary inducements to overshadow the basic merits
of any location.
7. Profile of present industry
The kinds and quality of industrial concerns already in the community area also
pertinent factors to be considered in plant location.
6.6 SITE SELECTION
This is the final stage in the plant location analysis.
One thumb-rule regarding the size of a site is that it should not be less than five times
the actual size of the plant itself. This is considered as a minimum in order to allow
for loading platform, siding, transport access, parking facilities and storage area.
Wherever possible, open land is desirable on two or more sides to allow for future
expansion.
Unfortunately, tempting offers of a fine site or attractive tax promises frequently
influences plant location decision. Objective data is essential to good plant location.
Researchers in plant location say that in order to properly select a site, a list of
general specification should be followed:
(i) Description of the building to be constructed including the sketch.
(ii) Size of the plot.
(iii) Necessary railroad, highway and waterway facilities.
(iv) Minimum size of water mains, gas line and power line.
(v) Volume of ground water to be utilized.
(vi) Sewage and effluent disposal requirements.
(vii) Safety area for offensive odours, noise, smoke, etc.
(viii) Provisions for sprinkler pressure (ground tank or local water main)
The maps published by the Geographical Survey are useful in selecting a good plant
site. These maps show the land elevations, water feature, dams, buildings, railroads
and power lines.
When choosing a site the following factors should be investigated.
Size of site - The plot of land must be large enough to hold the proposed
plant and parking and access facilities and provide room for future expansion.
Industrial parks are often an excellent choice except for heavy industry
Topography - The topography, soil mixture and drainage must be suited to
the type of building required, and must be capable of providing a proper
foundation. If considerable land improvement is required, low-priced land
may turn out to be expensive.
Utilities - The cost, adequacy and reliability of the supply of power and water
must be evaluated.
Power: All industries today require electric power of some sort. In addition,
there are certain industrial processes that require large amounts of electric
power. For example the refining of aluminum requires cheap electricity in
large amounts, and for this reason aluminum processing plants are located in
areas where large sources of inexpensive power are available. In a situation
where a large amount of steam is utilised for processing or heating, it is
sometimes advisable to use this steam for power generation purpose.
The following checklist may be helpful when examining the power situation in a
given area:
1. Type of service
Hydroelectric
Steam
Other
2. Reliability of service - history of stoppages
3. Adequacy of supply - seasonal restrictions
4. Kind of supply
phase
cycle
voltage
5. Rates
6. Availability of off-peak contracts
7. Fuel adjustment
8. Lighting allowances
9. Discounts and penalties
Hydro-electric power is usually associated with cheap rates, although the original
installation of the hydroelectric plant is considerably more costly than that of a steam
plant. Technical developments lead to constant improvement in power generation
and distribution.
Water: There are certain industrial processes which requiring large
quantities of water. Selecting a site with a good water supply is essential in
steel, paper board, paper pulp, food and chemical processes.
Water is generally available from three sources:
(i) surface - water from lakes, streams, etc.,
(ii) ground - springs and wells and
(iii) rain water
Surface water varies greatly in its chemical analysis, and microscopic organisms and
vegetation may add taste and colour harmful to specific manufacturing processes.
Hard water can damage steam boilers, pumps and circulating systems, engines and
other water jacket equipment. The pH factor is the measure of hydrogen ion
concentration of water and it is an expression of its acidity or alkalinity. This factor
should be checked if hardness affects the manufacturing process.
The cost of the supply of power and water are sizeable and constantly recurring costs.
Accurate cost determination requires contact with the local utility company. Usage
restrictions may be imposed and there may be wide variations in availability. The
water supply must be sufficient to meet peak needs and compensate for dry spells. If
water is poor quality it may require chemical treatment or purification. The cost of
connecting these services to the plant must not be overloaded. Sometimes it can be
done only at high costs.
Waste disposal
This must be considered when selecting the site. The plant should be positioned so
that prevailing winds do not carry any fumes from populated areas, waste may be
disposed-off properly, and at reasonable expense.
Waste disposal is getting to be more and more of a problem as industrial
concentration has built up. As the radioactive materials are finding use in industry in
increasing numbers, the problem of disposal of radioactive waste has become quite
critical. Enterprising businessmen in a heavily industrialized area might establish
profitable business of collecting and disposing-off radioactive wastes from the
industries.
Transportation facilities
Railroads and highways should be close by in order to minimize the cost of rail lines
and access roads. There must be enough highways and railroads to serve the
community itself. Special requirements for water or air transport must be
considered. The plant itself should be easily accessible by car or preferably public
transport.
Intangible factors to consider include the dependability and character of the available
carriers, frequency of service and freight, and terminal facilities. Costs and time
required to transport the finished product to market, and time required to contact or
service a customer must also be considered.
Land costs
These are generally of minor importance as they are non-recurring and make up a
relatively small proportion of the total cost of locating a new plant.
It should be emphasized that plant location analysis is a periodic task. The world is
rapidly changing and the management should not expect a location to remain
optimal forever. Every organization should periodically reassess its environment,
whether any long term changes have occurred that may make it advantageous for the
organization to alter or possibly relocate some portion of its facilities.
6.7 INFLUENCE OF LOCATION ON PLANT LAYOUT
Plant location will determine the proximity of a plant to its source of raw-materials
and its market area. The distance from the plant to these two areas tend to determine
the method of transportation to be used. In turn, the type of transportation
determines whether the layout should provide for railroad, truck or water loading
and unloading facilities. The arrangement of the shipping and receiving departments
will vary in the layout according to the type of transportation utilized.
A plant location may be determined, in part, by the fuel requirements of the concern.
The plant layout must provide for storage of this fuel, whether it be coal, oil or gas.
Also the layout must consider the requirements for power generation.
The demands of future expansion on the plant are influenced by the location of the
plant. When plant expansion in a city location must take place by adding stories to a
presently constructed building, the plant layout problems are somewhat different
than they would be in a country location, where plant expansion might take place
horizontally by adding a wing to a single storey building. Materials handling problem
in a single storey building are quite different from those in a multi storey building.
6.8 COMMON ERRORS IN PLANT LOCATION ANALYSIS
Sometimes the location selected is poorly suited to the company's needs. Among the
more common causes of failure to make a proper location decision are the following:
(i) Labour cost miscalculations
(ii) Inadequate labor resources
(iii) Failure to anticipate growth - firms overlay influenced by short term
consideration finds expansion restricted by natural boundaries, residential or
commercial encroachment, limited utility, etc.
(iv) Carelessness in checking site
(v) Lack of distribution outlets
(vi) Failure to predict local impact of new plant
(vii) Lack of supporting facilities
(viii) Misinformation on utility costs and problems
(ix) Underestimated importance of taxes
(x) Failure to identify critical costs
(xi) Choosing a community in which living conditions are substandard
(xii) Allowing the personal opinions and prejudices of company officers to influence
the decisions
(xiii) Purchase of an existing building due to low price, even though it is unsuited to
the firm's process.
6.9 SUMMARY
The problem of facility location is a very important and falls into the category of
long-range planning. It entails a multiplicity of technological, economic, and
behavioural dimensions. The problem of selecting a proper facility location calls for a
detailed study of the cost aspects as well as the behavioural aspects. The data that is
required for a location study should be collected from a variety of sources, including
government, local municipalities, transportation authorities, potential customers,
suppliers, and internal sources (engineers, planners, executives). The effectiveness,
efficiency, productivity, and profitability of the operations are affected by the facility
location decision.
Facilities location planning entails consideration of the technology of the process, the
behaviour of potential employees, and the economic impact of the location. Such
planning obviously represents a major effort. However, this effort is justified, as the
operations manager might remember from the slogan: "The three most important
decisions in the life of a business are: location, location and location."
6.10 KEY CONCEPTS
Process inputs
Process outputs
Process characteristics
Personal preference
Tax incentives and legal aspects
Territory
Site
Location influence on layout
1. "The location of a plant is a major decision affected by many factors, both internal
and external to the organisations' operations"- Explain.
2. List and describe plant location factors.
3. What are the steps of a plant location study?
4. What are the common errors in plant location analysis?
5. How do the location factors influence the plant layout?
6.12 REFERENCES
Hall
3. Apple, J.M., "Plant Layout and Materials Handling", Ronald Press.
4. Moore, F.G., "Plant Layout and Design"
- End of Chapter -
LESSON - 7
A PLANT LOCATION MODEL
7.1 Preamble
7.2 Classification of criteria
7.3 Model structure
7.4 Subjective factor weight
7.5 Site weight
7.6 An example
7.7 Summary
7.8 Key concepts
7.9 Model questions
7.1 PREAMBLE
In plant location models, the objective is to minimize the sum of all costs affected by
location. Some items of cost, such as freight, may be higher for city A and lower for
city B but power costs, for example, may have the reverse pattern. A location is
obtained that minimizes costs on balance.
In attempting to minimize cost, not only the today's costs but the long-run costs are
considered as well. Therefore the influence some of the intangible factors that may
affect future costs must also be predicted.
Thus factors such as the attitude of city officials and town's people towards a new
factory site in their city may be an indication of future tax assessments. Poor local
transportation facilities may mean future company expenditures to counter balance
this disadvantage. A short labor supply may cost labor rates to be bid up beyond rates
measured during a location survey. The type of labor available may indicate future
training expenditures. Although a comparative cost analysis of various locations may
point toward one community, an appraisal of intangible factors may be the basis of a
decision to select another.
A model that attempts to deal with the multi-dimensional locational problem was
developed by Brown and Gibson. This model classifies criteria affecting location
according to the model structure, quantifies the criteria and achieves the balancing
or trade-off among criteria.
7.2 CLASSIFICATION OF CRITERIA
The Brown and Gibson model classifies the list of criteria set by the management as
follows:
(i) Critical factors : Criteria are critical if their nature may exclude the location of
a plant at a particular site regardless of other existing conditions. For example, a
water-oriented enterprise such as brewery would not consider a site where there is a
water shortage existing. An energy-oriented enterprise such as an aluminum
smelting plant would not consider sites where low cost and plentiful electrical energy
is not available. Critical factors have the effect of eliminating sites from consideration
altogether.
(ii) Objective factors : Criteria that can be evaluated in monetary terms such as
labor, raw material, utilities, and taxes are considered as objective factors. A factor
can be both objective and critical. For example, the adequacy of labor would be a
critical factor, whereas labor cost would be an objective factor.
(iii) Subject factors : Subjective criteria are characterized by a qualitative type of
measurement. For example, the nature of union relationships and activities may be
evaluated, but its monetary equivalent cannot be established. Again, criteria can be
classified as both critical and subjective. The subjective factors may include,
a. Availability of transportation
b. Industrial sites
c. Climatic conditions
d. Educational facilities
e. Union activities
f. Recreation facilities
g. Future growth
h. Cost of living
i. Competition
j. Availability of labour
k. Type of labour
l. Attitude
7.3 Model Structure
For each site, that is, a location measure LMi is defined as that which reflects the
relative values for each criterion.
LMi = CFMi [ X . DFMi + ( i - X ) . SFMi ] ...(1)
where CFMi = the critical factor measure for site i (0 or 1 )
OFMi = the objective factor measure for site i (0 <= DFMi <= 1 and i DFMi =
1)
SFMi = the subjective factor measure for site i (0 <= SFMi < = 1 and
i SFMi = 1)
X = the objective factor decision weight.
The critical factor measure CFMi is the product of the individual factor indices for
site i with respect to critical factor j. The critical factor index for each site is either 1
or 0 depending on whether the site has an adequacy of the factor or not. If any
critical factor index is 0, then CFMi and the overall location measure LMi are also 0.
Site i would therefore be eliminated from consideration.
The objective criteria are converted to dimensionless indices in order to establish
comparability between the objective and subjective criteria. The objective factor
measure for site i OFMi in terms of the objective factor cost OFCi is defined as
follows:
OFMi = [OFCi
i (1/OFCi)]
-1
...(2)
The effect of equation (2) is that the site with the minimum cost will have the largest
OFMi. The relationship of total costs between sites are retained and the sum of the
objective factor measures is 1. This is accomplished through the weighting of the
OFCs by the sum of the reciprocals of the OFCs summed over all sites. Raising the
result to the power -1 converts the OFMi to proportions with large values
representing relatively more desirable results than small values.
The subjective factor measure for each site is influenced by the relative weight of
each subjective factor and the weight of site i relative to all others sites for each of
the subjective factors. This results in the following statement:
SFMi = k (SFWk SWik) ...(3)
where SFWk = the weight of subjective factor k relative to all subjective factors.
and SWik = the weight of site i relative to all potential sites for subjective factor k
7.4 SUBJECTIVE FACTOR WEIGHT
Reference theory is used to assign weights to subjective factors in a consistent and
systematic manner. The procedure involves comparing subjective factors two at a
time. If the first factor is preferred over the second one, then the numerical value 1 is
assigned to the first factor and 0 to the second, and vice-versa for the opposite
preference. If it's difficult to differentiate the two factors, a rating of 1 is given to both
factors.
Procedures are also included for higher order rating. As with the objective factors,
the ratings are normalised so that the sum of objective weightings for a given site
adds to 1.
In the preference theory, it is concluded for each paired comparison about which
factor is more important by judgment. The more important factor is assigned a value
of 1 and the less important a value of 0. If it is felt that two factors are of equal value,
1 is assigned to both.
Then, a table is developed with the factors in the left column and the comparisons to
be made across the top row. When all combinations of comparisons have been made,
the 1's in each row are totalled, representing the sum of the preference values for that
factor. The, each factor weight is calculated by dividing the factor sum by the total
preference values for all factors. As a check the sum of all factor weights should be
equal to 1.
Steps of calculation of SFWk (relative weight to be assigned to each subjective
factor) are:
1. Develop a table with subjective factors in a column at the left.
2. Take two factors at a time across the top of table.
3. Compare two factors at a time.
4. Conclude for each paired comparison by judgment which factor is more
important.
5. Assign the more important factor a value of 1 and the less important a value of
0.
6. If it is felt that the two factors are of equal value, assign 1 to both.
7. When all comparisons have been made for all combinations, total the 1's in
each row (representing the sum of the preference value for that factor). Let
this be called as Factor Sum.
8. Find the total preference value for all the factors.
9. Factor weight = Factor sum / Total preference value
10. Check that sum of all factor weights is equal to 1.
7.5 SITE WEIGHTS
Determination of site weights for each factor follows a similar procedure.
Comparison of each site for each subjective factor must be made one factor at a time.
Data rating of each factor for each site serves as a guide for the weighting process. A
separate table of comparisons is required for each factor. For example, if there are 5
subjective factors to be considered for 6 probable site locations, for each subjective
factor a comparison table is developed with 6 sites in a column at left and six
comparisons to be made across the top. Insert 1s and 0s in the table representing the
result of comparison. Total the 1s in each row representing the sum of preference
values for that site and compute site weights. The result of this procedure gives the
site weights for each subjective factor. For this example of 5 subjective factors and 6
sites there will be 30 site weights.
Steps of calculation of SWik (site weights) are:
1. Develop a separate table of comparison for each factor.
2. Take sites in a column at the left of table.
3. Take the comparisons to be made across the top of the table.
4. Insert 1s and 0s in the table representing the results of comparisons.
5. Total 1s in each row representing the sum of preference values for that site.
6. Compute site weights.
Site weight = Sum of preference values for that site / Total no. of preference
values for all the sites
1. Result of this procedure gives the site weights for each subjective factor.
Subjective factor measure, SFMi is computed for all the sites using the equation 3.
For each site, SFM is the sum of successive multiplication of the factor weights
determined previously by the site weights for each factor. As a check the sum of the
SFMs should be equal to 1.
Location measure, LMi for each site is computed. For calculating LMi, the proportion
of the decision weight that should be placed on objective factors is decided.
Determining objective factor weight is a judgment process. It should be justified why
a particular objective factor decision weight 'X' has been chosen. The factor 'X'
establishes the relative importance of the objective and subjective factors in the
overall location problem. Decision is based on the action by a management
committee reflecting policies, past data, and integration of a wide variety of
subjective factors. Determination of 'X' could be subjected to a Delphi process.
Given a value of X, the final location measures are calculated using equation 1. As a
final check, total of location measures for all sites should be equal to 1. Site that
receives largest LMi is selected.
7.6 AN EXAMPLE
Table 1 gives the general data on objective factor costs. There are six objective
factors, and probable sites for locating the plant considered are also six. Five
subjective factors are found to be relevant to location of the plant and preliminary
rating for each factor is given in Table 2. The first four subjective factors are rated on
a scale of Excellent - Plentiful - Very good - Good - Adequate - Fair.
The fifth subjective factor is rated on a scale of Active - Significant - Moderate -
Negligible.
Table 1
Objective Factor Costs for Six Sites
Site Material Marketing Utilities Labour Building Taxes
Total
OFC
1 1079 1316 9460 12773 514 3095 28237
2 945 1485 11563 11249 563 3470 29275
3 490 1467 12768 10422 539 3580 29266
4 979 1600 10548 12159 490 3755 29531
5 925 1263 10898 12333 612 3701 29732
6 1507 1950 11628 12244 612 3393 31334
Table 2
Subjective Factors and their Rating for Six Sites
Subjective Factor Site -> 1 2 3 4 5 6
1. Availablity of labour Adequate Plentiful Plentiful Very Good Plentiful Plentiful
2. Availability of transportation Good Very Good Good Very Good Good Very Good
3. Climatic conditions Good Very Good Very Good Fair Good Very Good
4. Recreation facilities Good Very Good Very Good Very Good Good Very Good
5. Union activities Significant Negligible Negligible Active Significant Active
Calculation of Objective Factor Measure, OFMi:
= (1/28237) + (1/29275) + (1/29266) + (1/29531) + (1/29732) + (1/31334)
= 0.0002032
OFM1 = (28237 0.0002032)
-1
= 0.17428
OFM2 = (29275 0.0002032)
-1
= 0.16810
OFM3 = (29266 0.0002032)
-1
= 0.16816
OFM4 = (29531 0.0002032)
-1
= 0.16665
OFM5 = (29732 0.0002032)
-1
= 0.16552
OFM6 = (31.334 0.0002032)
-1
= 0.15706
Calculation of Subjective Factor Weight SFWk :
Preference table for the calculation of SFWk is shown in Table 3. Five subjective
factors are taken in a column on left of the table and the ten possible pairs are taken
across the table. The preference values are given based on judgment.
For example, when the availability of labour and availability of transportation (L and
T) are compared, it is felt that availability of labour is more important for the plant to
be located, and hence a preference value of 1 is given to Labour, and 0 to
Transportation. When the availability of labor and recreation facility (L and R) are
compared, it is felt that both the factors are important for the plant to be considered.
So a preference value of 1 is given to both these factors. In a similar way, all the
combinations are considered and the preference values are assigned. The total
preference value for all the factors (sum of all 1s in Table 3) is 16. Sum of the
preference value for the factor 'availability of labour' (sums of 1s in that row of Table
3) comes to 4 and it is called as factor sum. Therefore the factor weight for this
factor is obtained by dividing factor sum by the total preferred values. This is
calculated as 4/16 = 0.25 for the labour factor in Table 3. Similarly SFWk is
calculated for all the subjective factors. It can be checked that the sum of all the
SFWk comes to 1.
Calculation of Site Weight, SWik: Separate preference tables have to be
developed for each subjective factor. Therefore there will be five preference tables for
the five given subjective factors and these are given in Tables 4, 5, 6, 7 and 8.
For assigning the preference values in Tables 4, 5, 6, 7 and 8, ratings given in Table 2
are taken as guidance. Site weight are calculated and summed in Table 9.
Calculation of Subjective Factor Measure, SFMi:
Subjective Factor Measure for each of the six sites can be calculated using the
expression given in equation 3.
Subjective Factor Measure for site 1, SFM1 = for i = 1, 2, ... 6
SFM1 = [(0.25 x 0) + (0.1875 x 0.214) + (0.125 x 0.23) + (0.1875 x 0.1875) + (0.25 x
0.25)]
= 0 + 0.0401 + 0.0288 + 0.0352 + 0.0625 = 0.1666
SFM2 = [(0.25 x 0.235) + (0.1875 x 0.214) + (0.125 x 0.23) + (0.1875 x 0.1875) +
(0.25 x 0)]
= 0.0588 + 0.0401 + 0.0288 + 0.0352 + 0 = 0.1629
SFM3 = [(0.25 x 0.235) + (0.1875 x 0.071) + (0.125 x 0.23) + (0.1875 x 0.1875) +
(0.25 x 0)]
= 0.0588 + 0.0133 + 0.0288 + 0.0352 + 0 = 0.1361
SFM4 = [(0.25 x 0.176) + (0.1875 x 0.214) + (0.125 x 0) + (0.1875 x 0.125) + (0.25 x
0.25)]
= 0.044 + 0.0401 + 0 + 0.0234 + 0.0625 = 0.17
SFM5 = [(0.25 x 0.176) + (0.1875 x 0.143) + (0.125 x 0.15) + (0.1875 x 0.125) + (0.25
x 0.25)]
= 0.04 + 0.0268 + 0.0188 + 0.0234 + 0.0625 = 0.1755
SFM6 = [(0.25 x 0.176) + (0.1875 x 0.143) + (0.125 x 0.15) + (0.1875 x 0.125) + (0.25
x 0.25)]
= 0.044 + 0.0268 + 0.0188 + 0.0234 + 0.0625 = 0.1755
For a check, the sum of all the subjective factor measures should come to 1.
Assume for the given illustration, the objective factor decision weight X as 0.8 and
the critical factor measure for all the sites is taken as 1.
Calculation of Location Measure, LMi:
After calculating objective factor measure and subjective factor measure for all the
six sites, location measure for each of the six sites can be calculated using expressions
given in equation 1.
LMi = CFMi [ X . DFMi + ( i - X ) . SFMi ] ...(1)
Location measure for site 1,
LM1 = 1 x [(0.8 x 0.17428) + (0.2 x 0.1666)]
= 0.1394 + 0.0333 = 0.1727
LM2 = 1 x [(0.8 x 0.1681) + (0.2 x 0.1629)]
= 0.1345 + 0.0326 = 0.1671
LM3 = 1 x [(0.8 x 0.16816) + (0.2 x 0.1361)]
= 0.1345 + 0.272 = 0.1617
LM4 = 1 x [(0.8 x 0.16665) + (0.2 x 0.17)]
= 0.1333 + 0.034 = 0.1673
LM5 = 1 [(0.8 0.16552) + (0.2 0.1755)]
= 0.1324 + 0.0351 = 0.1675
LM6 = 1 [(0.8 0.15706) + 0.2 0.1755)]
= 0.1256 + 0.0351 = 0.1607
It can be checked that the sum of the location measure for all the sites take a value of
approximately one.
It can be noted from the LM1 values that site 1 produces the largest overall measure
and hence site 1 is selected for locating the new plant for this example.
Sensitivity analysis can be conducted to indicate how decisions would change when
the objective factor decision weight X is varied from 0 to 1. From the sensitivity
study it can be revealed which site will be preferred for what range of X.
7.7 SUMMARY
The emphasis in industrial plant location is to minimise costs; however when
considering long-run cost and many intangible factors, it may influence future costs.
Thus, a manager is faced with making a trade-off between tangible cost in the present
and the subjective factors that may influence future cost. The Brown - Gibson model
provides a framework for the integration of objective and subjective factors using
preference theory to assign weights to factors in consistent manner.
7.8 KEY CONCEPTS
Critical Factor Measure
Objective Factor Measure
Subjective Factor Measure
Objective Factor Decision Weight
Location Factor Measure
Preference Theory
7.9 MODEL QUESTIONS
1. In the Brown - Gibson location model how is a critical factor weighted?
2. How is the objective factor weighted in a Brown - Gibson location model?
3. In the Brown - Gibson model what is the rationale for weighing subjective factors?
4. In the Brown-Gibson model how are the relative weights between objective and
subjective factors determined in the overall location problem?
5. Are location choices sensitive to relative weights between objective and subjective
factors in a Brown - Gibson location model?
1. Buffa, "Modern Production Management", 4th edition John Whiely.
2. Menipaz, Ehed, "Essentials of Production and Operations Management",
Prentice Hall.
3. Buffa, "Modern Production/Operations Management", 7th edition, John Whiely.
- End of Chapter -
LESSON - 8
MULTI-PLANT LOCATION
8.1 Preamble
8.2 Location analysis for multi-plant situation
8.3 Linear programming-distribution method
8.4 An example
8.5 Locational dynamics
8.6 Summary
8.7 Key concepts
8.8 Model questions
8.9 Reference books
8.1 PREAMBLE
Location analysis for multi-plant situation is particularly interesting because of its
dynamic character. The addition of new plant is not a matter of determining a
location independent of the existing plants' locations. Rather, each location
considered involves a new allocation of capacity to market areas, so a solution from
the economic view point is one that minimises combined production and distribution
cost for the network of plants rather than for the additional plant alone. Also, in the
multi-plant situation, locational factors continually influence the extent of
production in each plant to meet demand requirements and help determine which
plants to operate and which to shut-down if demand falls.
8.2 LOCATIONAL ANALYSIS FOR MULTI-PLANT SITUATION
Multi-plant location is influenced by existing locations as well as the kinds of
economic factors that have been discussed already. Each location considered must be
placed in economic perspective with the existing plants and marked areas. The
objective factor measures focus on the minimizing of total production - distribution
costs. This aim is somewhat different from the location analysis for a single plant,
because each alternate location requires a different allocation of capacity to markets
in order to minimize overall costs. The formal problem can be placed in a linear
programming framework and solved in a distribution table.
Before taking an example on multi-plant location, the linear programming-
distribution methods have been briefly discussed.
8.3 LINEAR PROGRAMMING-DISTRIBUTION METHOD
There are two major steps of the method,
Step 1. Finding Basic Feasible Solution
Before attempting to find the basic feasible solution, it should be checked that the
total availability in all the plants must be equal to the total requirement of all the
warehouses. If it is not equal, add a dummy row or a dummy column
correspondingly with zero distribution cost. There are three methods in finding the
basic feasible solution:
(a) North-West Corner Rule,
(b) Minimum Cost Methods,
(c) Vogel's Approximation Method.
Out of three methods, Vogel's Method is more efficient because here the optimal
solution can be obtained in a comparatively lesser number of iterations.
Steps to be followed In Vogel's Approximation method
i. For each row and column of the distribution side, select the lowest and second
lowest cost alternatives from among those not already allocated. The difference
between the two costs will be the penalty cost for the row or column. If the lowest
and second lowest cost elements happen to be the same, then the penalty cost is zero.
ii. Scan these penalty cost figures and identify the row or column with the largest
penalty cost. If there is a tie, choose any one among the tied values.
iii. Allocate as many units as possible to this row or column in the cell having the
least cost.
iv. Now delete the row or/and column in which availability has been exhausted
or/and requirement has been met.
v. For the reduced distribution table repeat the steps i to iv until the total availability
has been exhausted and total requirement has been met.
Testing the solution for optimality and improving it, if not optimal
Before testing the basic feasible solution for the optimality, the following condition
must be satisfied:
Total number of allocations = m + n - 1
where m = total number of rows, n = total number of columns.
If this condition is not satisfied, add an allocation with units such that (epsilon) is a
infinitely small quantity. Whatever quantity is added or subtracted to or from this,
the result will be the same quantity which is added or subtracted. This is added in the
distribution table in the all such that...
- the cost in the cell is the least possible.
- if this is added in a square, it should not form a close loop with other
allocations. A loop can be formed by drawing horizontal and vertical lines
among the allocated cells. If an allocation exists in all corners of this loop, then
it is called a closed loop.
After satisfying the above condition the basic solution is tested for optimality. Two
methods can be used for this purpose:
(i) MODI (Modified Distribution) Method
(ii) Stepping Stone Method
Among these two methods, MODI method is explained below:
Steps to be followed in the MODI method
(i) For the basic solution, compute ui values (corresponding to rows of the
distribution table) and 'vj' values (corresponding to columns of the distribution table)
for the distribution table using the formula -
Cij = ui+vj
where Cij = cost for the cell (i,j)
(ii) Take ui = 0 for the row which is having maximum number of allocations. If there
is a tie, take ui = 0 for any row.
(iii) Calculate the cell evaluation for all the unallocated cells using the expression -
ij = Cij - (Ui - Vj)
(iv) a. If none of the cell evaluations are -ve, the solution is a unique optimal solution.
b. If none are -ve and there are zero entries, then it means that there are more
than one optimal solution.
c. If there are -ve entries for cell evaluation, then the solution under test is not an
optimal one.
When the outcome (iv) c is obtained, the solution have to be improved for getting
optimality. The following steps are followed for improving the solution for
optimality.
(v) Choose the cell having the largest negative entry in the cell evaluation.
(vi) Trace a closed path with the cell having largest negative cell evaluation.
(vii) Place plus and minus signs at alternate corners of the path beginning with a plus
sign at the unused square.
(viii) The smallest cell in a negative position on the closed path indicates the quantity
that can be assigned to the unused cell being entered into the solution. This quantity
is added to all squares on the closed path with plus sign and subtracted from those
squares with minus sign.
(ix) Now repeat from step (i) until an optimal solution has been obtained.
8.4 AN EXAMPLE
A company is having three plants A, B, and C, and distributes its products to five
distribution centres V, W, X, Y and Z. The company has experienced increasing
demand for its product. As a result of this market expansion, company is now
considering the construction of a new plant with a capacity of 20,000 units per week.
Survey has narrowed the choice to three general locations D, E and F. The estimated
production cost per 1000, distribution cost from plant to distribution points, capacity
of plants, and demand at distribution points are given in Table 10. It is to be decided
which location (D or E or F) will yield the lowest production plus distribution costs
for the system of plants and distribution centres.
To get the answer for this illustrated problem on multi-plant location, three linear
programming (LP) distribution problems, one for each combination, have to be
solved.
The LP distribution problem for the first combination of including the new plant D is
given and solved in Tables 11, 12, 13, and 14.
The total availability in all the four plants A, B, C and D is 120 units, which is equal to
the total required at all the distribution centers V, W, X, Y and Z. So, there is no need
to add dummy row or column. The Vogels Approximation Method is applied and the
basic feasible solution is obtained in Table 11.
Before testing this basic solution for optimality the following conditions have to be
satisfied:
Total number of allocations = m + n - 1
where m = total no. of rows, and n = total no. of columns.
From the basic solution obtained in Table 11, total number of allocations are 8, which
is equal to 4 + 5 - 1.
Now MODI method is applied in Table 12 to test the solution for optimality.
From the Table 12, it can be noted that the solution is not an optimal one because
there are negative entries in the cell evaluation. The most negative entry is -18 and
hence a close loop is formed with this cell. Following the steps of MODI method the
number of units that can be allocated to the new cell is 16. The next iteration is given
in Table 13.
The solution obtained in Table 13 is also not an optimal one since there are negative
cell evaluation entries. The next iteration is given in Table 14.
Since all the cell evaluation entries in Table 14 are non-negative, the solution
obtained is an optimal one. Therefore, the optimal total production and distribution
cost for the first combination with plant D is,
Total cost = (30 288) + (16 282) + (20 307) + (18 287) + (4 291) + (12
319) + (15 264) + (5 293)
= Rs.34,875
The LP Distribution problem for the second problem for the combination of
including the new plant E can be formulated and solved in a similar way. The final
optimal solution is shown in Table 15.
Total production and distribution cost for the second combination is Rs.34,411.
The LP distribution problem for the third combination of including the new plant F
can also be formulated and solved. The final optimal solution is shown in Table 16.
Total production and distribution cost for this third combination is Rs.34,850.
The three solutions of the LP distribution problems show that the new location at 'E'
is favourable, since the location at E results in the lowest production and distribution
cost.
The combined production-distribution analysis provides input concerning the
objective factor cost in the Brown-Gibson location model. Subjective factors are
evaluated as before. Final decision would be based on both objective and subjective
factors and relative weights are placed on them.
8.5 LOCATIONAL DYNAMICS FOR MULTI PLANTS
Suppose that the company decides to build a new plant at location E. The decision to
build the new plant at location E was based on current costs and demand. However
the balance of cost factors that produced the solution shown in Table 14 could
change. Then the allocation of capacity to markets should also change in order to
yield a minimum total cost. Thus location analysis is a continuous consideration
rather than a one-shot analysis performed only at the time of expansion.
Assume that after the plant at location E was built, the company experienced a net
decline in demand because of the entry of aggressive new competitions in the market.
Instead of a total demand of 1,20,000 units as projected in the original locational
analysis only 1,05,000 units are required.
The result is that any three of the plants can meet the demand by using overtime
capacity. The company is now faced with comparing the objective and subjective
factors of five production-location alternatives. The five alternatives are - operate all
plants at partial capacity plus four additional alternatives that each involve shutting
down one of the plants and meeting requirements using the other three plants
operating on overtime schedules.
In order to compare the alternatives, five different linear programming distribution
tables would be developed. In order to keep the alternatives involving overtime
capacity wishing the linear programming framework the overtime capacity would be
regarded as a separate source of supply. In actual shipment units produced on
overtime would be segregated. Overtime capacity would simply result higher costs of
production.
Five optimal production-distribution tables would be generated and the variable plus
fixed costs of operations are compared for the five alternatives. The alternative with
the lowest cost would be the one favoured on the basis of objective factor costs. The
final decision would necessarily be influenced by both objective and subjective
factors, because the plant shutdown has a number of important effects on employee
and community relationships.
8.6 SUMMARY
Location analysis for multi-plant situation has been discussed. Application of Linear
Programming Distribution method in multi-plant location situation has been
elaborated. An illustration example is given on choosing a location for multi-plant
situation. Some of the plant location trends are narrated.
8.7 KEY CONCEPTS
Linear Programming-Distribution Method
Vogel's Approximation Method
MODI Method
Locational Dynamics
Plant Location Trends
8.8 MODEL QUESTIONS
1. How is the problem of locating a single plant different from locating an additional
plant which manufactures the same items as existing plants?
2. What do you mean by 'locational dynamics' for multiple plants?
3. A company supplies its product from three factories to five distribution centers.
The company is experiencing increasing demand for its product and considering the
construction of a new plant with a capacity of 40,000 units. Survey has narrowed the
choice to three locations. The relevant data is summarised in the following table.
Formulate the problem in a distribution framework and find the optimal solution.
DISTRIBUTION COST PER 1000
UNITS TO DISTRIBUTION
CENTERS IN RUPEES
PLANT
CAPACITIES
*1000
PRODUCTION
COST PER
1000 UNITS
IN RUPEES V W X Y Z
EXISTING
PLANTS
A
B
C
36
48
44
2
80
24
24
72
32
56
60
96
100
84
88
92
40
68
540
532
552
PROPOSED
PLANTS
D
E
F
80
110
100
80
140
100
72
128
92
4
64
28
64
8
40
40
40
40
524
540
520
MARKET
DEMAND
*1000
60 36 40 30 74 - -
4. A company has established plants in locations A and B. The assembled products
are sent to customers in locations X, Y, and Z. The plant at A has a capacity to
assemble 50 products. The plant at B has the capacity to assemble 70 products. Cost
of transportation from A is Rs.1000 to X, Rs.1500 to Y and Rs. 300 to Z.
Transportation from B is Rs.600 to X, Rs.500 to Y and Rs.900 to Z. The demand for
product is 40 in X, 50 in Y, and 50 in Z. The company is going to build another plant
with the capacity of 20 products in either location P or Q. From P, transportation
cost is Rs.600 to X, Rs. 500 to Y and Rs. 300 to Z. From Q transportation cost is
Rs.200 to X, Rs.400 to Y and Rs.500 to Z.
(a) Setup this problem as a distribution model.
(b) What are the steps involved in solving the location problem?
8.9 REFERENCE BOOKS
1. Buffa, "Modern Production Management", 4th edition John Whiely.
2. Menipaz, Ehed, "Essentials of Production and Operations Management",
Prentice Hall
3. Buffa, "Modern Production/Operations Management", 7th edition, John Whiely
- End of Chapter -
LESSON - 9
PLANT LOCATION TRENDS
9.1 Preamble
9.2 Significant trends
9.3 Geographical Diversity
9.4 The growing Sunbelt
9.5 Decline of urban areas
9.6 Intel-nationalization of production
9.6.1 Environmental adjustments
9.6.2 Exporting techniques
9.6.3 Organizing multi-nationally
9.7 Summary
9.8 Key concepts
9.9 Model questions
9.1 PREAMBLE
The overall trends in location patterns are recognized to have strategic impact on
location decisions. Examples in this lesson are with respect United States.
9.2 SIGNIFICANT TRENDS
It is fascinating to watch the changes In location patterns, which reflect changes in
strategy. McDonald's had an urban strategy, but now is locating stores in some low-
population centers. Holiday Inn followed a rural strategy but now is adding more
units in urban locations. The steel industry is more dispersed than before. High-tech
electronics firms are clustered to achieve a critical mass, but these concentrations are
scattered across the country. Four location trends are particularly evident -
geographic diversity, movement to the growing Sunbelt, movement from declining
urban areas, and the internationalization of production.
9.3 GEOGRAPHIC DIVERSITY
There are two causes of this trend. The first is improved transportation and
communication technology. There has been a dramatic reduction in time to ship
goods from Osaka. Japan, to Kansas City. Air transportation also makes It easier for
executives to visit branch plants. Telephone technology facilities both voice
communication between people and data communication between computers. The
number of out-of-state phone calls doubled in one decade, standing at over 6 billion
in 1980. This reduces the "friction of distance", so that a facility can service a larger
market area and need not be close to its suppliers,. In service industries, more back-
room operations can be centralized at home offices, which can support a wider
network of branch offices located near the customer.
The second cause of geographic dispersion, which widens the range of acceptable
locations, is the narrowing of regional wage differentials. The Pacific region has
enjoyed the highest income per capita, while the south has suffered the lowest. In
1960, per capita income in the Pacific region was 120 percent of the national average,
while in the south it was only 78 percent. However, by 1980, per capita income in the
Pacific region stood at only 111 percent and the south moved up to 89 percent of the
national average. The 42 percent difference dropped to 22 percent in just 20 years.
9.4 THE GROWING SUNBELT
Industry has tended to move south and west, away from the "Frosbelt" and into the
"Sunbelt". Fig. 9.1 shows how manufacturing employment shifted among regions
from 1967 to 1977. Frostbelt employment decreased noticeably, particularly in the
New England, mideastern of Great Lakes regions. For example, the Great Lakes
share of 28.3 percent of total manufacturing employment in 1967 dropped to 27.1 %
in 1977. The sunbelt regions compensated for these losses with 1-2 percent gains.
Several factors contribute to this movement Reduced transportation and
communication costs are two important factors, reducing the necessity for staying in
the industrial heartland of the Great Lakes and mideastern regions. Some parts of
the sunbelt offer lower labor costs, less unionism, and possibly a stronger work ethic.
The advent of air conditioning and the increase in paid retirement have also favored
the Sunbelt. Manufacturing has been concentrated in the Frostbelt, and
manufacturers are reluctant to relocate their support and R & D activities. Sunbelt
plants therefore tend to focus more on a specific product or process, allowing high
volume production, with products tending to be in the mature stage of their life
cycles. This strategy takes advantage of labor cost differences, leaving products that
are in their early stages for the Frosbelt plants and closer to R & D support activities.
Figure 9.1 also shows forecasts of population changes between 1980 and the year
2000. Once again, we can see that the sunbelt is attracting a larger share at the
expense of the Frostbelt. However, these projections should be viewed with caution.
Population increases do not always bring large numbers of new businesses to an
area. Rapid growth in areas with a low population base, for example, has little Impact
on location decisions, particularly for large retail chains.
9.5 DECLINE OF URBAN AREAS
Manufacturing plants have also moved from the cities to rural areas. A similar shift
can be seen in Japan and the Industrialized countries of Europe. Over 50 % of the
new Industrial jobs in the United States during the last 2 decades went to rural areas-
in all regions. Rural areas gained manufacturing employment even in the mideastern
states. Gains have been particularly impressive in the southeastern and south central
regions. Reasons for this shift include high crime rates and general decline of the
quality of life in many large cities. Office location decisions are following suit. For
example, IBM moved its corporate office from New York City to nearby Armonk, Ex-
cell-O Corporation moved from Detroit to nearby Troy, and Brunswick moved from
Chicago to Skokie.
9.6 INTERNATIONALIZATION OF PRODUCTION
Between 1976 and 1983, direct investment abroad of private U.S. assets increased
from $136.8 billion to $226.1 billion, a 65 percent increase. At the same time, direct
Investment of private foreign assets in the United States jumped from $30.8 billion
to $133.5 billion, a 333% increase. Many U.S. manufacturers also rely increasingly on
foreign suppliers. Of the 20 most strategic materials, 17 are imported from 4
countries in southern Africa. Wage-rate differentials, expanding foreign markets, and
improved transportation break down the barriers of time and space between
countries. Having a local presence, with the product made where it is to be sold, can
increase sales or decrease the threat of quotas. The result is a more linked world
economy. This trend with some specific companies is illustrated below.
Illustration: Internationalization of production
Locating Overseas
Accuracy is a manufacturer of process control equipment headquarted in Columbus,
Ohio. It is doubling its plant and workforce size at its plant in Ireland. One-third of
its shipments are now finished at the Irish plant. AccuRay is one of 400 U.S.
companies now operating in Ireland where there is a skilled and low work-force.
Ford motor company moved the production of agricultural tractors from its
Michigan plant to its plants in Belgium and England. Lower wage costs, the strong
U.S. dollar, and the ability to consolidate production volumes saved enough to offset
shipping costs to the U.S.
Caterpillar tractor company shifted the production of bulldozers from Illinois and
Iowa to Scotland, where more than 1000 Scots are now turning out bulldozers.
Influx of Foreign Firms
Several Japanese firms are locating production facilities in the U.S. Honda located an
automobile plant in Marysville, Ohio, with a work-force of 2300. Mazda is building a
plant in Flat Rock, Michigan and will employ 3500 workers. Nissan motor company
expanded its plant in Smyrna. Tenessee, to make the Sentra passenger car in
addition to light trucks. These three facilities alone will have a capacity of 7,80,000
cars and trucks per year. Moreover a Joint venture between Toyota and GM resulted
in a new assembly plant in Freemont, California.
Four Japanese Electronics companies (NEC, Fujitsu, Seiko and Kyocera) are building
five manufacturing plants in the Portland, Oregon area. They will manufacture such
products as personnel computer printers and advanced fibre optics
telecommunication equipment.
The Le Blont company has made metal working lathes since 1877. It is now called the
Le Blont Makino, after Japan's Makino milling machine limited bought 51% interest
in the company. Le Blont makes a wider range of products than before and is much
more international. It has now a plant in Singapore and selling lathes made by a
German firm. The machining centers assembled at its home basing Cincinnati, Ohio
will have half U.S. and half Japanese parts and labor.
Despite the advantages of more international production, a new set of problems
arises, including differences in language, politics, and culture. Many firms are poorly
equipped to handle these differences. For example, few U.S. managers know a
foreign language. There are more English teachers in Russia than students studying
Russian in the U.S. Such problems create three recurring issues for managers of
international production:
(i) Environmental adjustment
(ii) Exporting techniques
(ill) Organizing multi-nationally
9.6.1 Environmental adjustment:
The overseas plant confronts the manager with unfamiliar labor laws, tax laws, and
regulatory requirements. The role of government in foreign countries can be more
dominant, requiring know-how to handle bureaucratic red tape. Hiring a foreign
national to handle government contacts is not without problems, since this person is
not well-versed on the firm's own policies and procedures. The economic
environment can. also be quite different. What seemed to be good policies on
automation or inventory may be inappropriate overseas because of a different cost
mix. Cultural differences are perhaps the most baffling. Foreign nationals comprise
the work force and often much of the management team at an overseas plant. Their
values, customs, and attitudes toward work can collide with policies adopted at the
home office. These employees may not be sympathetic to what they consider to be
strange approaches and may resist change.
9.6.2 Exporting techniques:
A second recurring issue is that of how much of the corporation's production
methods to transplant overseas. If a firm totally accepts the approaches of the foreign
managers and workers, some effective techniques and policies may be overlooked.
The other extreme can be as bad, since some techniques and policies may not fit the
new environment. Some compromise between the two extremes is normally best. For
example, Mc-Donald's menu (that is, its product plan) and restaurant layout are the
same in Japan as in the United States. However, sites are selected and restaurants
are built closer to adjoining buildings with Japanese preferences in mind. The chain's
trademark character is named Donald McDonald (rather than Ronald McDonald)
because it is easier to pronounce.
9.6.3 Organizing multi-nationally:
Having multiple plants always raises the question of how much control the home
office should retain. Language, cultural, and economic differences make this question
that much more crucial for international operations. The home office can provide
technical specialists to make decisions about equipment, inventory systems, quality
control procedures, and the like. Such centralized control fits the strategy of doing
things "our way" and can improve interplant coordination. The decentralized
strategy of giving local managers more autonomy has its own advantages such as
adapting policies to local conditions, preserving incentives at lower levels and
minimizing the cost of large central office.
9.7 SUMMARY
Location decisions have strategic implications. Four trends in location patterns are
geographic diversity, the growing, sunbelt, the decline of urban areas and the Intel-
nationalization of production. Despite the advantages of international production
differences in language, policies and culture introduce new problems. Three
recurring issues are environmental adjustments, exporting techniques and
organizing multinationality.
9.8 KEY CONCEPTS
Geographic diversity
Growing sunbelt
Urban areas
Internationalization of production
Environmental adjustment
Exporting techniques
Organizing multinationality
9.9 MODEL QUESTIONS
1. What factors have expanded the range of possible locations?
2. What are the attractions of the sunbelt or manufacturing plants?
3. What can make foreign locations attractive?
4. Why does an overseas location confront a manager with a different set of
problems?
5. Explain about Intel-nationalization of production.
1. Krajewski and Ritzman, "Operations Management", Addlson-Wesley.
- End Of Chapter -
LESSON - 10
LAYOUT OF FACILITIES
10.1 Preamble
10.2 Principles of a good layout
10.3 Plant layout factors
10.4 Basic types of layout
10.5 Determining what to move
10.6 Process layout
10.7 Product layout
10.8 Hybrid layout
10.9 Fixed position layout
10.10 Quantitative analysis for process layout
10.11 Quantitative analysis for product layout
10.12 Service facilities
10.13 Principles of materials handling
10.14 Materials handling equipment
10.14.1 Lifting and lowering devices
10.14.2 Transporting devices
10.14.3 Combination devices
10.14.4 Common material handling equipment
10.14.4.1 Conveyors
10.14.4.2 Cranes, Hoists, Monorails
10.14.4.3 Industrial trucks
10.14.4.4 Auxiliary equipment
10.15 Summary
10.16 Key concepts
10.1 PREAMBLE
Plant layout is the integrating phase of the design of a production system. The basic
objective of layout is to develop a production system that meets requirements of
capacity and quality in the most economical way. The specification of what to make
(drawings and specifications), how it is to be made (route sheets and operation
sheets) and how many to make (forecasts, orders or contracts) become the basis for
developing an integrated system of production. This integrated system must provide
for machines, workplaces and storage in the capacities required so that feasible
schedules can be determined for the various parts and products. The system should
also provide a transportation system which moves the parts and products through
the system. It should provide auxiliary services for production such as tool cribs and
maintenance shops and for personnel such as medical facilities and cafeterias.
Because of the dynamic character of our economy, the design of this integrated
production machine must retain an appropriate degree of flexibility to provide for
future changes in product designs, product volumes and mixes and for advancing
production technology. Both the site and building should make it possible to expand
operations in a way that dovetails with existing operations. Certain financial and
physical restrictions are a normal part of the layout problem. The physical restriction
may be due to the site: its size, shape and orientation in relation to roads, railroads
and utilities. Or they may be due to local laws which specify building restriction and
safety codes. In redesign or relay out of facilities the existing building Impose severe
restrictions.
These general statements of the layout problem indicate something of its complexity.
Almost all of the factors which enter the problem tend to interact. For example,
providing flexibility affects the nature of processes and capacities which in turn
interact with short and long run costs. Material transportation methods affects not
only transportation costs but also the amount of handling at machines and
workplaces. The physical arrangement and relative location of work centers are
Important in determining transportation costs and direct labor costs. Storage
locations and capacities interact with transportation costs and delay times.
10.2 PRINCIPLES OF A GOOD LAYOUT
An optimum plant layout is one which provides maximum satisfaction to all parties
concerned; that Is the employees and management as well as the stock holders. Each
of the parties involved has certain interest in obtaining a good plant layout. Keeping
this interest in mind the major principles of a good layout are:
(I) provide over all simplifications
(II) minimise cost of materials handling
(III) provide high work-in-process turnover
(iv) provide effective space utilisation
(v) provide for worker convenience and promote Job satisfaction and safety
(vi) avoid unnecessary capital investment
(vii) stimulate effective labor utilisation
Simplify the production process
This is the broadest objective in obtaining a good layout. A good layout should be
planned to facilitate the over-all manufacturing process so that it can be carried on in
an optimum manner. More specifically, simplification may come from the following:
a. Equipment should be arranged to provide greater utilisation. Equipment involving
high capital inventory should be located so that it can be conveniently used on a
multiple- shift basis. Material handling equipment, like conveyors should be located
so that a group of products can utilise it conveniently.
b. A good layout will minimize production delays and reduce congestion, production
delays may be reduced or eliminated by good line balancing. Provision of proper
amount of storage space reduces congestion on the floor.
c. Good plant layout allows for the needs of maintenance of equipment. Equipment
must be located so that routine maintenance is easy to perform. Good layout calls for
prediction of future maintenance problems.
d. Increasing output or shortening manufacturing time can be provided in an
improved layout. Increased output means greater output with the same or less cost,
saves the man hours and reduce machine hours. Manufacturing time can be reduced
by eliminating idle time and removing unnecessary storages.
Minimizing Materials Handling
In a plant the production machines should be arranged such that the materials pass
directly from one machine to another. Material handling is brought to a minimum by
this arrangement of machines. In many situations manual material handling is most
economical. Even in this situation reducing the distances required for manual
material handling should be considered when planning.
Providing high work-in-process turnover
Every day material remains in the plant and adds cost to the product because of the
tied-up capital investment. In the process industries, for example, in a petroleum
refineries where the product is in the liquid state, work-in-process turnover is high
and unnecessarily in-process stages are reduced to a minimum. When the product is
in the solid state, it is much more likely to involve a high capital investment in work-
in-process. Although this is primarily a production control problem, good layout can
be helpful in reducing work-in-process.
Effective space utilisation
Making good use of space involves considering not only production and storage
areas, but also the floor area required by service departments. Stock bins spread out
on only one level, idle aisles, and unorganised storage areas are all lead to poor space
utilisation. The cost of floor space varies from one location to another location but
considerable thought have to be given for accurately calculating floor area cost.
Worker convenience and Job satisfaction
Workers want to work in a convenient environment. Providing the worker with a
place to leave his tools and with easy access to materials storage, reducing excessive
noise with sound- deadening walls, as well as considering his safety are factors that
should be examined when planning a layout. Attention to such items as heat,
ventilation, light and removal of moisture and dirt is important in promoting
worker's job satisfaction. Layout that calls for unstable stacking of materials should
be changed to correct safety hazards. The layout engineer should keep close contact
with the safety engineer in order to assure that safety has been thoroughly
considered in a given layout.
Unnecessary capital Investment
Capital investment in equipment can sometimes be reduced by the proper
arrangement of machines and departments. By conveniently locating a particular
piece of equipment. two different parts, both requiring part-time use of a broach,
may be routed through the same broach. Thus the cost of a second machine is
avoided. During the process planning phase capital investment can be minimized by
making use of idle time on previously owned equipment. This type of problem is
primarily one of the production scheduling, but by being aware of the problem the
layout man can facilitate production scheduling by installing a good layout.
Labour utilisation
Every year so many productive man-hours are wasted because of poor layout. Proper
layout does not guarantee but certainly stimulates the effective utilisation of man
power. The following suggestions should be considered in making effective utilisation
of labour.
a. Direct labour utilisation: Improper layout can make the production job
extremely wasteful. Making it necessary for the production worker to walk great
distances to obtain tools or materials can waste a number of man hours. Good
methods engineering and line balancing can minimise worker idle time.
b. Indirect labor utilisation: Building design to provide ease of maintenance can
save many rupees per year. Proper design of aisles can result in better utilisation of
fork-lift operator.
c. Better supervision: A supervisor should theoretically be in contact with his
department at all times. An enclosed office should be provided for a foreman with
direct line authority. This is essential when a foreman finds it necessary to discipline
a subordinate.
10.3 PLANT LAYOUT FACTORS
Everyone with in an industrial organisation is concerned with plant layout in some
way and everyone within a plant is interested in its layout to some degree. The
worker is interested in the arrangement of his work station. The foreman is
interested in layout as it affects the output of his department. Middle management is
interested in layout as it affects the output and costs. Suggestions that result in plant
layout thinking may come from anyone in the organisation from the director to the
production worker.
Most plant layout decisions are stimulated by one of the following factors.
(i) product-design change
(ii) new product
(iii) change in volume of demand
(iv) facilities becoming obsolete
(v) frequent accidents
(vi) poor working environment
(vii) change In the location or concentration of markets
(viii) cost reduction
Product-design changes
Automobile models are radically changed frequently which usually require a change
In plant layout. A full time plant layout department is essential in an automobile
industry. In industries manufacturing a more stabilized product, plant layout may
not be a crucial problem. These concerns must solve the plant layout problems
whenever a product change comes even though it may occur infrequently.
New product
The addition of a new product as well as the dropping of an old one is a development
which results m thinking about the plant layout problem. Progressive companies are
continually on the alert for new product developments. Research and development
departments are continually providing new products for the industrial or home
consumer. As these products come to the production-planning stage plant layout
should be integrated with the planning of the production processes.
Changes In the volume of demand
An increased demand for a product may result in the revision of a present plant
layout. It may result in the planning of a completely new plant. A decreased demand
for a product may also result in plant layout changes.
Facilities becoming obsolete
Plant layout problems are often created by the obsolescence of industrial equipment,
processes and buildings. Equipment replacement results in only minor changes in a
present layout. On the other hand, when an industrial process becomes obsolete,
changes in plant layout are usually-demanded. Buildings that become obsolete,
whether because of size limitations or some other reason, may result in plant
expansion of present building, the building of a new plant or a move into a new
building. Any one of these alternatives involve considerable plant layout work.
Frequent accidents
Hazards to safety must be forseen while designing good plant layout Where-electric
welding is a part of an industrial process, shields or screen must be provided around
the arc-welding production centers in order to prevent injury to the eyes of personnel
in surrounding areas. Aisles should be designed so as to minimise the possibility of
accidents caused by materials handling equipment.
Poor working environment
Worker complaints regarding working conditions such as noise or changes in
temperature, may be resolved by changes in plant layout. Providing the worker with
easy accessibility to materials, tools and instructions are considered in good plant
layout A layout which considers these factors helps to establish the reputation of a
firm as being a good place to work.
Change In the location or concentration of markets
Changes of market locations lead not only to plant layout problems but often make
plant location studies necessary. Often the planning of a completely new plant is the
answer to changes in market location.
Cost reduction
Cost reduction is a general term indicating management's device to reduce any one of
the numerous costs involved in operating an Industrial concern. Since the time of the
Industrial Revolution it has been one of the most vital of all the considerations in
manufacturing industries. It must continue to have top priority if productivity curves
are to continue upward.
Costs can be reduced in many ways. New materials develop which can be substituted
for expensive materials. The development of a faster production process can reduce
the inventory tied-up in work-in process Inventory. Improved layout is synonymous
with improved methods. In addition, improved plant layout can result in the
reduction of cost brought by better utilisation of buildings, tools and equipment.
With automatic factory on its way .the costs of maintenance will rise rapidly
compared to the-costs of production. Proper layout can facilitate maintenance
procedures and thereby achieve cost reductions.
10.4 BASIC TYPES OF LAYOUT
Layout choices must closely be tied to higher level decisions. Several fundamental
strategic choices must be made in layout planning.
10.5 DETERMINING WHAT TO MOVE
Production consist of combining and manipulating men. materials and machines.
These elements may be combined in various ways during production activity. The
proportion In which these elements will be used depends on their relative cost and
on the production process selected. Before laying out a plant it is necessary to
determine which of these elements are to be fixed and which will be mobile during
the process of production. Various alternatives are available in determining which
factor to move.
(i) to move the product and worker from one workstation to another workstation
(ii) to move the product from one workstation to another workstation, keeping
machine and worker stationary
(iii) to move the worker and the machine to the product which is held at one location
The decision as to which arrangement to employ depends on the relative mobility of
each factor In plant and on the comparative cost of each method.
The first method that is moving both product and worker from machine to machine
is not very common in modem production. It is-employed in some job-lot production
plants turning out custom- made products, worker moves with his work from
machine to machine usually operating a limited variety of machines.
The second method is common in the manufacture of standardised products.
Product moves through machine work stations and continuous process equipment
which are fixed to locations and attended by workers. Example is the flow of
materials in any automobile manufacture.
In the third arrangement the worker and the machines are brought to the materials.
Manufacturing operations producing bulky products as large steam turbines, boilers,
generators, locomotives and ships.
Fabricated and assembly of smaller parts are usually carried out under the first and
second arrangement. There are many instances where the machining of large
castings and other parts of the product is dene by portable machine tools which are
brought to the product In most manufacturing concerns producing standard
products and custom made products employs the first two alternatives.
10.6 TYPES OF LAYOUT
This is designed for the non-repetitive, intermittent types of production where
special orders are handled. In process grouping similar processes or equipment are
grouped together. When strategy calls for process focus, resources (employees and
equipment) must be organised around the process. A process layout accomplishes
this purpose by clustering in one center the resources that perform similar functions.
For example all grinding is done in a grinding department, all drills are located in the
same area of a shop and all bills are processed in an accounts payable section. This
format is most commonly used when many different products (customers) must be
produced or served intermittently at the same work stations. Demand levels are too
low or unpredictable to allow human and capital resources to be set aside exclusively
for a particular product line or type of customer. Resources are relatively general
purpose, flexible and less capital intensive.
The process layout is less vulnerable to changes in product mix or new marketing
strategies. Employee supervision can be more specialised which is important when
the job content requires a good deal of technical knowledge. A block diagram of
process layout arrangement is shown in fig. 10.1.
Advantages of process layout
(i) Lower capital investment: Less capital is needed because production
machines will be utilised to greater capacity. Machine can be kept in operation most
of the time. Equipment is highly productive.
(ii) Wide flexibility in production facilities: Greater variety of jobs can be
handled on a comparatively small investments because of utilisation of various types
of general purpose equipment. Each machine can perform a wide range of similar
kinds of operations. Moreover there is flexibility in planning production. Jobs are
scheduled for a department as a whole. So it is possible to assign work to any
available machine in the given department.
(iii) Effective supervision readily achieved: Each foreman supervises only a
limited range of machine operations like foreman over welding, grinding and so on.
Because task for each foreman is not too diverse, he becomes highly proficient in
time and with practice. He is able to direct the setup and performance of every kind
of operation done on the equipment. He also becomes expert in maintenance and
repair of equipment, inspection requirement and planning and production control of
his department.
(iv) Machine failures do not seriously disrupt production schedules:
Industrial machine break-downs do not hold up subsequent operations. If there is
break-down in one machine in a department the work can be easily transferred to
another machine in the same department.
Disadvantages of process layout
(i) More material handling: There will be no definite channels through which all
the work will flow. Work, in-process, may return to the same department more than
once for processing and this makes backtracking of work making higher cost of
materials handling.
(ii) Greater total floor area required: A greater proportion of the floor space is
required for service activities which result in a lower proportion of total plant area
being devoted to actual production activities. There is greater need for aisles,
temporary storage at each department. All of these need more floor space per unit of
product turned out.
(iii) Higher skilled labor and difficulty in labour procurement: Workers
must be skilled because they operate a number of general purpose machines doing a
variety of jobs. More highly skilled labour is required and wage rates will be usually
higher. Further there may be difficulty in procuring such labor on short notice.
(iv) Need for more frequent inspection: Inspection is generally necessary
before the work goes to the next operation in another department. Strict
departmental responsibility for quality of work turned out is the main reason for the
need of inspection in each department. Subsequent rejection of material by another
department causes a considerable amount of handling, confusion and rerouting to
rework the faulty part.
(v) Longer processing times: Total time needed for processing production orders
under process layout is greater than that required in product layout. More time is
consumed because work necessary for loading the machines must be delivered to
each department and after processing work is to be held for inspection. More over
large amount of materials handling is necessary between departments. It is difficult
to co-ordinate material handling because personnel cannot always be made available
to move when it is released from a department. The end result is longer period of
processing time.
Process layout is suitable for intermittent production. It is employed when the same
facilities are used to fabricate and assemble a wide variety of parts when part and
product designs are not stable. From historical point of view process layout preceded
product layout. Any considerable growth in demand for product of any industry
gradually makes advisable the conversion of layout in part or whole from process to
product. A gradual transition from process to product layout may take place as
demand increases for products. Product layout is introduced first either.-in parts of
fabricating activities or in assembly operations. The complete product layout
arrangement is finally introduced to whole production process.
10.7 PRODUCT LAYOUT
Equipment needed to fabricate or assemble the product is brought to-gether and
setup in accordance with the required sequence of operations as shown on the
process chart. Material flows through the predetermined channels of operations from
the receipt of raw materials to fabrication of various component parts to final
assembly. Product layout is designed for the flow type of production where
continuous or repetitive operations are carried on to produce large quantities of a
standardised product. Under product grouping all the machines needed to produce
part or subassembly are arranged sequentially in a continuous line in the order in
which the successive operations on the product must be performed. The part flows
from machine to machine moving a short distance at a time until all required
operations are completed. This arrangement results in processing of the product in a
forward flow from the receipt of raw materials to shipment of finished product.
Straight line production has been adopted in numerous continuous process
industries such as sugar refineries, cement plants, automobiles etc. In recent years
many other Industries have recognised the advantages to be gained by adopting line
production methods. A block diagram of product layout arrangement is shown in Fig.
10.2.
Advantages of Product Layout
(i) Channelised, flow of work reduces materials handling: Definite and
direct channels for the flow of materials, short distances between operations
elimination of backtracking and mechanisation of handling are features of product
layout. This greatly reduces materials handling cost.
(ii) Low cost labour and easy in procurement and training: Because of the
use of special purpose automatic or semi-automatic machine's and elaborated tooling
product layout can effectively utilise low cost unskilled and semiskilled labor.
(iii) Less inspection required: A limited amount of inspection at the end or at
some critical point in the line is usually sufficient.
(iv) Floor area more productive: Minimum aisles. General absence of large
banks of, temporary storage and numerous inspection. There is less need for
movement of quantities to centre and temporary storage.
(v) Short processing time: Intermediate activities between machine operations
such as travel, storage and inspection occurs less frequently. Therefore opportunities
for delays will be reduced. Hence the total time For processing product is
shortened.
(vi) Simplicity and easy production control : As long as changes in design of
product are held to a minimun and operations are standardised engineering and
production planning activities is largely limited to initial program necessary to
establish production. At the beginning it is necessary to prepare drawings, list of
parts, materials requirement, routine procedures and so on. This simplifies
production planning and control problem.
Disadvantages of Product Layout
(i) Higher initial investment: In product layout frequently at various work
centers more than sufficient capacity will exist. This condition result in a unavoidable
duplication of facilities and increases the investment required for product layout.
(ii) Production line shut down will occur: If a machine fails under product
layout there is a shutdown of production. Shut down of line can also be caused by a
mini shortage of material, employee absenteeism or poor production
(iii) Supervision more difficult: Line is a collection of numerous kinds of
machine requiring a wide range of knowledge on the part of supervisor. Foreman's
job involves supervision of diverse activities because each machine requires a
knowledge of various setups, kinds of operations and operating feeds. He is also
responsible for the quality control of many kinds of jobs being simultaneously
processed. He must be also familiar with the maintenance requirements of his
equipment.
(iv) Inflexibility of facility: Equipment under product layout consist of facilities
designed to perform special operations. Usually no machine unit of the line is exactly
interchangeable In capacity, kind of work performed with any other unit. This
characteristic of strict product layout results in inflexibility of facilities. This makes
for interruption, costly change over or machine replacement design changes are
made.
10.8 HYBRID LAYOUT
More often a positioning strategy combines elements of both a product and process
focus. This Is an intermediate positioning strategy which calls for a hybrid layout.
Some portions of the facility are designed as a process layout and other portions are
designed as a product layout. This treatment is often applied when group technology
cells, one-worker-multiple-machine stations, or flexible manufacturing systems are
introduced. These "islands of automation" represent miniature product layouts, since
all resources needed to make the family of parts are together as one center. At the
same time, not all production can be handled this way and the rest of the facility
represents a process layout. Hybrid layouts also are found when facilities have both
fabrication and assembly operations. Fabrication operations, where components are
made from raw materials, tend to have a process focus. Assembly operations tend to
have a product focus.
Another example of a hybrid layout is a retail store. Similar merchandise may be
grouped so that customers have a fairly good idea of where to find desired items(a
process layout). At the same time customers often are routed along fairly
predetermined paths product layout. The motive is to maximize exposure to the full
array of goods, thereby stimulating sales.
10.9 FIXED POSITION LAYOUT
The fourth basic type of layout is the fixed-position layout. When a product is
particularly massive or bulky it does not make sense to move it from one work station
to another as with process, product or hybrid layouts. Such is the case in
shipbuilding. Assembling airplanes or locomotives, making huge pressure vessels,
building dams or repairing home furnaces. Workers, along with their tools and
equipment, come to the product to work on it until it is finished, or at least until
much of the work is completed. This layout type minimizes the number of times that
the product must be moved and often is the only feasible solution.
10.10 QUANTITATIVE ANALYSIS FOR PLANT LAYOUT
Having addressed the more strategic issues of layout, it is time to consider actual
designs. The approach differs, depending on whether a process layout or product
layout has been chosen. We begin with an approach to process layouts, which also
applies to the parts of hybrid layouts that have a process focus. Three basic steps are
involved, whether you are designing a new layout or revising an existing layout:
(i) Gather information
(ii) Develop a block plan
(ill) Design a detailed layout
Gather information (Step 1):
Figure 10.3 illustrates the type of information needed to begin designing a. revised
layout for a company's product.
sl.no. DEPARTMENT
SQUARE
METER
1. BURR AND GRIND 100
2. NC EQUIPMENT 95
3. SHIPPING AND RECEIVING 75
4. LATHES AND DRILLS 120
5. TOOL CRIB 80
6. INSPECTION 70
TOTAL 540
(a)
2 4 3
6 5 1
<______________ 27m____________________>
(c)
1. SHIPPING AND RECEIVING (DEPARTMENT 3) SHOULD REMAIN WHERE IT
IS, SINCE IT IS NEXT TO THE DOCK
2. KEEP LATHES & DRILLS (DEPARTMENT 4) AT ITS CURRENT LOCATION
BECAUSE RELOCATION COSTS ARE PHOHIBITIVE
(d)
FIG. 10.3 LAYOUT INFORMATION FOR LONG HORN PRODUCTS
(a) SPACE REQUIREMENTS BY CENTER
(b) AVAILABLE SPACE ADN CURRENT BLOCK PLAN
(c) CLOSENESS RATINGS
(c) OTHER CONSIDERATIONS
Space Requirements by Center
As shown in Fig. 10.3(a), the company has grouped its processes into six different
departments, or center. For example, department 1 is the burr and grind area, and
department 6 is the inspection area. The exact space requirements of each
department, expressed in square feet, are shown in Fig. 10.3(a). You can calculate
space requirements in various ways, but you must tie them to capacity plans. Itemize
all equipment and specific space needs for each center. Add enough "circulation"
space
to provide for aisles and the like. It is not unusual for circulation space to be at least 5
percent of the center's total space requirement.
Available space: Fig.10.3(b) shows the available space and dimensions of the
facility, along with a rough allocation of space for each department. Whenever there
is an existing layout, it is called the current block plan. Available space at the plant Is
27 m by 20 m, or 540 sq. meter. You could start by dividing the total amount of
.space into six equal blocks of space (equivalent to 90 square meter), one for each
department Tills amount of space is too much for inspection (needing only 70.59
square meter) and too little for lath8 and drills(needing 120 square meter).
However, the approximation is good enough until you reach the last step of process
layout design.
Closeness Ratings: Another type of information required is the need for locating
different centers close to each other. This helps us determine the best relative
location for each department Either a From-To matrix or a REL chart provides the
needed information. Fig. 10.3(c) shows a From-To matrix for the company. The
estimated number of materials handling trips from each department to every other
one is shown. The greatest number of one-way trips is from department 1 to
department 6 and from 6 to 3. Thus department 6 should be located near both 1 and
3, which certainly is not true in the current layout You can estimate the number of
trips from the routing and ordering frequencies for typical items made at the plank
Statistical sampling or polling of experts are other ways to obtain this information.
A REL chart is a different way to express closeness ratings. The ratings are
qualitative judgements of managers or employees. An A could signify the judgement
that it is absolutely necessary to locate two departments close to each other, an E
could represent the Judgement that it is especially important, and so on. Being
qualitative, the A rating is higher that the E, but we do not know by how much.
Other consideration: The last information gathered for the company, other
considerations. is shown in fig. 10.3(d). Some performance criteria depend on the
absolute location of a department. These criteria cannot be reflected in a REL chart.
Similarly, a From-To matrix tends to focus only on materials handling.
Develop a block plan (Step 2): The second step in layout design is to develop a
block plans that satisfies performance criteria and area requirements insofar as
possible. The most elementary way to do this is by trial and error but depends on
your ability to spot patterns in the data. There is no guarantee that you will identify
the best or nearly best solution. However, one study showed that such as approach,
at least when supplemented by the use of a computer to evaluate solutions, often
compares quite favorably with more sophisticated techniques.
A good place to start is with the closeness ratings shown in Fig.10.3. To make it easier
to identify significant interactions, you should merge the flows between department
pairs in both directions. The results are shown in Fig. 10.4 and only the upper right
half of the matrix is used. For example, the total number of trips between
departments 1 and 6 is 80 Looking at the greatest interactions, a good block plan
would locate;
(i) Departments 3 and 6 close together
(ii) Departments 1 and 6 close together
(iii) Departments 2 and 5 close together
(iv) Departments 4 and 5 close together
(v) Departments 3 and 4 at their current locations because of the other
considerations listed in fig.10.3
It is not clear that all five requirements can be achieved. If after several attempts you
cannot make them work, drop one or more and try again. If all five can be easily
achieved. add more requirements. Fortunately, finding a good block plan for the
company turns out to the fairly easy. The plan in fig. 10.5 was worked out by the trial
and error method and satisfied all five requirements. Start by placing departments 3
and 4 and their current positions. Since the first requirements is to locate
departments 3 and 6 close to each other, you can put 6 in the southeast corner of the
layout this location minimizes the distance between 3 and 6. The second requirement
is to have departments 1 and 6 close to each other. You can achieve it by putting 1 in
the space just to the left of 6 and so on.
It helps to have a total desirability score for at least some aspects of a layout in order
to see how much better one plan is than another. You can easily adapt the load -
distance model for location problems to this purpose when relative locations are a
key concern. In terms of material handling costs.
1 * d =
n
j=1
n
i=1 1ij dij
where Id = Total load - distance score measuring the materials handling
1ij = Load, measured as the number of trips between departments 1 and j in both
directions
dij = Units of distance (actual Euclidean, or rectilinear) between department 1 and j,
Where dij = 0 If i = j and
n = Total number of department
* ALL OF THESE NONZERO RATINGS COME FROM FIG.10.4
# RECTILINEAR DISTANCES ARE CALCULATED FROM THE CURRENT PALN
(FIG.10.3B0 AND THE PROPOSED PLAN (FIG.10.5) IN THE CURRENT PLAN.
DEPARTMENTS 1 & 2 ARE AT THE SOUTHEST & NORTHWEST BLOCKS OF THE
PLANT, RESPECTIVELY. THE DISTANCE BETWEEN THE CENTRES OF THESE
BLOKS IS THERE UNITS OF DISTANCE (TWO HORIZON TALLY & ONE
VERTICALLY)
Table 10.1 shows the results of applying this formula to the current and proposed
block plans. The Id-score drops from 785 to 400. which represents an almost 50
percent improvement with the proposed plan. You must now decide whether this
improvement is worth the cost of relocating four of the six departments. If relocation
costs are too much, you must come up with a less expensive proposal. Looking at the
calculation for the current plan in Table 10.1, you can get some clues. Much of 785
score comes from the trips between departments 3 and 6 and between departments 5
and 6. This solution puts department 6 closer to both 1 and 3. Additional calculations
will show that the Id-score for this plan drops to 610, and only two departments have
to be relocated. Perhaps this is the best compromise.
Design a Detailed layout (step 3):
After a satisfactory block plan is found, it should be translated into a. detailed
representation showing the exact size and shape of each center, the arrangement of
elements within it, and the location of aisles, stairways, and other unproductive
space. These visual representations can be 2-dimensional drawings, 3-dimensional
models, or even computer-aided graphics. This last step in the layout design process
is important because it helps decision makers to grasp the essence of the proposal
and even spot problems that might otherwise be overlooked. If others in the
.company are to be Involved In layout decisions, the detailed layout becomes the
focus of the discussion.
10.11 QUANTITATIVE ANALYSIS FOR PRODUCT LAYOUT
'We now' turn from process layouts to produce layouts, which raise entirely different
issues for management. The two types of product layout are the production line and
the assembly line. In both cases the work stations are arranged serially, and the
product moves from one station to the next until the work is finished. Employees at
one station work on a unit forwarded from the preceding station on the line.
Although similar to an assembly line in most respects, a production line is different
in one essential respect. Production-line* work is more capital intensive, and
specialized equipment is used at each station; work cannot be partially shifted from
one machine to an entirely different one, just to balance workloads. As assembly line,
on the other hand, is more labor intensive, giving it much more flexibility for
repackaging work elements and better balancing loads; this flexibility is an
advantage, but it also adds complexity. We therefore begin with production lines.
Production lines: Designing a production line would be simple If desired output
rates never varied, equipment capacity could be added In small Increments,
processing times were constant, and there were no unexpected capacity losses.
Unfortunately, such an environment is difficult to find. Several items belonging to
the same product family might be produced on a line, but their processing times may
not be identical at certain work stations. Customer demands fluctuate, creating either
capacity or inventory problems. Yield losses do occur. These instabilities are
particularly challenging in product layouts because of the serial dependency of work
stations. Capacity and pacing decisions are crucial.
Capacity: One question concerns the best capacity for each station. Should there be
one, two or three machines at the station? The greater its capacity cushion, the less
likely it will delay production at downstream stations. The answer depends largely on
the Increments possible in adding capacity, the cost of adding increments, and
management's strategy on workforce flexibility. There is some evidence of a bowl
phenomenon in production lines, which means that extra capacity helps more at the
center of a line to compensate. Such a line might actually perform better than a
perfectly balanced one, where the amount of capacity cushion is equally distributed.
Pacing: Another question is whether to use inventory to decouple work stations.
Paced lines have no buffer inventory, making them particularly susceptible to
unexpected capacity losses. With unpaced lines, inventory storage areas are placed
between stations. These storage areas reduce the likelihood that unexpected
downtime at one station will delay work downstream but do increase space and
Inventory costs. If unpaced lines seem to be a good strategy, they introduce the
tactical question of how big the storage areas should be. A station can be held up for
two reasons:
(i) The first station has fallen behind to the point where the inbound inventory for
the second station is depleted. The second station is delayed.
(ii) The second station has fallen behind to the point where its inbound storage area
is temporarily full. The first station Is delayed until there is room for the inventory.
The second delay Is called blocking. It seems to happen more often at stations near
the beginning of a line.
Assembly lines: The additional complexity of assembly lines is narrated in the
Illustration given below for a company. The management wants to set up an
assembly line that will produce 2400 Big Broadcaster spreaders per week and
operate one shift per day. The work elements and the times required to do them for
each spreader are known. For example, bolting the leg frame to the hopper takes an
average of 51 seconds. More than one work element can be performed at a station,
but each work element is assigned to only one station. One worker at each station
does the same work over and over. After the worker at one station finishes the
assigned work for one unit, a conveyor moves the unit to the next station. The basic
question is: "How many stations are needed and what work elements are to be
assigned to each one?" Answering this question is called assembly-line balancing.
Illustration: Assembly-line balancing at a company
A company is expanding its product line to include a new concept in fertilizer
spreaders called the Big Broadcaster. This spreader cuts fertilizer application time to
30 percent of that required with traditional methods. The Big Broadcaster is to be
made on a new assembly line in one of the plants of the company. Most parts are to
be purchased from outside suppliers. Management decided against further vertical
integration until customer response to the new spreader is better known. The plant
manager, has just received marketing's latest forecasts for the next year. He wants
the line to be designed to make 24OO spreaders per week for at least the next three
months. The plant will operate 5 days per week, 1 shift per day, and 8 hours per shift.
A few utility workers are used in the plant to relieve others for breaks, cover for
absenteeism, and help at temporary bottlenecks. Since equipment failures will be
negligible, the line should be operating practically 40 hours per week.
The plant manager's staff has already identified the work that must be performed to
assemble the spreader. The work is broken down into work elements which are the
smallest units of work that can be performed independently. Each element is listed in
the table with its corresponding performance time.
The plant manager has decided on a paced line because of materials handling and
space considerations. With no inventory storage, each" operator will have the same
time to complete the assigned work elements. It also means that the whole line can
move only as fast as the slowest station. In order to maximize productivity, the
manager wants a line with the minimum number of stations that will assemble the
required 2400 Big Broadcasters per week. The design problem is to determine the
number of stations needed and the work elements to be performed at each station.
Work
element Description Times(sec.)
__________________________________________________________
_
Attach leg frame
1 Bolt leg frame to hopper 51
2 Insert impeller shaft into hopper 7
3 Attach agitator to shaft 24
4 Secure with cotter pin 10
Attach axle
5 Insert bearings into housings 25
6 Slip axle through first bearing and shaft 40
7 Slip axle through second bearing 20
Attach drive wheel
8 Slip on drive wheel 35
9 Place washer over axle 35
10 Secure with cotter pin 6
11 Push on hub cap 9
Attach free wheel
12 Slip on free wheel 30
13 Place washer over axle 6
14 Secure with cotton pin 15
15 Push on hub cap 9
Mount lower post
16 Bolt lower handle post to hopper 27
17 Seat post in square hole 13
18 Secure leg to support strap 60
Attach controls
19 insert control wire 28
20 Guide wire through slot 12
21 Slip T handle over lower post 21
22 Attach on-off control 26
23 Attach level 58
24 Mount name plate 29
576
Total
Precedence diagram:
If the work elements had to be performed in the each sequence listed in illustration,
the preceding question could be easily answered. While most assembly lines must
satisfy some technological precedence requirements among work elements, there
usually is a fair amount of latitude and more than one possible sequence for doing
them. 'Fig 1.6 shows a precedence diagram for assembling the Big Broadcaster. Each
circle represents a work element, with the time to do it shown below the circle. The
arrows show the precedence requirements. For example, either work element 2 or 5
can be done after 1. If the choice is 2, then either 3 or 5 can follow next. It also shows
that 7 cannot start until after 4 and 6 are done. Work elements 4 and 6 must be
assigned either to the same station as 7 or to a prior station.
Desired output rate:
The plant manager at the company has decided on an output rate of 2400 Big
Broadcasters per week. While closely related to demand forecasts, the output rate
also depends on policies on rebalancing frequency, capacity utilization, and job
specialization. All else being equal, production rates should match demand rates as
closely as possible. Matching ensures on- time delivery and prevents the build-up of
unwanted inventory. The disadvantage is that it increases rebalancing frequency.
Each time a line is rebalanced, the jobs of many workers on the line must be
redesigned. If the line is speeded up, a worker is given fewer work elements. If the
line is slowed down, a worker is given more work elements. Time spent relearning
jobs temporally hurts productivity. The changeover may even require a new detailed
layout for some stations.
Capacity utilization is another factor that has to be considered. Multiple shifts
increase equipment utilization, which is crucial for capital-intensive facilities, but
they may be unattractive because of higher pay rates or low demand. A third policy
area related to the desired output rate is the degree of job specialization. As the
desired output rate from a line increases, fewer work elements can be assigned to a
station and jobs become more specialized.
Cycle time:
After the desired output rate for a line has been chosen, its cycle time can be
computed. An assembly line's cycle time is the maximum amount of time allowed for
work on a unit at each station. If the time required to do the work elements at a
station exceeds the line's cycle time, the station will be a bottleneck, preventing the
line from reaching its desired output rate. Returning to illustration, let's convert the
desired output rate to an hourly rate. Dividing by 40 work hours per week we get 60
units per hour. The cycle time is the reciprocal of the desired hourly output rate. We
need to convert it to seconds because
Idle time = nc - t
Efficiency (%) = (t/nc)(100)
Balance delay (%) = 100 - Efficiency
Idle time is the total unproductive time for all stations in the assembly of each unit.
Each of the n stations spends c seconds per unit, which means that nc is the total
time spent per unit. Subtracting the productive time t gives us the idle time.
Efficiency is the ratio of productive time to total time, expressed as a percent.
Balance delay is the amount by which efficiency falls short of 100 % . So long as c is
fixed, we can optimize all three goals by minimizing n.
Finding a solution:
An overwhelming number of assembly-line solutions are possible, even for this small
problem, and the number of possibilities expands as quickly as for process layouts.
Once again, computer assistance is available. One software package, for example,
considers every feasible combination of work elements that do not violate precedence
or cycle time requirements when forming a new station. The combination that
minimizes the station's idle time is selected. If any work elements remain
unassigned, a second station is formed, and so on.
The approach we will use is even simpler. At each iteration, a work element is
selected from a list of candidates and assigned to a station. This process is repeated
until all stations are formed. Two commonly Used decision rules for selecting from
the candidate list are:
Rule 1.
Pick the candidate with the longest work-element time. Intuitively, this tends to
assign the more difficult work elements to stations as quickly as possible. Work
elements having shorter times are easier to fit into a station and should be saved for
fine tuning the solution.
Rule 2.
Pick the candidate having the largest number of followers. Figure 10.6 shows, for
example, that work element 18 has six followers and 21 has two followers. Intuitively,
this rule helps to keep your options open for forming subsequent stations. Otherwise,
precedence requirements may leave only a few possible sequences of work elements,
and all of them may require an unnecessary amount of idle time.
Returning to illustration, let's develop solutions manually using these rules. Our
overall solution procedure is much like the logic that would be used in computer
programs.
Step 1. Let k=l, where k is a counter for the station being formed.
Step 2. Make a Iist of candidates. Each work element included in the list must satisfy
three conditions:
FIG. 10.6 PRECEDENCE DIAGRAM FOR ASSEMBLING THE BIG
BROADCASTER
(a) it has not yet been assigned to this or any previous station
(b) all its predecessors have been assigned to this or ; previous station and
(c) the sum of its time and those of the work elements (i any) already assigned to
this station does not exceed the cycle time.
If no such candidates can be found, go to step 4.
Step 3. Pick a candidate using one of the two decision rules. Assigning it to
station k. Go to step 2.
Step 4. If some work elements are still unassigned, but there are n candidates,
a new station must be started. Increment k by and go to step 2. Otherwise, you
have a complete solution Stop.
Figure 10.7 shows a solution that begins with picking candidate at step 3, using
decision rule 1. Let's follow the first few iterations until the second station is formed
to see the pattern.
(step 1) Start with station 1 (k=l).
(step 2) Figure 1.6 shows us that only work element 1 can be candidate. It is
a predecessor to all others.
(step 3) Work element 1 is the first one assigned to station 1
(step 2) Only 2 is a candidate. Work element 5 would exceed the stations cycle
time of 60 seconds.
(step 3) Thus 2 is the second work element assigned to station 1
(step 2) No candidates can be found. since adding either 3 or 5 would exceed
the cycle time
(step 4) Move on to station 2 (k-2)
(step 2) The candidates are 3 and 5
(step 3) Pick 5, since its time is longer. This is the first instance of a real choice
because there was only one candidate for each previous iteration.
(step 2) Work element 3 is the only candidate. The time for 6 is too long to fit
into station 2
(step 3) Thus 3 is the second work element assigned to station 2
(step 2) Only 4 is a candidate, again because of cycle time.
(step 2) No candidates exist. Since adding 6 would exceed the cycle time.
Station 2 is completed, consisting of work elements 5, 3, and 4
Continuing on in this manner, we find that the final solution shown in Fig. 10.7 calls
for only 10 stations. The efficiency is 96% and balance delay only 4%. Our
calculations of the theoretical minimum number of stations told us that we could do
no better than this. It is impossible to product 2400 spreaders per week with less
than 10 stations. Such a happy ending does not always occur, and, sometimes,
another procedure would do better. Computer-based techniques tend to give good,
although not necessarily optimal, result. Human judgment and pattern recognition
often allow us to improve on computer generated solutions in fact, manual methods
are still the most prevalent practices.
10.12 SERVICE FACILITIES
Many plant services must fit into the overall layout. The facts of these activities are
not a part of the direct production activity of the enterprise has often tended to
promote the idea that whatever space is left over is good enough for them. Actually,
some of these activities, such as receiving. Shipping, and warehousing, is in the direct
material flow and they process the product as do the production departments.
Others, such as maintenance facilities and tool cribs, do not work on the product but
interact with production costs so that their physical location and capacity deserve
careful thought. The overall material flow patterns should be the major factors in
determining the relative locations of receiving, shipping, storage, and warehousing
areas.
The capacity question for receiving areas does not have an obvious answer. In
general, the problem is such that we do not have control over the rate at which
materials come in. Since receipts of shipments from suppliers occur in a somewhat
random pattern, a good design provides capacity that meets the reasonably expected
peak loads for truck and rail docks, unloading crews, and temporary setdown areas
for determining what these capacities should be. Of course, many other factors
influence the details of the layout of receiving areas, such as climate, safety codes,
handling equipment, dock heights, and the necessity to accommodate a variety of
vehicles.
The location of tool cribs is important because of the travel time of high-priced
mechanics to and from the area. Therefore, a study of .the use frequency in relation
to the physical layout of the production areas should determine a good location or
locations. The tool storage problem is comparable to the material and part storage
problem in using space efficiently while making items available quickly and
conveniently. The number of attendants required to serve the tool crib is another
waiting line problem.
Maintenance facilities are commonly provided for building and grounds, plant
utilities, and machinery and equipment. The capacity of maintenance for machinery
and equipment again poses the problem of balancing the idle time of maintenance
crews against the idle time of production workers, as well as losses of output
capacity. Ordinarily, a considerable amount of idle capacity in equipment and crews
is justifiable, as would be shown by solutions to waiting line models of these types of
problems.
Present-day personnel services cover a broad spectrum including parking, cafeterias,
medical services, credit unions, locker rooms, toilets and lavatories, and, quite often,
recreational facilities. Obviously, providing for these services presents layout
problems. In many instances, the location of these services does not have an effect on
production costs since the services are used after hours. In these instances, the layout
problem is to provide the space designed to perform the services in the amounts
required. The activities must be studied to determine what must be done and
facilities provided accordingly.
For those services used during working hours, such as medical facilities, toilet
facilities, and drinking fountains, the size of the facility and its location in relation to
the users become important. Studies of travel distances to and from the service
facility should be made in order to determine reasonable locations.Waiting line
models are again useful in determining a balance between waiting times of
employees and service capacity costs. In one large company which offered a broad
medical service, the question of whether or not an additional doctor on the staff was
warranted was answered by a waiting time study. The results of the study indicated
that there was an average of 15 employees in the waiting room during the 8-hour
work day; assuming a 2000 working hour year and a modest average hourly wage of
Rs. 20, this translates into Rs.60,000 of waiting time per year. The study led to both
an enlargement and decentralization of medical services.
10.13 PRINCIPLES OF MATERIALS HANDLING
The three major principles of material handling are:
1. Reduction in time.
2. Reduction in handling.
3. Equipment design.
Reduction in time:
Time lost means paying men wages when they are not doing productive work. Lost
time reduces the total production possible in a given length of time. Time is
consumed principally in three things:
(i) Waiting,
(ii) Loading and unloading,
(iii) Travel time.
Waiting may be due to the bad scheduling or bad organization of the later force or it
may be due to improper or insufficient facilities for loading.
Loading and unloading time is the question of the efficiency of labor and the
equipment for loading and unloading. In general, the larger the unit uploaded or
unloaded, the greater the reduction that can be made in loading time. The greater the
use of mechanical means that are faster than the manual labor, the more efficient can
loading and unloading be made.
Travel time depends upon the speed with which the equipment gets from one point
to another. This is the factor of the individual speed of a truck and its rate of
acceleration. A great deal of time can be lost by improper routing or through the
selection of routes in which delays occur.
Reduction In Handling:
When there is less handling, less labor is involved and less time is Involved in
production. Factors that are involved in reduction in handling are as follows:
1. Process changes,
2. Layout improvement.
3. Increased size of units handled,
4. Use of proper equipment.
Layout improvement will make unnecessary the transfers of loads at various points
to avoid obstructions. Changes In process Involving a layout change may make It
possible to eliminate a transfer of load. If the material is loaded in the largest units
that can be handled, the amount of handling is reduced. Equipment should be
chosen which can be loaded most easily and with a minimum amount of hand labor
necessary.
Equipment Design:
Factors In equipment design are efficiency, speed, weight, safety, maintenance and
repair, first costs and operating costs obsolescence, flexibility and standardization.
The efficiency of materials handling equipment is determined by the power input and
labor required. Both of these are expressed in units of loads handled in order to
measure efficiency.
Speed in equipment design varies depending upon the nature of the product and the
process.
Weight is a factor in efficiency. The more dead weight the less the efficiency of the
equipment. Weight must also be considered in connection with safe loading on the
floors.
The safety of the equipment is Important. Poor plant lighting, improper warning
signs, blind comers or failure to keep aisles clear of pedestrians or workers may lead
to a great many unnecessary accidents.
The principles are summarised as follows.
1. All handling activities should be planned.
2. Plan a system integrating as many handling activities as possible and
coordinating the full scope of operations.
3. Plan an operation sequence and equipment arrangement to optimize material
flow.
4. Reduce, combine or eliminate unnecessary movements and/or equipment.
5. Utilize gravity to move material whenever practicable;
6. Make optimum utilization of building cube.
7. Increase quantity, weight, size of load handled.
8. Provide for safe handling methods and equipment.
9. Use mechanized or automated handling equipment when practicable.
10. In selecting handling equipment, consider all aspects of the material to be
handled, the move to be made, and the methods to be utilized.
11. Standardize methods as well as types and sizes of handling equipment.
12. Use methods and equipment that can perform a variety of tasks and
applications.
13. Minimize the ratio of mobile equipment dead weight to pay load.
14. Equipment designed to transport materials should be kept in motion.
15. Reduce idle or unproductive time of both handling and manpower.
16. Plan for preventive maintenance and scheduled repair of all handling
equipment.
17. Replace obsolete handling methods and equipment when more efficient
methods or equipment will improve operations.
18. Use material handling equipment to improve production control, inventory
control, and order handling.
19. Use handling equipment to help achieve full production capacity.
20. Determine efficiency of handling performance in terms of expense per unit
handled.
10.14 MATERIALS HANDLING EQUIPMENT
The various types of equipment available for materials handling may be divided into
three major divisions.
1. Lifting and lowering devices (Vertical motion)
2. Transporting devices (Horizontal motion)
3. Combination devices (Lifting and lowering plus transportation)
10.14.1 lifting end towering devices;
In establishing this division only vertical motions not accompanied by any horizontal
motion are considered.
A block and tackle is one of the oldest and simplest methods of lifting something
through a vertical distance. It depends on manpower and gives only the mechanical
advantage. It is the oldest form of lifting, the most inexpensive in cost and the most
wasteful of manpower.
Winches are devices that effect vertical motion by the rope or cable on a drum. Here
it-is possible to get much greater mechanical advantage than with a block and tackle
by using manpower or other power. These are frequently used in loading heavy
equipment into ships, construction equipment into building and in similar jobs.
Hoists are power driven devices often operated between fixed guide nails for lifting
things vertically. They are similar to elevators except that, a hoist does not carry the
operator on it.
Elevators are differentiated from hoists by the fact that the operator rises with the
load. Generally electric drive is used in elevators.
10.14.2 Transporting devices:
The simplest transporting devices are wheel barrows and hand trucks. All this
equipment involves a large amount of manpower for a relatively small load. The chief
advantage of this equipment is its very low cost, its great flexibility and its easy
portability from one Job to another.
Industrial railways are narrow-gauge railroads. In general, little use is made of such
equipment because it requires a heavy investment in the road bed and tracks, has
little flexibility and is difficult to change at a later date.
Tractors and trailers are one of the most common methods of horizontal
transportation. Great flexibility is secured as tractors can be used to haul such a
variety of different types of trailers. Trailers can be left loaded and can be picked up
by different tractors. This system has the advantage of great flexibility plus all the
advantages of industrial railways and there is no investment in laying tracks.
Pipe lines and pumps are also horizontal transportation for many commodities. Most
obvious among these is oil, which is pumped great distances through pipe lines. Gas
is also carried through pipe lines. Water is similarly transported.
10.14.3 Combination devices (lifting and lowering plus transportation):
One of the simplest devices that have both vertical and horizontal motion is a chute
which may either be straight or spiral. Gravity is utilized in order to move material
down and to change the portion of the load horizontally. Chutes are common in
railway and airline terminals for handling packages and baggage. Chutes are also
used in departmental stores in a spiral form to bring the stock from reserver on the
upper floors to the lower selling floors.
Small crane trucks are also used for handling materials both in horizontal and
vertical direction.
Conveyor is an another equipment used for this purpose.This is continuous
transportation system. Wheel gravity conveyor,' roller conveyor, screw conveyor and
Roller spiral conveyor are the types of conveyors used normally.
10.14.4 Common materials handling equipment:
The definitions, characteristics and uses of some types of handling equipment
commonly used in mechanically oriented enterprise are explained below.
10.14.4.1 Conveyors:
Flat belt conveyor- an endless fabric, rubber,plastic,leather,or metal belt
operating over suitable drive, tail end, and bend terminals and over belt idlers or
slider bed for handling material, packages, or objects placed directly upon the belt.
1. Top and return runs of belt may be utilized.
2. Will operate on level. Incline up to 28 degrees, or downgrade.
3. Belt supported on flat surface is used as carrier of objects or as basis for an
assembly line.
4. Belt supported by flat rollers will carry bags, bales, boxes, etc.
5. Metal mesh belts are used for applications subjected to heat, cold, or
chemicals.
6. High capacity.
7. Capacity easily adjusted.
8. Versatile.
9. Can elevate or lower.
10. Provides continuous flow.
11. Relatively easy maintenance.
12. Used for:
Carrying objects (units, cartons, bags, bulk materials)
Assembly lines
Moving people
Power and free conveyor- a combination of powered trolley conveyors and
unpowered monorail-type free conveyors. Two sets of tracks are used, usually
suspended one above the other. The upper track carries the powered trolley
conveyor, and the lower is the free monorail track. Load-carrying free trolleys are
engaged by pushers attached to the powered trolley conveyors. Load trolleys can be
switched to and from adjacent unpowered free tracks.
1. Free trolleys move by gravity, or by pushers supported from trolley conveyor
on upper level.
2. Interconnections may be manually or automatically controlled.
3. Track switches may divert trolleys from power to free tracks.
4. Dispatching may be automatically controlled.
5. Free gravity tracks may be installed between two power tracks for storage.
6. Speeds may be varied from one power section to another.
7. Can include elevating and lowering units in free line.
8. Can recirculate loads on all or sections of system.
9. Can be computer controlled.
10. Used for
Temporary storage of loads between points on machining, assembly, and test
lines.
Routing loads to selected points.
Overhead storage for later delivery of loads to floor level.
Integrating production, assembly, and test equipment
Provides for surge storage against a breakdown.
10.14.4.2 Cranes. Hoists, Monorails:
Jib crane- a lifting device travelling on a horizontal beam that is mounted on a
column or mast, which is fastened to:
(a) floor,
(b) floor and a top support, or
(c) wall bracket or rails. .
Bridge crane- a lifting device on a bridge consisting of one or two horizontal
girders, which are supported at each end by trucks riding on runways installed at
right angles to the bridge. Runways are installed on building columns, overhead
trusses, or frames. Lifting device moves along bridge while bridge moves along
runway.
1. Covers any spot within the rectangular area over which the bridge travels, i.e.,
length of one bay.
2. Can be provided with crossover to adjacent bay.
3. Produce 3 dimensional travel.
4. Designed as:
Top-running, where end trucks ride on top of runway tracks.
Bottom-running where end trucks are suspended from lower
5. Hoist can also be top or bottom running,
6. Bottom-running usually limited to about 10 tons.
7. Bridge propelled by hand, chained gearing or power.
8. Two hoists may be mounted on one crane.
9. Usually designed and built by specialist companies.
10. Does not interfere with work on floor.
11. Can reduce aisle space requirements.
12. Can reach areas otherwise not easily accessible.
13. Crane ways can extend out of building.
14. Can be pendent or radio controlled from the floor.
15. Used for:
Low to medium volume.
Large, heavy and awkward objects.
Machine shops, foundries, steel mills, heavy assembly and repair shops.
Intermittent moves.
Warehousing and yard storage.
With attachments such as magnets, slings, grabs, and buckets, can handle an
extremely wide range of loads.
Monorail conveyor- a handling system on which loads are suspended from
wheeled carriers or trolleys that usually roll along the top surface of the lower flange
of the rail forming the overhead track, or in a similar fashion with other track shapes.
1. Relatively low installation cost.
2. Low operating cost.
3. Little maintenance.
4. Track may be pipe, T, I, flat-bar or other formed structural shape.
5. Can be hand or motor propelled on both travel and lift.
6. Motor may be controlled by pendant switches, from integral cab, or
automatically.
7. Removes traffic from floor.
8. Release floor space.
9. Makes use of overhead space.
10. Easily extended.
11. Switches, spurs, transfer bridges, drop sections, swinging sections, cross-
overs, turntables provide flexibility.
10.14.4.3 Industrial trucks:
Four wheel hand truck- a rectangular load-carrying platform with 4 to 6 wheels,
for manual pushing, usually by means of a rack or handle at one or both ends. Some
have 2 larger wheels at center of platform for easy maneuverability.
1. May be fitted with box or other special body for variety of handling tasks.
2. Inexpensive
3. Versatile
4. Used for:
Manual handling of large loads
Supplementing mechanical handling
Low frequency moves
Low volume movement
Short distances
Relatively light loads
Temporary storage; in process storage
Handling awkward shapes
Weak floors
Small elevators
Narrow aisles
Crowded areas
Hand lift truck- essentially a wheeled platform that can be rolled under a pallet or
skid, and equipped with a lifting device designed to raise loads Just high enough to
clear the floor and permit moving the load. Propulsion is by hand and lift Is by
hydraulic or other mechanism. Platform type is used for handling skids, and fork
type for handling pallets.
1. Low cost
2. Durable, minimum maintenance
3. Light weight
4. Compact
5. Simple to operate
6. Versatile
7. Used for:
Loading or unloading carriers
Supplementing powered trucks, spotting loads
Moderate distances
Intermittent, low-frequency use
Low volume moves
Increasing utilization of powered equipment
Captive use In a local area
Loading and unloading elevators
Tight quarters; narrow aisles
Fork lift truck- a self loading, counterbalanced, self-propelled, wheeled vehicle,
carrying an operator, and designed to carry a load on a fork fastened to telescoping
mast which is mounted ahead of the vehicle to permit lifting and stacking of loads.
1. May be powered by petrol, diesel, battery, or LP gas engine.
2. Mast may be tilted forward or backward to facilitate loading and unloading
3. Operator may ride in center or at back end of truck-or, with special
attachments, on the lifting mechanism, with the load
4. Operator may sit or stand
5. Used with a wide variety of attachments to provide an extremely flexible and
adaptable handling device
6. Carries own power source- therefore useful away from power lines
7. Wheels and tires can be provided for a variety of floor conditions or
operating locations-wood, concrete, highway,
8. yard.
9. Wide range of capabilities
10. Electric type especially useful where reduced noise or no fumes are desired
11. Used for:
Lifting, lowering, stacking, unstacking, loading, unloading, maneuvering
Variable and flexible paths
Medium to large units loads
Uniform shaped loads
Low to medium volume of material
Intermittent moves
10.14.4.4 Auxiliary equipment:
Dock board- a specially designed platform device to bridge the gap between the
edge of the dock and the carrier floor. Sometimes known as bridge plates. Carrier
floors vary from 1200mm for rail cars, to 1300mm for pickup trucks, to 130mm for
highway trucks, plus special bodies of even lower design.
1. Made in formed shape to provide strength and side guards.
2. Usually lightweight metal.
3. Often designed with loops to permit moving by fork truck.
4. Can be fastened to dock edge.
5. Some can be slid along a rail from one location to another.
6. Often have pins to lock lateral position
7. Have non-skid surfaces.
8. May be flared for narrow docks.
9. Should be carefully selected for intended use.
Dock levelers- a platform-like device, built into the dock surface and hinged to
permit raising and lowering to accommodate truck height when bridging the gap
between dock and truck floor.
1. Permits extension of dock floor into carrier.
2. Adjusts up and down, left and right, or for vehicle tilt.
3. May be counterbalanced or hydraulically operated.
4. May be automatic; i.e., adjustment to truck Initiated upon bumping by
vehicle.
5. Has lip, to level out vehicle end of platform.
Pallet- a horizontal platform device used as a base for assembling storing and
handling materials as a unit load. Usually consists of two flat surfaces, separated by
three stringers.
1. May be expendable, general purpose, or special purpose.
2. May be single or double faced.
3. May be flush stringer, single or double wing.
4. May be one-way, two-way or four-way entry.
5. Made of wood, plywood, metals, corrugated, plastic, etc.
6. Protects goods being moved from damage, pilferage, etc.
7. Facilitates inventorying.
8. Promotes cleanliness and good housekeeping.
9. Keeps material off floor, therefore easier to handle.
10. Used for:
Fork-truck-based systems.
Unitizing items.
Utilizing building cube.
Increasing load size.
Reducing handling of individual items.
Minimizing packaging of individual items.
Rack- a framework designed to facilitate the storage of loads, usually
consisting of upright columns and horizontal members for supporting the
loads, and diagonal bracing for stability.
1. May be classified as Selective: A
Bolted
Lock-fit
cantilever
Bar stock
A frame
Custom or Bulk: . A Drive-in
Drive-through
Live or Portable:
Integral unit
Rigid
Knock-down
Collapsible
Pallet stacking frame i2r Bolt-on
Snap fit-Independent of pallet
2. Made of metal, wood, pipe, etc.
3. May be fixed or adjustable in shelf height.
4. Usually built for pallets, but may be used or adapted for skids, rolls, drums, reels,
bars, boxes, etc.
5. May have shelves for storage of loads, but may be designed for drive-in or drive-
through applications.
6. Facilitates inventory taking.
7. Rugged; minimum maintenance
8. Live racks are designed for loads to flow to the unloading position.
9. Cantilever racks best for long items.
10. Used for:
Increasing utilization of storage space
Increasing selectivity of goods stored
Protecting goods
Control of inventory
Improving housekeeping.
10.15 SUMMARY
Principles and factors of layout are discussed. Product layout and process layout are
explained In detail. Advantages and disadvantages of these layout types are
discussed. A three step procedure for evaluating process layout and the line
balancing technique for product layout are explained. Principles of materials
handling and the common materials handling equipment like conveyors, cranes and
trucks are discussed in this lesson.
10.16 KEY CONCEPTS
Process layout
Product layout
Hybrid layout
Fixed position layout
Space requirement by a centre
Closeness rating
Block plan
Production line
Assembly line
Lifting and lowering devices
Transportation devices
Conveyors
Cranes
Hoists
Monorails
Trucks
1. What are the principles of a good layout?
2. What is product layout? Give its advantages and disadvantages.
3. What is process layout? Give its advantages and disadvantages.
4. What are the principles of materials handling?
5. Briefly Identify four basic types of handling equipments. Indicate examples for
each.
1. Apple, J.M., "Plant layout and materials handling", Prentice Hall.
2. Moore, F.G., "Plant layout design", John Whieley.
3. Krajewski and Ritzman, "Operations management", Addison-Wesley.
4. Buffa, "Modern production management", 4th edition. John Whieley.
- End Of Chapter -
LESSON - 11
HUMAN FACTORS IN JOB DESIGN
11.1 Preamble
11.2 Man-machine systems
11.3 Man versus machines
11.4 Conceptual Frame work for man-machine systems
11.5 Types of man-machine systems
11.6 Information input
11.7 Visual displays
11.8 Auditory and tactual display
11.9 Human control of man-machine systems
11.10 Analysis of control activities
11.11 Strength and forces of body movements
11.12 Speed and accuracy of motor responses
11.13 The working environment
11.14 Temperature, Humidity and air flow
11.15 Noise
11.16 Light
11.17 Contaminants and Hazards in the working environment
11.18 Summary
11.19 Key concepts
11.1 PREAMBLE
Over the years since Adam Smith, the main guide for determining job content has
been division of labor. This idea has been accepted almost completely. Adam Smith
specified no limit to the division of labor and the principle has been applied as a one-
way mechanism to achieve the maximum benefits of job design. Jobs have been
broken down to the point where the worker finds little satisfaction in performing his
tasks. In recent years there has been a reaction against excessive job breakdown; a
few investigators have found that combinations of operations to create Jobs of
greater scope recaptured the worker's interest; increase in productivity, quality level,
etc., were reported. A new term, job enlargement, appeared. Practical applications of
job enlargement that were written up in the literature tended to verify the findings of
the investigators. Unfortunately, although exponents of job enlargement recognize
that division of labor can be carried too far, they have not been able to specify any
principles or guides on how far to go in the other direction. Job enlargement is also a
one-way mechanism. It does, however, provide a balancing force through the
inclusion of job satisfaction as a major criterion of successful job design. The
ultimate answer lies in research attempts to Isolate the factors that determine an
optimal combination of tasks to make up jobs. This effort has been called job design.
The past and present viewpoint of business and Industry emphasizes the economic
criterion as the controlling factor In determining job content and considers other
criteria as effective mainly in so far as they meet economic requirements. Thus, a
quality criterion often reduces to an economic one, when the job design that
improves quality levels also improves productivity. For example, removing fatiguing
elements of a job commonly improves productivity; eliminating hazards may reduce
insurance premium rates as well as Improve productivity; designing task that
increase employee satisfaction often also improves productivity.
However, there certainly are instances where the various sub criteria do not correlate
with the economic criterion. To obtain higher quality levels often demands increased
costs, and the value of the reduced scrap may not counterbalance the higher labor
costs. The employee satisfaction criterion would not necessarily decrease costs. To
reduce the risks of hazards to extremely low levels might be very costly.
In Taylor's time the noneconomic criteria would have been shrugged off. Today jobs
and methods are frequently designed or altered to meet noneconomic needs. It is
true that the economic criterion is dominant, and job and method designs are seldom
set or altered without reference to the effects on costs. Most often, costs are regarded
as the "quantitative" measure, with noneconomic criteria being considered in the list
of "intangible" advantages or disadvantages. Fig 11.1 shows in schematic form the
relationship of Job constraints, criteria and others. The inputs to the determination
of Job methods then become job content plus a host of other inputs related to man-
machine systems.
FIG. 11.1 RELATIONSHIP OP CONSTRAINTS. CRITERIA AND OTHER
PRESSURES IN DETERMINING JOB CONTENT INPUTS TO JOB
METHODS DESIGN
11.2 MAN-MACHINE SYSTEMS
The great advances in computers and automation technology has changed the
conceptual framework for man in productive systems. While there is still a great deal
of manual labor in business and industry today, most work involves the use of at
least some kind of mechanical aid, and, therefore, the conceptual framework of man-
machine systems is appropriate for the entire spectrum of systems involving the
human operator.
Even in an automated system, labor is necessary in a surveillance capacity. In such
situations, an operator may be seated in front of a control board which continually
flashes information about the progress of the manufacturing process. It is important
that these display panels be designed to transmit the essential information with
minimum error.
Perhaps the majority of business and industrial manual jobs today consist of some
combination of man and machine. Where there is a fixed machine cycle as in most
machine tool processes, the design of the machine cycle as in most machine tool
processes, the design of the machine in relation to the operator is of great
importance. The location and design of controls, working heights, information
displays, the flow of work, safety features, and the utilization of both the man and the
machine in the cycle are all important determinants of quality, productivity, and
worker acceptance of the job situation.
Many jobs are strictly manual, such as assembly, maintenance, and heavy labor. Here
mechanical aids or tools are common, and we need to consider the design of these
tools from the viewpoint of the user. In addition, we must consider the layout of the
workplace, the flow of work, and physical and mental fatigue produced in the worker
by his physical environment. In some situations, environmental factors of heat,
humidity, light, noise, and hazards can seriously affect fatigue, productivity, quality,
health, and worker acceptance of the Job. Thus, in studying man-machine systems
we assume that the questions of job content have fairly well been settled, and we
concentrate attention on the detailed design of jobs.
11.3 MAN VERSUS MACHINES
Man has certain physiological, psychological, and sociological characteristics which
define both his capabilities and his limitations in the work situation. These
characteristics are not fixed quantities but vary from individual to individual. This
does not mean, however, that we cannot make predictions about human behavior.
Rather, it means that predictive models of human behavior must reflect this
variation. To take a physical factor as an example, the distribution of the arm
strengths of men indicates the per cent of the male population that can exert a given
force. This distribution also indicates the limitations in demand for arm strength.
The average man can exert a right-hand pull of 50 Kg. If we design a machine lever
that requires the operator to exert this force, approximately half of the male
population would be unable to operate the machine. On the other hand, the
distribution also tells us that about 95% of the male population can exert a right-
hand pull of 22 Kg. A lever designed to take this fact into account will accommodate a
large proportion of the male population.
In performing work, man's functions fall into three gdneral classifications:
(i) Receiving information through the various sense organs, that is, eyes, ears, touch,
etc.
(ii) Making decisions based on information received and information stored in the
memory of the individual.
(iii) Taking action based on decisions. In some instances, the decision phase may be
virtually automatic because of learned responses as in a highly repetitive task. In
others, the decision may involve an order of reasoning and the result may be
complex.
Note that the general structure of a closed-loop automated system is parallel in
concept. Wherein lies the difference? Are automated machines like men? Yes. they
are in certain important respects. Both have sensors, stored information,
comparators, decision makers, effectors, and feedback loops. The differences are in
man's tremendous range of capabilities and in the limitations imposed on him by his
psychological and sociological characteristics. Thus, machines are much more
specialized in the kinds and range of tasks they can perform. Machines perform tasks
as faithful servants, reacting mainly to physical factors; for example, bearings may
wear out because of a dusty environment. But man reacts to his psychological and
sociological environment as well as to his physical environment. The latter fact
requires that one measure of effectiveness of job design must be worker acceptance
or job satisfaction.
Although there are few really objective guides to the allocation of tasks to men and
machines on other than an economic basis, a subjective list of the kinds of tasks most
appropriate 'for men and for machines is given by McCormick
Human beings appear to surpass existing machines in their ability to:
(i) Detect small amounts of light and sound.
(ii) Receive and organize patterns of light and sound.
(iii) Improve and use flexible procedures.
(iv) Store large amounts of information for long periods and recall relevant fact at the
appropriate time.
(v) Reason inductively,
(vi) Exercise judgment,
(vii) Develop concepts and create methods.
Existing machines appear to surpass humans in their ability to:
(i) Respond quickly to control signals,
(ii) Apply great force smoothly and precisely.
(iii) Perform repetitive and routine tasks,
(iv) Store information briefly and then erase it completely.
(v) Perform rapid computations.
(vi) perform many different functions simultaneously.
Such lists raise a question. Why do business, industry, and government not use men
and machines according to these guides? We have all observed that man is used
extensively for tasks given in the list for machines. The answer lies in the balance of
costs for a given situation. Both labor and machines cost money; when the balance of
costs favors machines, conversions are normally made. In many foreign countries
extremely low-cost labor, in relation to the cost of capital, dictates an economic
decision to use manual labor in many task in which man is not well suited. Because
of relatively high wages in the United States, machines are used much more
extensively.
11.4 CONCEPTUAL FRAME WORK FOR MAN-MACHINE SYSTEMS
As we noted previously, men and machines perform similar functions in
accomplishing work tasks though they each have comparative advantages. The
functions they perform are represented in Figure 11.2. The four basic classes of
functions are sensing, information storage, information processing, and action.
Information storage interacts with all three of the other functions; however, sensing,
information processing, and action functions occurs in sequence.
FIG. 11.2 FUNCTIONS PERFORMED BT MAN OR MACHINE
COMPONENTS OF MAN-MACHINE SYSTEMS
Information is received by the sensing function. If by a man, sensing s accomplished
through the various sense organs of eyes, ears, sense of ouch, etc. Machine sensing
can parallel human sensing through electronic or mechanical devices. Machine
sensing Is usually much more specific or single purpose in nature than broadly
capable human senses.
Information storage for man is in the human memory or by access to records.
Machine information storage can be by magnetic tape or drum, punched cards, cams
and templates.etc.
The function of information processing and decision takes sensed and/or stored
information and produces a decision by some simple or complex process. The
processing could be as simple as a choice between two alternatives, depending on-
input data, or very complex. Involving deduction, analysis, or computing to produce
a decision for which a command is issued to the effector.
The effector or action function occurs as a result of decisions and command, and may
involve the triggering of control mechanisms by man or machine or a communication
of decisions. Control mechanisms would in turn cause something physical to happen
such as moving the hands or arms, starting a motor, increasing or decreasing the
depth of a cut on a machine tool, etc.
Input and output is related to the raw material, or the thing being processed. The
output represents some transformation of the input. The processes themselves may
be of any type, that Is, chemical processes to change shape or form, assembly,
transport, clerical and so on.
Information feedback concerning the output states is an essential Ingredient for it
provides the basis for control. Feed back operates to control the simplest hand
motion through the senses and the nervous system. For machines feedback
concerning the output states provides the basis for machine adjustment. Automatic
machines couple the feedback information directly so that adjustments are automatic
(closed-loop automation). When machine adjustments are only periodic based on
information feedback, the loop is still closed but not on a continuous and automatic
basis.
11.5 TYPES OF MAN MACHINE SYSTEMS
We shall use the module of the functions performed by man or machine shown in
figure 11.2 to discuss the basic structure for three typical systems: manual,
semiautomatic, or mechanical and automatic systems. Figure 11.3 uses the module of
figure 11.2 to show the structure of the three types of systems in schematic form.
Manual system involves man with only mechanical aids or hand tools. Man supplies
the power required and acts as controller of the process; the tools and mechanical
aids help multiply his efforts. The basic module of figure 11.2 describes the functions
where the man directly transforms input to output as shown in figure 11.3(a). In
addition we must envision the manual system operating in some working
environment which may have an impact on the man and the output
Semiautomatic systems involve man mainly as a controller of the process as
indicated in figure 11.3(b). He interacts with the machine by sensing information
about the process, interpreting it and using a set of controls which may start and stop
the machine system and possibly make intermediate adjudtments. Power is normally
supplied by the machine. These are the combinations of the manual and
semiautomatic systems where the man is also supplying some of the system power,
perhaps in loading the machine or in some activities in which he may be involved
while the machine goes through its cycle. Common examples of semiautomatic
systems are the machine tools commonly used in the mechanical industries.
Automatic systems presumably do not need a man since all of the functions of
sensing information processing and decision, and action are performed by the
machine. Such a system would need to be fully programmed to sense and take
required action for all possible contingencies. automation at such a level is not
economically justified even if the machines could be designed. Figure 11.3(C),
therefore, indicates man's role as a monitor to help control the process. In this role
the man periodically or continuously maintains surveillance over the process through
displays which indicates the state of the crucial parameters of the process.
11.6 INFORMATION INPUT
Modern technology has made it possible to present vital information concerning the
process which humans cannot sense directly, or atleast cannot sense precisely in a
direct way. On the otherhand some sensing may result for direct observation, for
example if the transfer mechanisma were jammed, the pathways of information from
original source to human sensory receptors is shown schematically in Fig 11.4
Figure 11.4 indicates immediately some marriage between man and machine in
indirect sensing which involves an intermediate sensing by mechanisms and a coding
or conversion to some new form which is then presented and sensed by the human.
Therefore, in man-machine systems, human sensing can be direct, but increasingly is
indirect, placing emphasis on encoding and information display systems. The design
of these systems of display for information input to man is important if operation are
to be effective.
Figure 11.5 implies the full range of possible human sensory receptors. The most
common business and industrial application focus on the use of the eyes, ears, and
nerve endings, in that order with visual display being by far the most common.
11.7 VISUAL DISPLAYS
Much of the postwar effort of experimental psychologists has been directed toeard
improving visual displays. Questions such as these have been raised. Which dial
shapes are most legible? What scale should be used and how should they be marked
on the dials? Do people have number preference patterns that affect the
interpretation of dial readings? What characteristics of numbers and letters make
them most
legible? Are black numbers on a white background superior to white on black? How
big should letters and numerals be and what proportions of lie thickness, height, and
width are best? How should systems of dials be arranged? Experimental work has
been carried on these and many other questions.
Scientists have experimented with the shape of dials. An experiment around five
types of dials was constructed. Fig. 11.5 shows the results in terms of percentage of
errors recorded. A multitude of studies, indicated the following general guides on
dial design.
(i) A dial about 70mm to 80mm in diameter is probably the best all-around size if we
are going to read it at a distance of 750mm or less.
(ii) Mark should be located at the 0, 5, 10, 15, 20, etc. (or 0, 50, 100, 150, 200 etc.)
positions. The marks at the 0, 10, 20 for 0, 10, 20 for 0, 100, 200) positions should
be longer than those at the 5, 15, 25 (or 50, 150, 250) positions. Only the mark at the
0, 10, 20 should be numbered.
(iii) The distance between the numbered markers should be about 12 mm as
measured around the circumstances of dial.
(iv) The separation between the scale markers should be the same all around the dial.
(v) There should be gap between the beginning and the end of the scale.
(vi) Values on the scale should increase in a clockwise direction.
When there is a bank of dials to be read, it helps to orient them in a pattern so that
the normal readings are in the nine oclock or twelve oclock position. This makes it
possible to tell at a glance if an abnormal reading is among the group instead of
reading the each dial individually. As a matter of fact we often find that the operator
is presented with too much information. He may not need to read the dial at all.
Perhaps all that is required is simple recognition of whether the reading is in the
normal operating region or not. Or perhaps the real need is to know only if
something is functioning or not. Simple on-off lights may be satisfactory in such
situations.
There is also the questions of the letters and numbers that are used on visual
displays. Studies have indicated that capital letters and numbers are read much
accurately when stroke width to height ratio is between 1:6 and 1:8 and when the
overall width to height ratio is about 2:3
11.8 AUDITORY AND TACTUAL DISPLAYS
While auditory displays are not as commonly used as visual, they have particular
value as warning devices or to attract attention. There are of course other
opportunities for using the auditory channel, for example, when vision is impaired,
or at night or in photographic dark rooms, when vision cannot be used. Some of the
common devices are bells, sirens, buzzers, horns, chimes and whistles.
Tactual displays are even less common than auditory in business and industry. Yet
there are applications when vision cannot be used such as in photographic dark
rooms or the shape coding of control knobs. So they can be identified by touch.
11.9 HUMAN CONTROL OF MAN-MACHINE SYSTEMS
Given information input by direct or indirect means the human operator qf a man-
machine systems responds by performing work in the physical sense. He may be
assembling objects, manipulating controls and in general using his body to
accomplish the required tasks to fit in with the objectives of the system. The analysis
of the hand and body motions and how they contribute to effective operation is
important
Manipulative activity in handling controls has been studied with considerable care
and this knowledge can be used to design effective systems.
Finally, work place layout can be used on knowledge of anthropometry so that
manual motions can take place within a prescribed area and chair and table heights
can be set at levels appropriate to human body sizes.
11.10 ANALYSIS OF CONTROL ACTIVITY
The .design of controls and control system has an important impact on the
effectiveness of a man machine system. Knowledge of the forces that man can exert
may be of importance in some systems so that these capabilities are not exceeded in
the design of controls and control coding is sometimes important so that controls arc
not confused.
11.11 STRENGTH AND FORCES OF BODY MOVEMENTS
Data on the forces that can be exerted by most of the working population is
important for designing machines and tools which do not require operators with
unusual physical strength. Rather exhaustive population measurements have been
made for arm strength, grip strength, turning strength, elbow, back leg- strength.
In general it can be seen that left hand strength is consistently less than that for the
right hand, and that pushes and pulls are weaker when the arm is down at the side.
With upward and downward movements, however, greater forces can be exerted
when the arm is down at the side. Pull is slightly better than push, down slightly
better than up, in better than out.
11.12 SPEED AND ACCURACY OF MOTOR RESPONSES
A motor response is one that involves physical movement and /or control of body
parts. It is a muscular activity. Since man's hands are his most important asset for
performance of muscular tasks, we find that most of the available data pertain to
hands. Thus, in designing tasks that involve positioning elements, for e.g.. a
knowledge of where in the work area positioning can be accomplished most
accurately may affect the work place layout.
Positioning elements:
Much experimental effort has gone on to determine how positioning elements of
various types can be best accomplished. A number of interesting results have been
found, some expected and some unusual. It has been shown that where some sort of
mechanical guide or stops are used to establish the exact final desired position of the
part or hand. The amplification of this fact tend to corroborate the idea of a fixed and
definite location for everything. The rapid typing speeds attained by the touch system
are based partially on this fact since key locations are fixed. Conceptually, it is the
difference between finding something in a carefully Indexed and maintained file or in
a stack of papers.
Positioning through setting of dials, cranks and hand wheels:
Movements to position dials, knobs, cranks, handwheels are common means by
which the human operator controls processes and machines. Several studies have
been made to determine facts that optimize the design of such devices. For e.g. when
knob settings must be accomplished without visual control, the average errors and
variability of settings are minimised at the 12 'o' clock position of the dial.
A set of experiments have been performed to determine optimal sizes of cranks and
hand wheels under various conditions of friction torque, position and height. These
types of handwheels and cranks are common devices used to move the carriages and
cutting tools to desired settings.
Coding controls: In complex operations where a number of controls are used,
coding" by colour, size .shape or location helps to distinguish between them so that
mistakes are minimised. It was found that round knobs could be distinguish from
each other. The location of controls can be used to distinguish them from each other.
For example the clutch brake and accelerator pedals of automobile used with out
looking to see where they are.
It has been also investigated knob shapes that could be distinguished solely by touch.
He classified designs into 3 groups: Multiple rotational knobs, Fractional rotational
knobs and detent positioning, that Is where knob position is critical as a television
channel selected dial where each position 'clicks' in to place.
Work area limits : Many tasks such as assembly work the operation of many types
of machines, and much clerical work are performed by worker is seated or standing
at a bench, table or desk. Movements beyond the work area require the trunk of the
body to be moved. For repetitive operations these trunk movements are fatiguing.
Similar measurements have been made in vertical plane; guides for location of the
materials, supplies tools and controls are available in 3-dimensions.
Chair and table heights : Since there is so much manual and clerical activity, the
height of chairs and tables is Important. The two are closely related. Table height is
commonly specified In relation to elbow, so that adjustments In either chair or table
height from the floor can be made to give greatest comforts to Individual worker.
Actual table and chair heights then depend on whether the setup is designed for
sitting - standing or sitting only.
11.13 THE WORKING ENVIRONMENT
The working environment which includes such factors as temperatures humidity,
light and noise can produce marked effect on productivity, errors, quality levels, and
employee acceptance, as well as physiological well- being. Therefore we cannot
measure the effectiveness of the Job design without knowledge of the working
environment in which it will be placed. It Is a part of total picture.
11.14 TEMPERATURE, HUMIDITY AND AIR FLOW
We have all experienced that our feeling of comfort Is not determined solely by
thermometer reading. If there is a breeze we feel cooler, even though the temp is
same. On a stifling day we have heard of the comment It isnt the heat, it's the
humidity." The sensation of warmth or cold is affected by each of these factors, which
have been combined into a single psychological scale called effective temperature.
Effective temperature is the temperature of still, saturated air, which gives the
identical sensation of warmth or cold as the various combinations of air temperature
humidity and air movement would.
The human body has automatic heat regulating system that allows compensation for
the environment over a certain effective temperature range. This compensation also,
of course, depend on the activity level. Thus, a higher activity level can produce body
comfort at lower temperature.
Control of thermal atmosphere: A scientist experimented with protective
clothing for workers who must operate In very hot atmospheres such as near
industrial furnaces.
He found that simple protective clothing actually increased the heat stress. However,
a ventilated suit, through which a continuous air flow was maintained, reduced the
heat stress considerably.
Control for workers adjacent to hot areas such as furnaces, where heat radiation Is
main problem, can be accomplished by shielding and by isolating the hot spot.
General thermal control is accomplished through air-conditioning but is not
universally done.
11.15 NOISE
Unwanted sound is commonly called as Noise. There is growing evidence that it can
produce damaging effects, especially when workers are exposed to it over a period of
years.
Noise effects on work performance: Industry of course has been interested In
the possible direct effects that high noise levels may have on performance measures
such as output, errors and quality levels. In a number of studies on this subject, the
general result was that if the injection of noise in the environment had any bad
effects, they were temporary. We should note that good experimental design is
difficult in such situations because the experiments usually must go on over a period
of time; It is difficult to know whether the results are attributable to noise effects or
due to other changes which may have taken place during the same time interval. The
one sure reaction is that higher noise levels are annoying, but human beings seem
able to adapt to them.
Noise Control: Noise control can be accomplished in many ways depending on the
nature of the problem. Acoustical engineers often control it in the source, by
redesigning the noise producing parts by using vibration isolation mounting of
equipment, or some times isolating the source of noise through the construction of
proper enclosures so that the amount of noise transmitted beyond the enclosures is
reduced. In the, later method, a knowledge of physics of sound transmission is
Important. The wrong enclosure design might transmit the noise with little or no loss
or might even amplify it.
Other forms of control are baffles, sound absorbers, and acoustical wall materials.
Sound absorbers can be installed near or above noise sources to help reduce noise
levels. Acoustical wall materials can be used to reduce noise levels within a room by
reducing reverberation, the reflection of sound waves back and forth in the room. Of
course these wall materials have no effect on the original sound waves emanating
from the source.
11.16 LIGHT
The conditions for seeing are important aspects of the working environment.
However no universally accepted standard for lighting is available, although there
are recommended levels from many sources. Part of the difficulty lies in the fact that
various criteria have been used, such as visual acuity, blink rate, preference rating,
and critical illumination levels. From a business and industrial view point critical
illumination level makes the most sense, since they are essentially performance types
of criteria. The critical level for a given task is that level beyond which there is
practically no increase in performance for increases in illumination intensity. Thus
increase in intensity beyond these levels are assumed to be of no value.
Illumination effect on work performance: There have been many laboratory
studies of the effect of illumination level on some measure of performance of a task.
In general there is a rapid improvement in performance as illumination levels
increase to critical level, at which point performance measures level off and further
increases in illumination produce little or no improvement in performance.
In many actual work situations where illumination levels have been increased,
records of output and quality before and after the changes have' indicated substantial
improvements. Some studies report that output went up to 4 to 35 %. We should be
aware of this type of support data. However, in the complex set of conditions existing
in a business or industrial environment, variables other than Just the illumination
level could very well have changed .such as work methods, product design, control
procedures. supervision, the weather, and the psychological climate. For example, in
the famous Hawthorne studies, at the haw throne works, western electric company,
lighting values were increased for an experimental work group and the performance
went up. Some one thought to check on the result by lowering intensities. The
employees cooperated again by lowering performance. But performance increased
again when employees were told that the light intensity had been increased when
actually it had been lowered, and then the smiles drained. It was finally realized that
the employees were reacting to the psychological situation. They were experimental
subjects, set aside from "ordinary" employees, and unconsciously were simply being
very cooperative for those "nice experiments". When the situations were understood,
the direction of the study changed to an evaluation of factors
Glare can reduce the effectiveness of the illumination provided; glare is produced by
some bright spot in the visual field, such as bright light or reflected light from a
polished surface, and can cause discomfort as well as reduce visual effectiveness.
Based on the experimental results, the effect of glare become acute when the sources
are close to the line of sight
Glare effects can be reduced by moving light sources where possible by diffusing light
source that cannot be moved, or by Increasing the general illumination level of the
surroundings so that the brightness contrast between the glare source and the
surrounding is reduced. Reflection surface may sometimes be moved in relation to
work places or changed so that the surfaces diffuses light
Criteria for the lighting environment: There is little doubt that it is worthwhile
to provide atleast the general critical levels of illumination. Although there is little
evidence of any changes in performance above the critical levels, these levels may be
exceeded without any known bad effects in order to allow for a margin of error. This
idea seems to represent current practical philosophies. General illumination levels
that are more than adequate are provided and the problem is forgotten. Often
missed, however, is the need for special lights for fine detailed work and elimination
of glare.
11.17 CONTAMINANTS AND HAZARDS IN THE WORKING
ENVIRONMENT
A large number of fumes, gases, liquids, and solids have proved harmful to workers.
These, together with the general mechanical hazards from machining parts, traffic
from material, transportation, falling objects, etc., from a part of the working
environment
Noxious substances: The number of industrial poisons Is tremendous.
Fortunately, however, in most situations only a few would be present and potentially
dangerous. Industrial medicine is a special field which concerns itself with the
diagnosis, treatment and control of the noxious substance. Maximum available
concentration (MAC) have been determined for most of these substances as a basis
for proper control.
Control procedures: Control procedures vary greatly because great variation of
possible contaminants and their characteristics. In general the control of emissions
of these substances in manufacturing process poses engineering problems.
Protection of workmen require exhaust system to collect dust gases and vapours in
order to maintain the concentration below maximum allowable concentration.
Personal protective gear, such as respirators and gas masks, supplement exhaust
system. Other protective clothing, such as rubber aprons, coats, gloves, boots and
goggles, is available for various jobs which involve the handling of chemicals and
where the unprotective skin may leave the employee exposed to injury. In addition,
vigilance through careful explanation of safe operating procedures and safety
programs is common.
11.18 SUMMARY
Men and machines perform similar basic functions in accompolishing work;
however, their abilities are sharply divergent in the nature of tasks each can do well.
The essence of man's great advantage lies in his flexibility, whereas, machine can
perform consistently. In general man's role in man-machine system falls in to three
main classes: as a power source and controller in manual systems, as a controller of
semi-automatic systems and as a monitor of automatic system.
11.19 KEY CONCEPTS
Man versus machine
Visual display
Auditory display
Tactual display
Working environment
1. Compare man's capabilities with those of known machines.
2. What are the various ways that visual and auditory information can be coded?
3. Summarise the general guides for dial design.
4. What sort of information is available concerning the speed and accuracy of
positioning elements?
5. What kind of control measures are available for the thermal environment?
6. How can noise be controlled?
7. What are glare effects and how can they be controlled?
1. Buffa, "Modern Production Management". 4th edition, Prentice Hall.
2. Buffa, "Modern Production/Operations Management". 7th edition, Prentice Hall.
3. McComick, E.J., "Human Factors in Engineering", McGraw Hill.
- End Of Chapter -
LESSON - 12
PRODUCTION CONTROL
12.1 Preamble
12.2 Need for production control
12.3 Objectives of production control
12.4 Functions of production control
12.5 Relationship between production control and other departments
12.6 Types of production
12.7 Distinction between intermittent and continuous production
12.8 Characteristics of intermittent production
12.9 Pros and Cons of intermittent production
12.10 Characteristics of continuous production
12.11 Pros and Cons of continuous production
12.12 Similar processes
12.13 Characteristics of similar processes
12.14 Loading
12.15 Scheduling and controlling of production
12.16 Scheduling
12.17 Scheduling procedure and techniques
12.17.1 Perpetual scheduling
12.17.2 Order scheduling
12.17.3 Loading by schedule periods
12.18 Progress control
12.19 Methods to take corrective action
12.20 Follow-up or expediting
12.21 Summary
12.22 Key concepts
12.1 PREAMBLE
Production control is the factory's nervous system. Almost all factories can perform a
tremendous variety of operations and turn out various types of products. Yet nothing
happens until it is directed to the shop what it has to do. The directions have to be
minute and specific. These directions tell it to perform Individual operations on all
kinds of component parts and to put them together into finished products.
Production control sends the necessary continuous stream of directions to all parts of
the factory.
Production control is defined as the design and use of a systematic procedure for
establishing plans and controlling all the elements of an activity. That is the main
problem in production control are involved with
i. designing a sound and systematic procedure
ii. properly using the system that has been designed
The production control includes
i. a complete plan
ii. a follow-up procedure for determining how closely the plan is followed
iii. a means of regulating execution to meet the plan's requirements
12.2 NEED FOR PRODUCTION CONTROL
Products are manufactured by the transformation of raw materials into finished
goods. This is how production is achieved. Planning looks ahead anticipates possible
difficulties and decides in advance as to how the production is carried out. Control
phase makes sure that the programmed production is constantly maintained.
Production control is an on-going activity designed to strike a balance between
several conflicting objectives. To focus on any one single objective will lead to a
suboptimal situation. For example if inventory cost is minimized customer service
will probably suffer. Costs will be higher than if optimal balance of all factors is
attained.
Holding down inventory is one goal. That is ideally try to finish making product just
in time to be sold but no sooner. But some inventories have to be carried out the
factory operate economically. If the volume is big products can be made continuously
at a steady rate and hold inventory. It takes time to make products and this fact also
is to be considered while achieving minimum cost. Both continuous and lot
production decide ahead how much to produce and when. If it is guessed what
customers will buy and when, running out of some products and having too many of
others happen. To complicate matters customers may change their minds. They may
want more products than they first ordered or they want fewer. They want their
orders sooner or they want them latter. They want to change the design of their
product.
12.3 OBJECTIVES AND BENEFITS OF PRODUCTION CONTROL
Sound production control may result in many tangible and intangible benefits if
properly installed and operated. In order to obtain these benefits, it is- essential that
adequate auditing of the system be made continuously. Following are some of the
objectives and results of a sound production control system.
i. Efforts can be directed into those production areas that will contribute most
towards accomplishing a given objective.
ii. Programs can be closely followed to the wants and needs of the company.
iii. Manufacturing cycles are shortened which in turn reduces in-process
Inventory costs and provides better customer service.
iv. Work must be performed according to the preplanned schedules.
v. Supervisors are forced to take corrective action when it is necessary.
vi. Information is provided quickly to customers concerning the status of their
orders.
vii. Over-all expenses are reduced because of systematizing and reducing the
amount of paper work Involved.
viii. Production is maximised by making greater use of facilities, equipment and
manpower through sound, scheduling and loading.
ix. Necessary information can be provided for determining where and when
preventive or corrective action is necessary.
x. A yardstick is provided by which management can measure both the progress
and the effectiveness of the activities in which the company engages.
xi. Administration of the activity is put on a factual basis rather than one of
experienced guesswork.
xii. Reports are more timely, adequate and accurate.
xiii. Continuous evaluation of the effectiveness of the planning and control system
and of other function is made possible.
xiv. Graphical or visual presentation of data is facilitated.
xv. Time becomes available to work out details that would otherwise be left to
improvisation.
xvi. Time phasing of all elements of the activity becomes a necessity.
xvii. More flexibility is obtained to accommodate necessary changes that occur in
schedules or orders.
12.4 Functions of productions Control
The functions of production control may be divided into three main categories or
phases.
1. The planning phase
2. The action phase
3. The follow-up or control phase
Planning Phase
1. Prior Planning
2. Action Planning
Planning is a course of action established in advance. Prior planning is an activity in
advance of normal planning stages not generally considered to be the part of the
production control department. Action control consists of material control, tool
control loading and scheduling.
Forecasting
Forecasting is an estimation of future activities. It is a basis for projection of work
load In future. It Includes long range and short range objectives and provides the
basis for establishing future requirements for men, materials, machines, time and
money. It is subjected to possible wide variations in accuracy.
Order writing
Order writing is to control the work. lt must begin with a specified document
authorizing it. It is the preparation of work authorization. Documents may be a
manufacturing order, customer order, etc.
Product design
Product design is the preparation of specifications. After the work authorization has
been prepared, next step is to collect all information necessary to describe the work
to be done. This will include blue print, drawings, etc. This activity would come
under the product engineering department.
Process planning routing,
Process planning is the preparation of work detail plan. The function of preparation
work detail plan consists of two parts
(i) determination of most economical methods of performing an activity - process
planning
(ii) determination of where the work is to be done routing
For process planning it is necessary to have following Information.
(i) volume of work to be done
(ii) quality of work required
(iii) equipment, tools and facilities available to do the work
(iv) personnel available to do the work
(v) schedule to show when the equipment, tools and personnel will become available
Routing is normally dependent on the plant or activity workload.
Materials control
Materials control is the determination of material requirements and control of
materials. Materials or inventory control is vital to an activity because of the
necessity to assure sufficient raw materials to satisfy production needs and finished
products to satisfy customer needs. For these reasons it is desirable to maintain
optimum Inventory levels at all times.
Tool control
Tool control is the determination of tool requirement and tool control. Tool control
may be subdivided into two categories
i. design and procurement of new tools
ii. control, storage and maintenance of tools after procurement
Loading or routing
Loading is the determination and control of equipment and manpower requirements.
In most activities loading function is combined with routing and scheduling. It is
very difficult to distinguish or to separate these functions. Usually these functions are
considered simultaneously. Loading may be defined as assignment of work to a
facility. Facility can be equipment, manpower or both.
Scheduling
Scheduling is the determination of when work is to be done. Scheduling consists of
time phasing of work load. That is setting both the starting and ending time for the
work to be done. Many different techniques are used in scheduling. The common
practice is that routing, loading and scheduling are performed simultaneously.
Action phase
Only one function exists in the action phase.
Dispatching
Dispatching is starting the work. It is a transition from planning phase to action
phase. It consists of actual release of detailed work authorization to work center. It is
commonly performed by an individual called dispatcher. In the formal production
control function, dispatching is commonly performed by an individual called
dispatcher. In the informal system, dispatching may be done by the foreman or
supervisor or may even be done verbally. Every job that goes to department goes
through the dispatcher. Dispatching is the first step in the line of communication
from the work center to production function.
Follow up or control phase
Once the work is started it is to be evaluated continuously regarding progress in
terms of plan. Any deviation can be detected and corrected quickly.
Follow up phase consists of two parts
i. progress reporting
ii. corrective action
Progress reporting or activating
It is primarily a matter of communication. Timely, adequate and accurate
information about the performance of an activity is furnished by this function. Data
is collected regarding what has actually happened in the activity. Data is gathered
and communicated to the management. In the formal activity, dispatcher is the
originating point of communication. When there is no dispatcher, foreman or
supervisor is the originating point of communication. After collecting data, it is
necessary to interpret it by comparing the actual performance against the plan.
System must be designed in such a way that they must almost automatically evaluate
the situation for management. Management should not be required to interpret the
raw data in order to come up with the evaluation.
Corrective action
The whole process of production control would be defeated if corrective action was
called but not taken. Corrective action may consist of one or both of the two courses
of action that is, expediting and replanning.
Expediting
In this function current work corrections are made. If the data from the production
unit initiates that there is a significant deviation from the plan then some action
must be taken to get back on plan (if plan cannot be changed). Progress report
should indicate the reasons for the deviation in the formal system. The function of
following up to eliminate the cause of deviating from plan is performed by expediting
group. In the informal system, the function is usually performed by the person
directly in charge of the activity such as foreman or supervisor. Obviously, no
production control system is perfect, and therefore some expediting will always be
required. However it should be minimized by continuously improving the production
control system.
Replanning
Replanning is making plan corrections. It should be emphasized that a plan is not
made to be changed, but to be followed. However, if after expediting to correct
deviations, it is found that it is impossible to perform according to the plan, it would
be foolish to attempt to continue with original plan. It may also be found that there
were errors made while developing the plan. It may also be found that there were
errors made while developing the plan. In these cases changes in the plans are
necessary. The changes in the original plan should never be made just because of
deviations. Careful analysis is always required.
12.5 RELATIONSHIP BETWEEN PRODUCTION CONTROL AND OTHER
DEPARTMENTS
There are many important relationships which exist between production control and
other elements of the organization.
The most important of these are:
(i) sales department
(ii) purchasing department
(iii) traffic department
(iv) materials handling function
(v) plant engineering and maintenance
(vi) new product development
(vii) industrial engineering
Without the coordination of production control with these groups, it would be
impossible for production control to operate effectively. It is vital that the designer of
the production control system understands what the relationship is and assures that
there is a proper co-ordination and communication between production control and
the various co-ordinating functions. Production control men first do their own work
(preparing direction) and second get other departments to do their work (carrying
out direction). Where one department has to issue directions covering the work or
other departments, trouble sometime arises. Minor frictions and frustrations are
common.
12.6 TYPES OF PRODUCTION
To understand the job of controlling production, it is needed to look into the various
manufacturing situations being controlled. There are so many differences in products
and in methods how they are made. It is not possible to analyze the manufacturing
situations of all the products individually. So classes or .groups of manufacturing
situations are considered. Most manufacturing situations fall reasonably well into
three groups
(i) companies in job lot work - intermittent production (ii) mass production
companies - continuous production
(iii) similar processes - batch production
The first group makes a wide variety of products, each in limited quantities. The
second group makes big volumes of a limited variety of products. In the third group
the quantities to be made are in lots or batches.
A survey was carried out by the American Management Association to find out how
prevalent each kind of operation is. Survey was-conducted with a large number of
manufacturing companies about what kind of operations they carried on.
20% said job lot work and rarely made a second order
13% said job lot work and usually no reorder
46% said job lot work and many products made again and again
13% said mass production basis
8% said processed materials In batches
It can be considered that the last two together as being In highly repetitive
production then 34 of factories surveyed were In Job let work and 14 were In mass
production.
12.7 DISTINCTION BETWEEN INTERMITTENT AND CONTINUOUS
PRODUCTION
Intermittent and continuous production differs in the length of time during which
equipment setups can be used without change. If you use a machinery setup for only
a short time and then change it to make a different product, you are In Intermittent
production. Perhaps you are able to use the machine setup for only a few or a few
hours before the required quantity is produced. If you setup equipment and use it
without change for months, we call that continuous production.
12.8 CHARACTERISTICS OF INTERMITTENT PRODUCTION
(i) Most products are made in small quantities. Parts and assemblies are made in
lots, usually small lots.
(ii) Similar equipment is grouped. Similar kinds of machines or machines performing
the some work are located together in single work areas or departments. A
department is a place that does a certain kind of work not a place where a certain
product is made. This arrangement is called "process controlled layout".
(iii) Workloads are unbalanced. Departmental workloads are usually unbalanced. It
may be found that some departments working overtime while others are on short
hours. Or within a department you may find some machines working overtime while
others are on short hours or are idle. This is not because anyone wants it that way. It
happens because the machines you own reflect usual need, but day-to-day & week-
to-week variations In the product mix result in different demands for specific
machines. Which machines are idle and which are overloaded depends on the
variations in the product mix.
(iv) General purpose machines are used. The term 'general' is relative because all
general purpose machines are to some extent specialized machines. You can't use a
band saw to drill holes and you don't use a drill press to polish flat surface or to apply
paint. We call a drill press a general purpose machine because by changing drill bits,
It can be used to drill holes of various diameters and depths. Important point is that
you can use it for different jobs. You have to drill each hole separately & you can drill
big or little holes, shallow or deep & can be drilled wherever it is needed.
(v) Machine operators are highly skilled because of short runs which usually happen
with general purpose machines. Often setting up of machines for new jobs happens.
Setup man has to select the proper tools and fasten them on the machine in exactly
the right way. He must figure out & install holding and fastening arrangements for
the product. Finally the operator has to put the products onto machines and do the
operation both setting up and operating take skill and experience. Foreman need to
be skilled operators because you expect them to be able to step in and show their best
workers how to do difficult jobs.
(vi) Numerous job instructions are necessary. Specific Instructions usually in writing,
telling them what to do on every new job have to be given to machine operators,
truckers and others. You have to tell them what materials to use, what quantities to
process, what operations to perform and when and where to perform them. You have
to tell them how good the products have to be in order to pass inspection. Such
Instructions have to be given over and over again for every lot of materials. All this
makes for much clerical work.
(vii) Raw materials Inventories are high. Use of any particular raw material is
somewhat irregular. A relatively large stock of standard raw materials have to be kept
in hand.
(viii) In process inventories are high. Almost always you finish one operation on
every item in a lot of products before you start the next operation. The first item
finished lie around until all the rest are done. Then completed lot waits for trucker.
When he delivers the order to next machine, he parks the lot nearby because that
machine may be busy. There it waits until the machine is free. Other orders may
already be waiting & so the newly arrived order may have to be stored for days before
its turn comes. Other delays caused by shortage of tools. Inspection delays, etc. slow
things still more. Job lot work means materials move through production line slowly
and you always have big inventories in process.
(viii) Materials move by truck. Conveyers are rarely found in Job shop. Materials
follow a great variety of paths through these plants. Power driven or hand trucks are
used to move materials. Trucking is a highly flexible method of transportation and is
well suited to move things through diverse paths.
(ix) Wide aisles, ample storage and numerous elevators are needed when materials
are moved by trucks. Enough aisle space is needed for two-way traffic and for
maneuvering space so that loads can be put down or picked up at machines.
Temporary storage space is needed next to machines so that workers can unload
materials directly from truck and back again afterwards. Large permanent storage
areas should be available in order to store jobs between operations. Elevators used to
move items to other floors. It should be large enough to carry trucks & there should
be enough of them so that trucks don't have to wait long. Wide aisles sample storage
space, though needed, are not always found because space is often scarce but if you
don't have them, you will waste a lot of time & money in moving things around in
crowded areas.
12.9 PROS AND CONS OF INTERMITTENT PRODUCTION
The best thing about intermittent production is its flexibility. It is well adapted to
producing numerous orders for small quantities of a wide variety of products.
Flexibility will be there in the plant layout, types of machines used, transportation
system, skills of workers & procedures used to direct their work. One machine
breaking down is not usually serious. Work planned for that machine can be shifted
to other similar machines. Orders requiring that machine can't be shifted. Only the
orders requiring it are held up. Orders using other machines are not delayed.
Intermittent production also allows to push emergency rush orders through ahead of
regular orders. Flexibility of intermittent production is a kind of insurance against
heavy losses if the market demand changes unexpectedly. Most general purpose
machines cost less than special purpose machines. First investment in intermittent
manufacturing is usually lower than in continuous manufacturing. If big orders
received, some of the savings that ordinarily go with special purpose machines can be
lost. Continuous production requires high volume & nearly complete
standardization. If you don't have these two conditions, intermittent production is
the only practical method.
12.10 CHARACTERISTICS OF CONTINUOUS PRODUCTION
Continuous production factories make a limited of products in large quantities.
Plants are usually large.
(i) Large volume and small variety are essential in continuous production. The
quantity produced must be great enough to allow the same equipment setup for
months to-gether. We can say that continuous production plants are gigantic, single
purpose machines. Years ago Charles F. Keffering of General Motors said "we don't
manufacture automobiles, we publish them". Continuous manufacturing in
fabricating industries is a duplicating process. Decide on the origin.il model, set up
the equipment to make it in quantities and then run off hundreds of thousands or
millions of copies. But even large companies do not have such complete
standardization and enough market to absorb the output of a continuous production
plant for very long period. Even large companies have to change now and then or
more commonly provide for minor variations in style or design or products. A few
variations don't cause serious problems.
(ii) Production lines are used. Machines required for successive operations on the
product are placed side by side. Machines are lined up according to the sequence of
operations required on the product. This is called a 'straight line' production and
the movement of the product dictates the layout 'as product layout'.
(iii) Machine capacities are balanced in continuous production. Materials move from
operation to operation in a steady stream. The capacity of successive operations must
be balanced. If one operation takes longer than the others it will be a bottleneck if
you don't equalize their production capacities.
(iv) Special purpose machines are used. The machines are designed and build to do
one specific operation. A special purpose machine will do one operation rapidly and
almost perfectly & requires little skill on the part of the operator.
(v) Machine operators are not highly skilled and fewer operators are needed for a
given volume of output. Most machines used in continuous manufacture are almost
fully automatic. Operator is only to load and unload the machine. Continuous
manufacturing requires relatively unskilled men since special purpose machines are
fast and automatic. Only one man is needed to operate several machines.
(vi) High skill is needed behind the scenes. Although specialized machines require
little operator skill, they require a very high degree of skill on the part of the machine
designers and machinery makers. They require highly skilled maintenance men.
Some of the machinery is so complicated that maintenance men need special
training. Perhaps the training have to be given at machinery materials plant.
(vii) Few Job instructions are necessary in continuous manufacturing. Few changes
occur after the first instructions are given. Workers need almost no day-to-day
instructions but first instructions telling workers how to do their jobs are sometimes
given in great detail. Once the men learn the job no more instructions are needed.
(viii) Raw material inventories are low. Raw materials are used in steady rate and in
large quantities. This allows to setting raw material delivery schedules so that new
supplies are received and no need to carry much on hand. Some companies carry so
little raw materials that when new supplies arrive they are delivered directly to the
first operation & not to stockroom. Automatic companies sometimes work with only
one or two hours bank if their supplier is located nearby. Occasionally companies
producing continuously carry low inventories of raw materials. This occurs in
companies using rubber or grain because their source raw material is sometimes very
far away & is not wholly dependable. Besides they have to contend with seasonality.
Someone has to carry rubber and grain inventories after the harvesting season until
they are used. Also when the prices go down companies lay in big supplies. Except In
such cases continuous manufacturing companies rarely carry big inventories.
(ix) In-process inventories are low. Inventories of materials going through factory is
almost dominated in continuous manufacturing. As soon as an operation on a piece
of material is finished, the price goes right onto next operation which is performed
almost immediately. Machines performing successive operations will be close-by.
(x) Preventive maintenance and quick repair are musts because there is so little float
(material moving down the), if one machine stops all stop. As the successive
operations are tied together, a good job of preventive maintenance & of quick repair
must be done. Otherwise the line's downtime is to use preventive maintenance,
inspect, overhaul & repair machines during off-hours before anything happens. Tool
wear, in particular, needs watching. If a drill or a thread taper gets dull from wear it
will cut improperly. The result will be either nonstandard work or a broken tool.
Either is bad.
(xi) Materials move rapidly through the plant. Materials in process keep moving
except for small emergency stocks in a few places. Partly processed materials never
pile up ahead of operations. Once started the first operation, materials keep moving
& soon emerge as finished products.
(xii) Materials move by conveyer. Mechanical conveyers are the cheapest way to
move things wherever large quantities follow the same paths.
(xiii) Medium or narrow aisles, little storage space and few elevators are needed.
Utilization of floor space by machines & conveyers is nearly complete in continuous
manufacturing. Since trucks are rarely used, aisles can be narrower than they are in
intermittent manufacturing. Elevators are scarce because conveyers take things up &
down.
12.11 PROS AND CONS OF CONTINUOUS PRODUCTION
The best thing about continuous production is its low unit cost when you have large
volume & nearby complete standardization. Special purpose machines speed up the
job& cut labor costs. Output is more and cuts down operators time. No waste of
man's time going after materials and for materials handling. No machine setup
frequently. There is a big savings in labor cost. There will be saving from the higher
output per worker and not from lower hourly pay rates. Bad features of continuous
production are vulnerability to work stoppages, rigidity of output rate, product
changing difficulties and investment commitment.
12.12 SIMILAR PROCESSES
In this method of operation, the work being performed is similar nature from order
to order, but not identical.
12.13 CHARACTERISTIC OF SIMILAR PROCESSES
The characteristics which distinguish the similar process are as follows:
1. The product or end result of the work is highly standardized.
2. The order or work quantity is usually very large.
3. The type of equipment required, if any, is usually highly specialized.
4. Equipment is laid out by the type of end product.
5. The materials handling equipment may be both mobile and permanent
installation conveyer.
6. The end-product inventory is relatively low.
7. The required worker skills are relatively low because of the repetitiveness of
the work.
8. It is relatively easy to supervise the workers.
9. Relatively few job instructions are required because of the similarity of the
work.
10. Prior-planning is essentially completed at one time and is relatively easy
compared to the prior-planning required on custom and job-order types of
process.
11. Control of the process is relatively easy because of the repetitiveness.
12. There is some degree of flexibility but not as great as in the custom and job-
order types of process.
13. The cycle time Is relatively short.
14. The balancing of the work load, is relatively difficult because the work is laid
out according to the end product of the work.
15. A relatively high equipment Investment is required in manufacturing
operations.
16. Disruptions in the flow of work usually result in a considerable amount of lost
production.
12.14 Loading or routing
Loading means assignment of work to manpower, machinery etc., without specifying
when the work is to be done. Loading results in a tabulated list or chart showing the
planned utilization of the machines or work stations in the plant as shown in
The objectives of the loading function is to maintain an up to data picture of the
available capacity in the plant.
Loading can be defined as the study of the relationship between load and capacity at
the where work is done. The information provided by loading is used.
(1) to ensure the efficient utilization of the plant and labour in a factory.
(2) to help in the setting of reliable delivery promises,
(3) and to assist in the forward planning of the purchase of new plant.
Aims of loading
(1) To check the feasibility of production programs
(2) To assist in the efficient planning of new work
(3) To assist in balancing the plant to the existing load
(4) To assist in the fixing of reliable delivery promised
A load chart as shown in fig. 12.1 shows the productive capacity that has been sold
and at the same times the available productive capacity. Load chart may be prepared
for each machine or a group of machines available in the factory. Load charts, as
such, are not too common because loading function is usually combined with
scheduling and only one see of charts is maintained that is, the schedule charts.
12.15 SCHEDULING AND CONTROL OF PRODUCTION
Once the planning to meet sales is complete and a set of decisions have been
formulated using Graphical or Linear programming methods the next step is the
implementation of the decisions through detailed plans and schedules. Schedules are
made for the use of facilities like equipment and manpower.
Scheduling and control of production focus attention on the following:
(a) Knowing the total overall production targets - how to determine the amount of
each product to be manufactured if there are products of different types and sizes?
(b) How to decide about and deploy work force and equipment to achieve the target
production rate?
(c) How to determine individual work assignments?
(d) What should be the information system to feed back quickly and accurately the
actual output duly compared with the scheduled one?
Scheduling and control of production have one stage in between them, which is
"known as dispatching. In general, first of all the order is scheduled, then it is
dispatched for necessary operation and lastly the progress of the order is tracked, to
be certain that the schedule is being met. This phase of tracking the progress of an
order and making corrections is known as control of production.
12.16 SCHEDULING
In brief, scheduling means - when and in what sequence the work will be done. It
involves deciding as to when the work will start and in a certain duration of time how
much will be finished. Scheduling deals with orders and machines, i.e., it determines
which order will be taken up on which machine and in which department by which
operator. While doing so, the aim 13 to schedule as large amount of work as the plant
facilities can conveniently handle by maintaining a free flow of material along the
production line.
Scheduling may be called as the time phase of loading. Loading means the
assignment of task or work to a facility whereas scheduling includes in addition, the
specification of time and sequence in which the order /work will be taken up.
A production schedule is similar to a railway time table and shows which machine is
doing what and when. A production schedule, is a statement of target dates for all
orders or operations in hand and reveals their starting and finishing dates.
Scheduling finalizes the planning phase of Production Planning and control system.
The following factors affect production scheduling and are considered before
establishing the scheduling plan.
(a) External Factors :
1. Customers demand
2. Customers delivery dates and
3 Stock of goods already lying with the dealers and retailers
(b) Internal factors :
1. Stock of finished goods with the firm
2. Time interval to process finished goods from raw material. In each
component, subassembly and then assembly
3. Availability of equipment and machinery: their total capacity and
specifications
4. Availability of materials, their quantity and specifications
5. Availability of manpower
6. Additional manufacturing facilities if required, and
7. Feasibility of economic production runs
12.17 Scheduling Producer and Techniques
Scheduling normally starts with the master schedule. Fig.12.2 shows the master
schedule for a foundry shop.
A master schedule resembles central office which possesses information about all
the orders in hand. Master schedule, in fig.12.2 is a weekly breakdown of the
production requirements. The total capacity in any work is of 100 hours of work in
the foundry shop.
As the orders are received, depending upon their delivery dates they are marked on
the master schedule. When the shop capacity is full for the present week the newly
acquired orders are carried over to the next week and so on. A master schedule is
thus updated continuously, it depicts a running total of the production requirements
and shows the work ahead - yet to be completed. Master schedule is actually the basis
for all subsequent scheduling techniques.
A Master Schedule possesses the following advantages, disadvantages and
applications.
Advantages:
1. It is simple and easy to understand
2. It can be kept running
3. It involves less cost to make it and maintain
4. It can be maintained by non-technical staff, and
5. A certain percentage of total weekly capacity can be allocated for rush orders
Disadvantages
1. It provides only overall picture, and
2. It does not give detailed information
Applications
It finds applications:
1. In big firms, for the purpose loading the entire plant
2. In Research and Development organizations, and
3. For the overall planning in foundries, computer centers, repair shops, etc.
After framing the overall picture of production requirements through a Master
Schedule chart, the detailed schedules are thought of and made for each component
and subassemblies so that all parts are available at the time of assembly. There are a
number of visual aids and techniques, both in the form of conventional charts and
commercially available boards, which aid in detailed scheduling. The technique to be
employed for scheduling purposes depends upon the type of production, type and
frequency of tasks, demand patterns, etc. A useful scheduling device normally
portrays planned production, actual performance and their comparison. Actually, the
Gantt chart forms the basis of commonly used scheduling techniques
Some of the techniques employed for Loading and Scheduling purposes are:
(a) Perpetual schedule
(b) Order schedule
(c) Loading by schedule period
12.17.1 Perpetual scheduling:
Like master scheduling, It is also simple and easy to understand is kept current,
involves less costs and can be maintained by clerical staff. But, the information which
it provides is very gross and at the same time it is not clear from the chart - When the
work take place.
Making of perpetual schedule involves two steps:
(i) Preperation of load analysis sheet from the orders in hand. Fig. 12.3 shows a load
analysis sheet.
(ii) The total load against each section is added up and knowing the weekly capacity
of a section, the number of weeks load against each department is calculated and
plotted on a Gantt load chart as shown in fig. 12.4
The shaded bars show the actual work load against each section. Additional
information, if any can be indicated by dotted line.
12.17.2 Order scheduling:
It is a most elaborate technique. Fig. 12.5 shows an order schedule chart. Time is
marked horizontally and the vertical axis shows the particular facility. The
inofrmation required to generate an order schedule is regarding the number of parts
to be manufactured, name of the machines, their set up times, total production time
and the date of completion of the order.
The scheduling is started by planning the last operation at the date of completion and
then working backwards. For example, if order X takes 3 days to complete and it is to
be delivered to the customer on 7th of january, the work will be started on 5th
January.
Orders schedule chart has the following advantages and limitations.
Advantages:
(1) It is very detailed
(2) The earliest possible completion dates can be met
Limitations:
(1) It is very costly
(2) It requires time standards and good communication system.
(3) It is difficult to maintain effectively if there are many active orders.
12.17.3 Loading by Schedule period:
The task is broken into different operations which will be required to turn raw
materials into finished product. A gantt type of chart as shown in fig. 12.6, is
employed for scheduling purposes. The rows, mark difficult facilities and each
column denoted a time period. There are as many time periods as the number of
operations. The first operation is carried out in the time period-1, second operation
in the time period-2 and so on. It is however not specified that within the time period
when the operator will start and finish; but the operation is very much supposed to
be completed during that particular time period. The shop supervisor does the
detailed scheduling within the framework of the specified time period.
The shaded bars show the work ahead of each facility.
This type of scheduling involves a longer in process time because only one operation
is to be performed in one time period. However, this makes it more flexible as an
operation can be taken up at the most convenient time within the specific time
period.
12.18 PROGRESS CONTROL OR ACTIVATING
Once the actual production has started, it becomes essential to keep an eye at the
progress of the work so that, if required, timely corrective action can be taken.
Progress control means trying to achieve the standards set, i.e., a certain level of
efficiency or a certain volume of production in a specified duration. The system of
progress control should be such that it furnishes timely, adequate and accurate
information about the progress made, delays and under or over loading.
Steps Involved in progress control
(a) Setting up a system to watch and record the progress of the operating facility.
(b) Making a report of the work progress or work accomplishment
(c) Transmission of report to:
1. Control group for necessary control action, and
2. Accounting group for recording material and labour expenditures.
(d) Interpretation of the information contained in the progress report by the control
group.
(e) Taking corrective action, if necessary.
The above mentioned five steps have been briefly discussed as under:
System to Record the work Accomplishment: (or) Monitering
Progress charts are normally employed for this purpose. They compare the work
progress against a prescribed target, and point out the failure to achieve the same;
thus progress charts draw attention for an action or investigation.
The charts construction may have the following four forms:
1. The Bar chart
2. The Curve chart
3. The Gantt chart
The Bar chart:
It consists of a number of bars. Each bar has its length proportional to the activity
duration. A bar chart is generally used to point out and analyze interrelated data
which otherwise is difficult to read. Such a chart is shown in fig. 12.7.
The Curve chart:
It is a graph between two variables marked along X and Y axis. As the day pass, the
number of items being produced are marked over the graph. When all such points
are joined, they indicate the production trend. A curve chart is shown in fig. 12.8.
Both the bar and curve charts show the past data. They are not readily adaptable to
current of future action.
The Gantt Chart:
It was developed by Henry L.Gantt. It is frequently used to keep track of the multiple
machine schedules. Gantt chart is actually a modified bar chart, where in load is
marked against a time scale whith one horizontal bar or line allocated to each
machine. A Gantt chart displays the folowing:
(1) Plans for future
(2) Progress on present operations
(3) Past achievements till date
(4) Replatioship among several variables
(5) It focuses attention on situations threatening delays
(6) It tells whether a plan has fallen short and if the delivery dates can be met, and
(7) A cursor attached to Gantt chart can be moved across the chart to know the work
progress till any particular day.
Two basic types of Gantt chart are used extensively for production control.
Order Control Chart:
Time is marked along the horizontal axis and orders in hand are listed along the
vertical axis as shown in fig. 12.9. The amount of work planned or scheduled is
shown by the firm line and the machine on
which the order will be processes is marked on the line. The actual progress of
various orders is shown dotted. Cursor placed at today's date indicates that order A-
372 is going as per schedule. Work on order B-260n. started one week before the
schedule date and it is about 70% complete which otherwise would have been only
50% as per the plan. Thus order B-260 is ahead of the schedule. Order c-300 which
started on the schedule date , due to reasons, has got delayed ny one week.
Machine Load chart:
Time is marked along the horizontal axis and various machines are listed along the
vertical axis as shown in fig. 12.10. The amount of work planned and the actual
progress made have been shown by firm and dotted lines respectively. Orders by
their numbers have been marked on
the horizontal firm lines. Cursor set at today's date shows that machine 3 is working
as per schedule. Machine 2 started work on order B-260 before the scheduled date
and the progress is very good. Machine 1 which completed the order A-372 In time,
for some reasons could not take up the order C-390.
From the above Gantt charts the progress of various orders and machine loading can
be seen at a glance. Order C-390 has fallen behind the schedule and needs
expediting. Machine-1 is loaded up to the middle of February, however machine-2 is
available for the third week of February, whereas Machine-3 can be booked only after
the middle of March.
Making a Report of work accomplishment:
1. The progress report should contain the following information in order to evaluate
actual performance against the anticipated plan and to take corrective action, it any:
(i) Job Identification. It includes order number and operation number.
(ii) Time of report, and
(iii) Work completed
2. A progress report should contain absolute minimum of Information.
3. Progress Reporting Time. Progress can be reported:
(i) at fixed intervals of time, I.e., weekly, monthly, or yearly depending upon
the project duration;
(ii) after the work has been completed, or after each stage of the work Is
completed; it depends upon the size of the work;
(iii) by using the principle of 'Management by Exception'; According to which,
one reports only those things and at that time when they require an action'by the
planning group. It is assumed that unreported events are going as per the schedule.
Transmission of Report: The progress report may be transmitted by employing
any one of the following systems:
i. Written system (pre-written papers),
ii. Oral system (telephone, radio, etc.), and
iii. Electronic system (telautograph, teletype equipment, etc.)
Written system:
Advantages:
(1) It provides a record for future reference.
(2) The chances of misinterpreting the report are minimized, and
(3) good amount of necessary Information can be supplied.
Disadvantages:
(1) There are chances of papers being misplaced in transit'
(2) Generally, it takes more time for the report to reach the other end;
(3) File keeping is necessary; and
(4) There is a tendency to send large amount of Information.
Oral system:
Advantages
(1) Progress can be reported in no time
(2) Doubts, if any, can be clarified instantly, and
(3) File work is very much minimized
Disadvantages
(1) There is no detailed record for future reference
(2) There are more chances of misinterpreting the report, and in addition
(3) Only brief Information can be sent
Electronic System:
Advantages
(1) It possesses all the advantages of the written system and
(2) Progress can be reported much faster
Disadvantages
(1) Equipments required are costly, and
(2) Trained operators are needed
Based upon the above systems the commonly used techniques for sending progress
reports are:
Pre-written or Pre typed papers.
These are sent through messengers from one department to another.
Pre-written papers using pneumatic tube equipment.
Papers are put inside a capsule, which is then placed inside a tube, running from one
department to another. The capsule is shot by air to its destination.
Teletype Equipment.
It has a key board similar to a typewriter. Pressing different keys gives rise to electric
signals which are transmitted to receiving stations where the message is recorded.
Telephone and Intercommunication Equipment
Radio and Loudspeaker.
They are especially useful for outdoor applications to control the movements of
materials handling equipments and earth moving machinery.
Closed circuit T.V.
It is employed for keeping an eye over the processes emitting harmful radiations.
Corrective Action:
Factors creating the need for corrective action are,
External Factors: These factors are beyond the control of the organisation; for
example:
1. Change In the priority of orders due to the arrival of some new orders or due to
the cancellation of a few previous orders:
2. Delay In receiving equipments, tools, or raw material. This may be due to strike
or theft at the vendor's end or due to the reasons that the raw material which arrived
earlier was substandard and hence, was returned for replacement;
3. Unexpected rush orders.
Internal Factors: These factors results from within the organisation; for example:
1. Labour turnover or mass absenteeism,
2. Lack of necessary Instructions and materials,
3. Late staring of the work, tea breaks, etc.
12.19 METHODS TO TAKE CORRECTIVE ACTION
Schedule Flexibility: It means keeping the schedule flexible to accommodate
unexpected events. Planning is done only for a percentage of the total working time
and the remaining time is kept free to take care of the unexpected jobs. The
percentage of time kept free for rush order, etc., is decided from the past experience.
Capacity Modification: The following three methods can be employed for
modifying the capacity of an organisation:
(a) Changing the number of working hours, either by employing more workers or
by using over-time with the same number of workers
(b) Changing the amount of work within the plant by appropriate MakeBuy
decisions or by subcontracting the work to others.
Schedule Modification: If the situation is otherwise non-manageable even after
adopting the above mentioned measures, the previously established plan can be
modified to suit the new set of conditions.
12.20 FOLLOW-UP OR EXPEDITING
The manufacturing activity of a factory is said to be in control when the actual
performance is as per the planned performance. Follow up or expediting regulates
the progress of materials and the components through the production process.
Follow up serves as a catalytic agent to fuse the various separate and unrelated
production activities into the unified whole that means progress. Follow up is
concerned with the reporting of production date and the investigating of any
deviation from the predetermined production schedules. Follow up ensures that the
promise is backed up by performance.
The work within the organisation can be expedited by the following two principles:
i. The exception principle and
ii. The fathering principle
In exception principle, the scheduling group, explores the jobs behind the schedule.
The expediting group takes up such jobs, procures necessary materials, tools, etc..
i.e., solves all problems related to these jobs and intimates the scheduling group to
reschedule them.
According to fathering principle each expediter is made responsible for a job or a
group of jobs for which he arranges the tools, materials, equipment, etc. Such a
system works very well for controlling large projects.
12.21 SUMMARY
Production control is essentially a systematic procedure. Effective production control
is depending upon a soundly designed system and proper evaluation and auditing of
its use after proper installation. Production control consists of three phases, the
planning phase, the action phase and the follow-up phase. Type of process is one of
the most important factors in determining the type of production control system.
Loading and scheduling is one of the most important phases of any production
control system. It is a technique by which the overall coordination of various
functions and facilities is accomplished. It is also essential that the difficulties
Involved in progress reporting be thoroughly understood.
12.22 KEY CONCEPTS
Forecasting
Order writing
Product Resign
Loading
Scheduling
Progress reporting
1. Describe the functions of production control.
2. Discuss the characteristics of intermittent type of production.
3. What is continuous production? Explain its characteristics.
4. Indicate the principle limitations of master scheduling. Under what type of
situation it would be used?
5. Explain the perpetual loading method.
6. Discuss the reasons why progress reporting is so important to production
control.
7. Explain the method of progress reporting.
1. Buffa, "Modern production Management", 4th edition, John Wiley
2. Eilon, Samuel, "Elements of Production Planning and Control"
3. Schele, Westerman and Wimmert, "Principles and -design of Production Control
Systems", Prentice Hall.
4. Moore, F.G., "Production Control", Prentice Hall.
- End Of Chapter -
LESSON - 13
INVENTORY CONTROL
13.1 Preamble
13.2 Definition of inventory
13.3 Inventory functions
13.4 Inventory decision
13.5 Inventory costs
13.6 Minimum cost inventory
13.7 The basic fixed order quantity model
13.8 Sensitivity to changes in variable values
13.9 Fixed order quantity with non-instantaneous delivery model
13.10 Safety stock
13.11 ABC classifications
13.12 ABC analysis procedure
13.13 Summary
13.14 Key concepts
13.1 PREAMBLE
Inventory control has a significant impact on an organisation, both operationally and
financially. Inventory should be kept high enough to hedge against shortage and to
provide product line flexibility, but low enough to minimize the capital investment in
inventory.
High inventory levels represents high capital costs, high operating costs and
increased congestion in the processing area. Too low an inventory level might lead to
shortages and require tight scheduling.
One-fifth of the Indian gross national product is tied up in inventories. Obviously
operations managers should be aware of the potential savings and penalties involved
in keeping inventory.
13.2 DEFINITION OF INVENTORY
Inventory consists of stores of goods and other stocks. Alternatively, inventory is a
quantity of goods and other stocks held for a specific time period in an unproductive
state, awaiting intended use or sale.
Manufacturing organizations carry inventory in the form of stock items, such as:
1. Raw materials
2. Work-in-process
3. Finished but undelivered products
4. Supplies (spare parts, lubricants, etc.).
Inventory of finished services in labor-intensive services, such as restaurants or
branch operation In a bank, Is mostly nonexistent The service is consumed as it is
produced and is not kept as inventory. For example, a lecture at a university being
delivered by a professor cannot be stocked. A lecture is consumed as it is delivered
(unless it is stored on a video cassette).
In service-oriented organizations that are not labor-intensive, such as mass
transportation organizations, finished stock inventories are present. Blood banks
keep inventories of blood types, and the news media hold news pieces for timely
release.
Inventory control is the technique of maintaining stock items at predetermined,
desired levels. Inventory management is concerned with determining polices that set
the goals for the Inventory control system.
13.3 INVENTORY FUNCTIONS
The major reason for holding Inventory is the impossibility of exactly matching
supply and demand in terms of time and quality. Inventory has a number of
functions:
Hedge against future increases in costs and prices: An anticipated Increase
in labor costs causes stocking of finished goods. An anticipated Increase in selling
price calls for a delay in disposing of stock on hand.
Hedge against stockouts: Since demand and supply do not match and are at
times unpredictable, unsatisfied orders and expediting efforts become expensive.
Buffer stocks are kept to hedge against stockouts, and are determined carefully.
Decoupling of operations: Inventories break operations apart, so that one
operation's demand Is independent of another's supply. In this way, local material
shortages or maintenance downtime do not carry throughout stages.
Leveling of production: During slack periods, inventories are built up. During
high-demand periods, inventories are depleted. This is done while the production
rate is kept at a constant level.
Ordering of economy: Basically, there Is a trade-off between numerous low-
quantity orders that present a high reordering cost and a few large orders that
present a high carrying cost. The optimum-size order is a result of this trade-off and
generally calls for some inventory. Besides, larger orders may entitle the buyer to a
volume discount.
Control system economy: A larger inventory facilitates less control effort. Fewer
review actions to determine whether reordering is necessary are required if a larger
inventory is kept. Frequent review action of this kind are costly.
Reducing on investment: Inventory should be carried so long as it compares
favorably with other possible capital investments available to the organization. As
inflation pushes purchasing costs and selling prices up, hoarding inventory presents
a favorable Investment.
Reducing of material-handling charges: Moving of a single completed units
from one process to another is costly. Moving of batches of completed units is less
expensive, and can be done by means of a fork-lift truck, an overhead crane, or a tray.
The batches, however, constitute an inventory that involves carrying costs.
Displaying to customers: Departmental stores, grocery stores, and car dealers
hold inventory to be able to display it to the customers and to have it on hand for
sale.
13.4 INVENTORY DECISION
"When" and "how much" are the two major decisions that the operations manager
should make. A decision must be made as to when to reorder inventory-namely, as to
the reorder point. The reorder point
is determined either in terms of the level of inventory or in terms of a calendar date.
When an order is triggered, a decision must also be made as to the order size. These
two decisions should be made while keeping in mind the organizational implications.
Economic considerations have to be given with respect to both decisions. The
economic considerations are expressed in quantitative formulas, called inventory
models. Fig. 13.1 shows a breakdown of the major Inventory models.
Depending on the specific situation involved, the operations manager tries either to
minimize inventory costs or, alternatively, to maximize profit. Whether costs or
profits are concerned, inventory models may be either of a deterministic nature, or of
a stochastic nature. There are two kinds deterministic or stochastic inventory
models. In periodic order quantity models, reordering is triggered by a certain date.
In fixed order quantity models, reordering is triggered when a certain level of
inventory is reached.
Under the periodic order quantity model, the inventory level is checked only on
certain days - for example, at the beginning of the week or beginning of the month.
An order is placed on these dates in such ' a quantity as to bring the Inventory to a
predetermined, optimal level. Under the fixed order quantity model, the inventory
level is monitored closely, and as it reaches a certain level, an order of a fixed
quantity is placed.
The fixed order quantity model behaves as described in Fig. 13.2. The level of
inventory is depleted at a certain rate until it reaches a predetermined reordering
level, R. At that point, an order is placed for a predetermined quantity, Q. Following
the appropriate lead time, the order arrives and the inventory level rises by th
ordered point.
While the fixed order quantity model requires close monitoring of inventory levels on
a frequent bases, the periodic order model does not require such monitoring. At
predetermined dates, an order is placed in the amount that brings the inventory level
to a predetermined optimal level R. This is isslustarted in Fig. 13.3.
The orders are placed at equally spaced times, T1 and T2. Fpr example, at time T1,
where the actual level of inventory is I1 and order of size (R - I1) is placed.
13.5 INVENTORY COSTS
As was stated earlier, inventory models are quantitative formulas. These formulas
consider various invenotry costs. Only those costs that vary as the inventory
decisions of "when" and "how" change should be considered. Costs that are fixed and
independent of how much or when to order are not considered in developing the
models. Operations managers should identify these costs and then minimize their
total. The costs are of five types:
(i) Item cost
(ii) Ordering cost
(iii) Costs of carrying Inventory
(iv) Stockout costs associated with shortages
(v) Fixed overhead costs
The costs vary from one product to another but their nature stays the same.
Item cost:
Item cost is the purchase cost or the value of the Item to the Inventory holder.
Whether at book value or market value, the item cost does not affect the reorder
decision if there are no quantity discounts. If there are quantity discounts, then the
Item cost has an impact on the reorder decision, because the larger the order is, the
lower is the cost per single unit purchased.
Ordering cost:
Ordering cost includes all the necessary expenses involved in placing one order. This
cost is assumed to be constant and is incurred each time an order is placed. If this
cost becomes very large, one would prefer placing a large order once or twice a year.
The ordering cost Includes clerical and paper work expenses, incoming Inspection,
bookkeeping, records updating, expediting expenses, postage, and delivery costs. The
average procurement cost can be found from accounting records by totaling the
annual costs of the above items and dividing by the number of orders placed
throughout the year.
Carrying inventory cost:
Carrying inventory costs are costs that reflect the investment in inventory and the
costs associated with maintaining it in storage. A higher inventory level may require
an expansion of warehouse, increased material-handling costs, and Increased
maintenance costs. The costs may be extracted from the accounting records. Items
that should be considered are:
(i) Capital cost
(ii) Storage costs: land and building costs and rent
(iii) Service costs: (inventory taxes, insurance, material handling)
(iv) Risk costs:Obsolescence and shrinkage (pilferage, damage, spoilage, theft)
The most significant cost among those is the capital cost. It may constitute anywhere
from 49% to 96% of
1
the total carrying costs. The capital cost Is either:
(i) The average cost of borrowing (interest) to the company
(ii) The marginal cost of borrowing to the company
(iii) The return on an alternative investment that is not realized due to the fact that
money is tied up in inventory.
The cost associated with land and building is estimated by allocating total annual
building costs on the basis of square meter to the inventoried items.
Obsolescence costs are obtained from write-offs by the plant department that deals
with waste. Plant engineering data and public assessments information are used in
the cost estimates.
Stock-out cost:
Stock-out costs are associated with shortages. These costs occur when an item is out
of stock and demand is unsatisfied. The stockout costs includes items that are
specified in Table 13.1.
TABLE 13.1 ITEMS OF CARRYING INVENTORY
-----------------------------------------------------------------------------------------
Cost of Raw Material Shortage
-----------------------------------------------------------------------------------------
Cost of Idle production
Cost of idle labour
Premium material price
Loss of purchase quantity discount
Cost of extra ordering
Cost of expedited shipment
Cost of product spoilage
--------------------------------------------------------------------------------------------
Cost of Finished Products Shortage
---------------------------------------------------------------
Cost of ill will to the seller
Loss of good will to the seller
Premium labour rate
Cost of shift premium
Subcontracting cost
Reduced quality cost
-----------------------------------------------------------------------------------
Cost of spareparts shortage
------------------------------------------------------------------------------------
Cost of idle machine
Cost of idle labour
Cost of expediting
-----------------------------------------------------------------------------------------------------------
A Shortage may occur internally or externally. An external shortage may be
detrimental to the company, as customer dissatisfaction may develop. An internal
shortage may also be detrimental to the company, since it may cause an external
shortage or may become very costly, due to idle labor and equipment.
Shortage cost estimation is difficult. Shortages are a random phenomenon; thus,
there is a need for estimation of the probability of the occurrence of shortages.
Shortage costs are partially hidden costs, or costs that are not reflected in the
accounting records.
Fixed-overhead cost:
Fixed-Overhead costs are costs that do not change as the number and size of reorders
change. These costs support the administration activities that are part of the regular
operation of the organization. They may include manual or computerized records
updating. These costs are fixed over a significant range of inventory volume.
13.6 MINIMUM COST INVENTORY
An inventory policy is a set of rules that assigns managerial actions to specific
inventory occurrences'. As has been stated earlier, one would like to try to determine
the reorder point and reorder quantity that keep the total operating costs to a
minimum. The optimum inventory policy is the one that minimizes the following
total cost equation:
Total annual Inventory cost = Item Cost = Ordering cost = Carrying inventory cost
= Stockout cost = Overhead cost
. . . (4.1)
The first four costs in above equation - 4.1 may be expressed in terms of reorder
quantity and reorder point for a specific inventory case.3
The solution for a two-variable reorder quantity and reorder point is found by three
alternative methods:
(i) .Graphical solution (ii) Trial-and-error method (iii) Use of calculus
The graphical solution, when only ordering costs and carrying costs are considered,
is straightforward. Fig. 13.4 illustrates this economic trade-off. When the reorder
quantity is very small, the average inventory carried is small, the carrying costs are
minimal.and the number of orders placed over a period is large and the carrying
costs are high. The optimal reorder quantity is the one that minimizes the sum of
both costs, and is denoted by Q*. Q* is found at the intersection of the curve
representing the carrying costs and the curve representing the ordering costs.
When more costs are considered, the graphical cost analysis cannot be applied.
However, the economic trade-off is still applicable. It is also important understand
that some inventory situations in industry have not been formally analyzed in a
manner recommended here. These situations are being dealt with by operations
managers on the basis of past experience. However, decisions made in this way are
generally not optimal.
Inventory models:
The development of inventory models consists of five straightforward steps:
(i) List assumptions concerning the inventory situation. These assumptions should
reflect the studied situation as accurately as possible
(ii) Develop a cost equation qualitatively
(iii) Develop a cost equation quantitatively
(iv) Minimize the total cost equation and reorder quantity and reorder point
13.7 THE BASIC FIXED ORDER QUANTITY MODEL (or) ECONOMIC
ORDER QUANTITY:
The basic fixed order quantity model, otherwise known as the economic order
quantity (EOQ) system, was developed more than seventy years ago in the context of
batch production. However, the formula has been rediscovered by several authors in
different contexts. Babcock in 1914, Harris in 1915, Taft in 1918. and other authors
presented extended treatments of it. The assumption are :
(i) Demand is deterministic and a constant number of units are demanded each day.
(ii) No. stock outs are allowed.
(iii) Lead time is constant and independent of demand.
(iv) All costs are assumed to be known and constant.
(v) All order are placed independently
(vi) Orders are delivered at once.
In computing the annual total cost applying this inventory model., only the costs that
affect the recorder quantity should be included. Thus, from equation, one can
exclude the annual cost of the items. Since no volume discounts are applied.
Furthermore, no stock out costs and no fixed costs are considered. Thus,
Total annual
Inventory cost = Ordering cost + Inventory carrying cost . . . (4,2)
The ordering cost is equal to the number of orders placed annually times the
procurement cost per the number of orders. Carrying cost is the average number of
units in inventory more than one a year, times the cost of carrying an Inventory unit.
Equation - 4.2 then becomes :
Total annual inventory cost = number of orders placed annually * ordering cost
*average inventory * carrying cost per unit .(4.3)
In order to express the equation : 4.3 in a more concise form, let us define symbols
that will be used in developing the various models.
D = Annual demand in units
K = Ordering cost or set up cost
H = Carrying cost per unit, expressed as a fraction of cost of an Individual item
Q = Recorder quantity
Q = Optimal recorder quantity
N = Number of orders per year
R = Recorder point
R* = Optimum reorder point
tL = Lead time
C = Cost of an individual Item
P = Delivery rate in units per unit of time
dL = Average demand per unit of time during lead time
DL = Average total demand during lead time
Tc = Total annual cost
The total annual cost of operating the fixed order quantity system uner the stated
assumption is :
TC = number of orders (K) Average (RC)
placed annually + Inventory . . . (4,4)
Let us express the total annual costs of operating the fixed order quantity model in
terms of the annual demand (D), the reorder quantity (Q), and therefore reorder
point (R). If try to keep the excess Inventory charges to a minimum with no safety
stock and assume immediate delivery.
R* = O . . . (4,5)
Whenever the Inventory level reaches zero, we shall place an order. But what should
be the optimal size Q*. of the order? To find it, we note that
N = Number of orders
placed annually = Annual demand / Reorder Quantity
= D / Q . . . (4,6)
and
Average Inventory = (Highest inventory level - Lowest inventory level) / 2
= (Recorder quantity - 0)/2 = Q/2 . . . (4,7)
The means that throughout the time that the fixed order quantity model is in effect,
the average inventory level is half of the reorder quantity. That is, so long as the lead
time is zero, safety stock is not needed and replenishment is instantaneous.
Substituting 4.6 and 4.7 into 4.4 provides us with the total annual cost :
TC = K (D/Q) + HC (Q/2) . . . (4,8)
Figure 4.4 demonstrates the basic economic trade - off. The figure shows that the
annual cost is at its minimum when the carrying costs equal the ordering costs, or
when
K (D/Q) = HC (Q/2)
The optimal reorder quantity is then
Q* = {(2 D K) / (H C)}1/2 . . . (4,9)
The optimal reorder quantity, Q* is as started in equation - 4.9. The same equation
may be found by using calculus. Equations 4.5 and 4.9 represent the operating
concept of the basic fixed order quantity model. When the Inventory level reaches
R* = 0
the operations manager should order
Q* = {(2 D K) / (HC)}1/2
The total annual cost is kept in this way to a minimum, and is equal to
TC* = {K (D/Q*)} + {H C (Q*/2)}
In many cases the variable values, such as annual demand, ordering cost, and
holding cost, are only rough estimates, and may vary. Is there a considerable impact,
then, on the operation of the system? Is the optimal order quantity affected
considerably? In other words, how is examined in the following section.
13.8 Sensitivity to changes in variable values
To analyze the sensitivity of the system to a change in costs or demand, let us
compare the optimal EOQ, Q*. From equation - 4.9, one can see that a change in any
one of the variables causes a change in EOQ that equals the square root of the change
in the variable.
13.9 Fixed Order Quantity with Noninstantaneous Delivery Model.
The fixed order quantity with nontinstantaneous delivery model is sometimes called
the economic lot size model. Sometimes, the actual delivery of units into the
purchasers warehouse occurs over a period of time. As is shown in figure 13.5, as the
level of Inventory drops to a predetermined level, R*, and order of size Q* is placed,
and delivery starts. However, as delivery continues, units are drawn from Inventory
at a rate of 1 per unit of time. If replenishment rate a exceeds the withdrawal rate d,
the inventory level rises, but not up to the level of the order or lot size in the EOQ
model.
Let us define symbols that have not appeared before :
T1 = Delivery period
T2 = Non delivery period
During T1, the units are delivered and consumed, while during T2 there is no
delivery, but only consumption. The delivery period T1 is
T1 = Fixed order size / Rate of delivery = Q/p . . . (4, 10)
Q is the order size delivered or the batch size produced. During period T1, the
Inventory is accumulated at a rate of (p-d) per unit of time, assuming that the rate of
delivery, p, is greater than the rate of consumption, d. The maximum level of
inventory is :
Imax = (p-d) T1 = (p-d) (Q/P) . . .(4,11)
The average inventory level is determined by the maximum inventory level,
Imax and the minimum inventory level, zero.
Average Inventory = (Imax -O)/2 = (p-d) Q/(2p) . . . (4,12)
The annual carrying cost, then is :
Annual carrying cost = [(p-d) Q / (2p)] (H C)
The total annual cost of operating this inventory model is :
TC = {{{(p-d)Q) Q)/(2p)} {H c)} + {(K D) / Q)
D is, as before, the annual demand. Obviously, D can be found by multiplying d by
the number of working days in one year.
Again, the optimal order quantity can be found by equating the carrying and
procurement costs :
{[(p-d) Q] / [2P]} (HC) = (KD)/Q
Q* = {[(2KD)/(HC)] [P / (p-d)]}1/2 ... (4,13)
The consumption or non-delivery period is.
T2 = 1max/d = [(p-d) Q) / [d*p]
The total cycle time is
T = T1 + T2
The fixed order quantity with non instantaneous delivery model can be used to
calculate optimal lot or batch sizes in manufacturing organizations. This occurs when
one production department orders parts sizes in manufacturing organizations. This
occurs when one production department orders parts from another production
department and uses the parts as soon as they arrive, on a continuous basis, rather
than waiting for the whole lot to arrive. This particular use of the model is the
reason for the alternative name, economic lot size.
13.10 Safety Stock
Let us try to determine the optimal safety size. As the demand for the product is
affected by numerous variables, one can assume a normal distribution for the
demand over lead time.
The variability of the demand over the lead time is presented as a standard deviation
L = 2 daily
where n is the number of days of lead time. The average demand over lead time. DL,
is the average daily demand times the number of days of lead time.
DL =(n) (Ddaily)
The safety stock is expressed as the number of standard deviations. Z, away from the
average demand over lead time. When one assumes a normal distribution of demand
over lead time.
Safety stock = (Z) (L)
This relationship is shown in figure 13.6. The values for Z are read from normal
distribution table. The average demand over lead time is DL, the safety stock is equal
to (Z) (L), and the reorder point is at DL + (Z) (L)
The economical size of safety stock:
The main problem is to decide on the economical size of the safety stock, taking into
account the shortage cost and the carrying cost for various service levels.
One should look for the trade - off between shortage cost and carrying cost. Let as
assume the optimal reorder quantity, *, has been determined already, and the one is
interested in the optimum safety stock size.
Annual shortage cost = cost of one shortage x no of orders per year x probability
of one shortage
Where
Ps = Probability of one shortage = (1-Service level)
D/Q* = Number of orders per year
S = Cost of one shortage
Annual shortage cost = [S(DQ*)] [1 - Service level]
The annual carrying cost is :
Annual shortage cost = (H C)(safety stock)
= (H C)( 1)
where,
Z = the number of standard deviations that provides a certain service level
L = the standard deviation of demand over lead time
Thus, the total annual cost for a certain demand variability, L, and a certain service
level is :
TC = S (D/Q*)[1-Service level) + (H C)(Z J)
In order to find the best safety stock level. Z L, one should calculate the total cost.
TC, for various service levels and choose the one that corresponds to the lowest total
cost.
13.11 ABC Classification
The calculations and the data required to operate the quantitative inventory models
become more complex as the number of different items in Inventory increases. It is
not practical to calculate reorder quantities, using the models described above, for
each item carried, but only for those items that call for a high degree of control.
The ABC classification is a method of identifying the degree of control required for
various items. It categorizes all inventoried items into three groups, based on the
annual inventory rupee value of each.
Group A includes approximately 20% of the items that account for approximately
80% of the total annual inventory value. All items in this group are closely controlled
and call for the use of quantitative models. The equations presented in the preceding
sections should be used to determine the reorder quantity and economical safety
stock.
Group B includes approximately 30% of the items that account for approximately
15% of the total annual inventory value. Less control is exercised over these items.
For example, while the economic order quantity determination is recommended,
safety stock considerations are somewhat less important.
Group C includes approximately 50% of the items that account for approximately 5%
of the total annual inventory value. No special effort should be invested in controlling
these items, as the cost of control may exceed the potential savings.
The actual percent of items and percent of total annual inventory value may vary
according to the specific situation. The three groups are shown in fig. 13.7.
FIG. 13.7 THE ABC CLASSIFICATION OF INVENTORIED ITEMS
13.12 ABC ANALYSIS PROCEDURE
step 1 : Prepare a list of inventory items
step 2 : Calculate the annual inventory rupee value for each item and
corresponding percentage.
step 3 : Arrange the items in descending order of annual inventory rupee value.
step 4 : Compute the cumulative percentage of the annual inventory rupee
value.
step 5 : Compute the cumulative percentage of the number of items
step 6 : Determine the ABC categories
13.13 SUMMARY
This lesson has covered the essentials of inventory control and inventory
management for independent demand. Inventories are used to hedge against future
increases in costs and prices, to hedge against stockouts, to provide production
flexibility and lot size economy, etc. The " when " and " how much " are the major
questions answered through a systematic use of the analysis.
The basic fixed order quantity model and the fixed order quantity with non-
instantaneous delivery model have been treated quantitatively.
In these models it was assumed that the time between orders varied while an order of
a predetermined, fixed size was placed.
Considerations of safety stock size and service levels were also treated^ as well as
determination of the items that should be controlled closely based on the ABC
classification.
13.14 KEY CONCEPTS
Economic order quantity
Ordering cost
Carrying cost
Stockout cost
Re-order point
Lead time
Safety stock
ABC classification
1. Clarify the importance of inventory and magnitude of the problem Involved.
2. What are the functions of inventory ?
3. What are the types of inventory costs ?
4. What are the steps involved in the development of inventory policy ?
5. Describe the ABC classification system.
1. Buffa, "Modern production management", 4th edition, John Whieley.
2. Buffa, " Modern production /Operations management", 7th edition, John
Whieley.
3. Menipaz, "Essentials of production and operations management", Prentice Hall.
- End Of Chapter -
LESSON - 14
MAINTENANCE
14.1 Preamble
14.2 Types of maintenance
14.3 Break-down maintenance
14.4 Break-down time distribution
14.5 Preventive maintenance
14.6 Preventive versus break-down maintenance
14.7 Guides to a preventive maintenance policy
14.8 Replacement decisions
14.9 An example
14.10 Maintaining several machines
14.11 Simulation of alternate practices
14.12 Simulation of optimal size or repair crews
14.13 Summary
14.14 Key concepts
14.1 PREAMBLE
Efficient use of plant and equipment is a vital factor for the Industrial growth,
particularly in a developing country like ours. Plant and equipment besides being
very expensive, are in many cases imported involving valuable foreign exchange.
Further the cost of plant and, equipment forms a considerable portion of the total
cost of production. Thus it is imperative to look after them as carefully as possible.
Plant maintenance is of great importance as it provides a means to maintain the
plant and equipment in a high state of operating efficiency and enhance its
productivity.
Generally in Indian industries the utilization of plant and equipment needs to be
considerably improved. While there may be many reasons for underutilization,
downtime due to unscheduled breakdowns and stoppages is one of the primary
causes. It is necessary to increase the working life of the existing plant and increase
the utilization. Efficient utilization of plant becomes extremely important in order
that the capital resources are available for expansion schemes rather than
replacement of equipment which in turn will help industrial development.
Poor maintenance causes economical loses such as:
(i) Increased downtime
(ii) Poor efficiency
(iii) Deterioration of equipment
(iv) Poor quality of product
(v) Higher labor costs
(vi) Loss of material in. process
(vii) Higher production costs
(viii) Increased hazards etc.
Systematic maintenance procedure offers tremendous possibilities for saving in
money, materials and manpower. These savings come through:
(i) Reduction in downtime
(ii) Reduced losses of material in process
(iii) Increased life of the equipment
(iv) Reduction in overtime
(v) Optimum spares Inventory
(vi) Timely replacement of spares and machines
(vii) Maintenance of product quality
(viii) Proper running of equipment
(ix) Optimum operational cost of the machines
Through proper maintenance the downtime of equipment comes down considerably.
Machines are attended to before they breakdown. Spare parts are replaced before
they fail. Lubrication is done regularly and according to a timetable. All these and
many other activities keep the equipment in good running condition.
Whenever the equipment breakdown, particularly in a chemical plant the materials
in process, which are all inside the various types of equipment, undergoing some
reaction or the other get spoiled. Often these materials need to be flushed and
drained before starting the plant again. The losses due to this wastage can be
substantial if the materials being treated are expensive. Rayon plant is one such
example. If the raw materials are imported it will be still worse and hence such losses
are to be reduced, which/is possible through proper maintenance.
In India the cost of plant and machinery is quite high and many sophisticated
equipments are still imported. Replacements are not easy. Capital is scarce. Hence
the installed equipment should be kept in good working order as long/as possible
and its life must be prolonged to the extent possible, proper maintenance, timely
replacement of parts, modifications to suit the conditions of operation etc., help to
enhance the life of the equipment.
Good maintenance leads to higher output through lower downtime of plant and
equipment, better quality of products through improved efficiency and lower unit
costs through reduced breakdown expenses. Plant and equipment deteriorate with
use. If the deterioration is not checked they will not function and will become
unserviceable. Maintenance primarily aims at keeping the plant and equipment In
efficient operating conditions, minimizing the downtime, as to ensure their
maximum availability for production.
Broadly, the objectives of a systematic maintenance scheme are, to safeguard the
investment, to keep the equipment in good working condition, to prolong the life of
the equipment and to assure optimum availability.
14.2 TYPES OF MAINTENANCE
Maintenance practices can be broadly classified into following two types:
i. Breakdown maintenance
ii. Preventive maintenance.
14.3 BREAK-DOWN MAINTENANCE
In the case of breakdown maintenance the equipment is generally attended only
when it breakdowns. The maintenance crew will carry out the necessary repairs,
when the machine has actually broken down and is not able to function, In order to
put it back into commission. Such breakdowns may occur to any machine at any
time. There are many disadvantages in this system. Some of them are:
(i) There is always an urgency to put the machine back in the working condition and
hence the machine may not get adequate maintenance.
(ii) Since the type and time of breakdown is uncertain, production plans get
completely disrupted.
(iii) Planning of maintenance work Is not possible,
(iv) Distribution of workload is difficult,
(v) Results in imbalanced utilization of maintenance staff,
(vi) May result in overstaffing the maintenance department.
(vii) Increased overtime.
(viii) Increased downtime of equipment due to non-availability of man-power.
(ix) Excessive inventory of spares.
(x) Waste of materials in process in continuous chemical Industries.
(xi) Poor working conditions for maintenance staff.
However, breakdown maintenance system may be suitable in certain conditions such
as
(i) where plant capacity exceeds market demand
(ii) standbys are available and quick switching over is possible
(iii)process is obsolete and more modem equipment is under consideration
(iv)may be economical for non-critical equipment where this type of maintenance is
cheaper than any other system.
Normally, breakdown maintenance system is not recommended in a general practice
since it has many disadvantages and this system of maintenance Is now being
gradually replaced by more systematic types maintenance.
14.4 BREAK-DOWN TIME DISTRIBUTION
Breakdown time distribution data are basic to the formulation of any general policies
concerning maintenance. Breakdown time distributions show the frequency with
which machines have maintenance-free performance for a given number of operating
hours. Ordinarily, they are shown as distributions of the fraction of breakdowns that
exceed a given run time. Breakdown time distributions are developed from
distributions of run time free of breakdowns, as shown in figure 14.1.
CURVE(a) SHOWS LOW VARIABILITY FROM THE AVERAGE
BREAKDOWN TIME T.
CURVE(b) IS THE NEGATIVE EXPONENTIAL DISTRIBUTION AND
EXHIBITS MEDIUM VARIABILITY
CURVE(c) EXHIBITS HIGH VARIABILITY VERTICAL LINE SHOWS
CONSTANT BREAKDOWN TIMES FIO.
14.2 BREAK DOWN TIME DISTRIBUTIONS
Figure 14.2 shows three breakdown time distributions. These distributions take
different shapes, depending on the nature of the equipment with which we are
dealing. For example, a simple machine with a few moving parts would tend to
breakdown at nearly constant intervals following the last repair. That is it would
exhibit minimum variability in breakdown time distributions. Curve of Figure 14.1
would be fairly typical of such a situation. A large percentage of the breakdowns
occur at the extremes.
In a more complex machine with many parts, each part would have a failure
distribution. When all these parts were grouped together in a single distribution of
the breakdown time of the machine for any reason, we would expect to find greater
variability. The machine could break down for any one of a number of reasons.
Some breakdowns could occur shortly after the last repair, or at any time. Therefore,
for the same average breakdown time Ta we could find much wider variability of
breakdown time, as In the curve b of Fig. 14.1.
To complete the picture of representative breakdown time distributions, curve c Is
representative of distributions with the same average breakdown time Ta, but with
wider variability. A large proportion of the breakdowns with the distribution such as
curve c occur Just after repair: on the other hand, machines may have a long running
life after repair. Curve c may be typical of machines that require
"ticklish"adjustments. If the adjustments are made just right, the machinery may run
for a long time; if not, readjustment and repair may be necessary almost
immediately.
In models for maintenance, we normally deal with distributions of the percentage of
the breakdowns that exceed a given run time, as shown In figure 14.2 we see that
almost 60% of the breakdowns exceeded the average breakdown time Ta, and that
very few of the breakdowns occurred after 2Ta.
In practice, actual breakdown time distributions often can be approximated by
standard distributions, three of which are shown Fig. 14.2. Curve c Is the negative
exponential distribution.
14.5 PREVENTIVE MAINTENANCE
As the name itself indicates preventive maintenance Is based on the old adage
"Prevention is better than cure" or "a stitch in time saves nine". Preventive
maintenance Is a systematic maintenance procedure where-in the condition of the
plant is constantly watched through a systematic inspection and preventive action Is
taken to reduce the incidence of breakdowns. The necessity for either major or minor
repairs Is determined, to prevent unexpected interruptions to the plant and
equipment or any deterioration.
The fundamental activities of preventive maintenance are:
(a) Periodical Inspection of plant and equipment to discover conditions of
deterioration
(b) Upkeep of equipment to remove or repair such conditions while they are still In
a minor stage.
Thus the essence of the preventive maintenance is a well-planned inspection system.
Proper inspection at the right time is the crux of the preventive maintenance system.
The results of inspection are used to analyze the problems of upkeep, replacement
and modification well in advance and thereby help proper planning and assessment
of the work contents of the jobs. It is of course necessary to determine with great care
what is to be inspected and when. Meticulous recording of the fact revealed during
such inspections is another important point. Analysis of
such records indicate the type of maintenance work needed replacements
required, planning of maintenance work and inventory of spares. Preventive
maintenance renders more effective use of manpower and material and helps to
attain greater efficiency in plant operation. Planning of maintenance work and
optimum inventory of spares and components, become possible. With the
introduction of this system it will be possible to synchronize the maintenance
program so that there is least interruption to continuous operation and production.
As against breakdown maintenance where plant equipment gets the attention only
when they breakdown, preventive maintenance is a planned and systematic
procedure which takes a continuous care of the equipment, mending and repairing as
and when required to minimize breakdowns and unscheduled stoppages, resulting in
various advantages and savings.
However, certain limitations of preventive maintenance are, that during initial stages
of Its introduction, it may appear to be expensive, although in the long run it Is
highly beneficial. The procedure and the frequency of inspection would have to be
carefully worked out and improved over a period of time. The data for preventive
maintenance will have to be built up gradually and the system has to be refined
depending on the data collected.
The various elements of a preventive maintenance system in an industry are as
follows:
(1) An Inventory of all the plant and equipment that need to be maintained.
(2)Categorization of equipment to assess the relative importance and
thereby determine the equipment requiring preventive maintenance.
(3) A well designed Inspection system.
(4) A good lubrication system.
(5) Maintenance of adequate records and analysis of these records.
(6) Planning of maintenance work.
(7) Control of maintenance stores and spares.
(8) Organization for preventive maintenance work.
Assume a preventive maintenance policy for a single machine that provides for an
inspection and perhaps replacement of parts after the machine has been running for
a fixed time, called the preventive maintenance period. The maintenance crew takes
an average time, Tm, to accomplish the preventive maintenance. This is the
preventive maintenance cycle. A certain proportion of the break-downs will occur
before the fixed cycle has been completed. For these cases, the maintenance crew will
repair the machine, taking an average time, Ts, for the repair. This is the repair cycle.
These two patterns of maintenance are diagrammed in Fig. 14.3. The probability of
occurrence of the two different cycles depends on the specific breakdown time
distribution of the machine and the length of standard preventive maintenance
period. If the distribution has low variability and the standard period is perhaps
only_80% of the average run time without breakdowns, Ta, actual breakdown would
occur rather infrequently, and most cycles would be
percentage of time that the machine is working and the ratio of the standard
maintenance period to average run time Ta for the three distributions of breakdown
times shown In Fig. 14.1. In general, when the standard period is short (say less than
50% of Ta) the machine is working only a small fraction of time. This is because the
machine is down so often owing to preventive maintenance. As the standard period is
lengthened, more actual breakdowns that require repair. For curves b & c, this
lengthening of the standard period improves the fraction of time during which the
machine is running because the combination of preventive maintenance time and
repair time produces a smaller total down time.
Curve a, however, contains an optimum preventive maintenance period, which
maximizes the percentage of machine working time. What is different about curve a?
It's based on the low variability breakdown time distribution from Fig. 14.1. For curve
a. lengthening the maintenance period beyond about 70% of Ta reduces the fraction
of machine working time because actual machine breakdowns are more likely. For
the more variable distributions of curves b and c this is not true because break-
downs are more likely throughout the distributions of these curves' than they are in
curve a. Comparable curves can be constructed showing the percentage of time the
machine is in a state of preventive maintenance and the percentage of time that the
machine is being repaired because of breakdown.
14.6 PREVENTIVE VERSUS BREAK-DOWN MAINTENANCE
Quality control procedures are designed to track characteristics of quality and to take
action to maintain quality within limits. In some instances the action called for may
be equipment maintenance. The maintenance function then acts in a supporting role
to equipment operating effectively to maintain quality standards, as well as to
maintain the quantitative and cost standards of output.
There are alternate policies that may be appropriate, depending on the situation and
the relative costs. First, is routine preventive maintenance economical, or will it be
less costly to wait for breakdowns to occur and repair the equipment? Are there
guidelines that may indicate when preventive is likely to be economical? What
service level is appropriate when breakdowns do occur? How large should
maintenance crews be to balance the costs of downtime versus the crew costs? In
addition there are long range decisions regarding the possible overhaul or
replacement of a machine.
The decision concerning the appropriate level of preventive maintenance rests on
'the balance of costs, as indicated in Fig. 14.5. Managers will want to select that policy
which minimizes the sum of preventive maintenance plus repair costs.
Curve 'a' In Fig. 14.5 represents the Increase in costs that results from higher levels of
preventive maintenance. These costs Increase because Increased level means that
more often we replace parts before they fail, and/or we replace more components
when preventive maintenance is performed. In addition, there may be more frequent
lubrication and adjustment schedules for higher levels of preventive maintenance.
Curve b of Fig. 14.5 represents the declining cost of breakdown and repair as the level
of preventive maintenance increases. These costs represent the cost of repair plus the
downtime costs that result from a breakdown. With higher levels of preventive
maintenance, we should experience fewer actual breakdowns.
The total incremental cost curve is the sum of curves a and b. The optimal policy
regarding the level of preventive maintenance is defined by the minimum of that
curve.
There is a combination of costs that leads to the decision not to use preventive
maintenance. Suppose that the breakdown and repair costs did not decline as the
level of preventive maintenance increased or declined more slowly than preventive
costs increased. Then preventive maintenance would not be justified, because the
minimum total cost occurs with no preventive maintenance. The optimal policy then
be simply to repair the machine when breakdowns occurred.
In order to develop a framework for preventive maintenance policy, we need basic
data concerning breakdowns.
14.7 GUIDES TO A PREVENTIVE MAINTENANCE POLICY
First, preventive maintenance generally is applicable to machines with breakdown
time distributions that have low variability, exemplified by curve 'a
1
of Fig. 14.1. In
general, distributions with less variability, than the negative exponential, curve b, are
In this category because low variability means that we can predict with fair precision
when the majority of breakdowns will occur. A standard preventive maintenance
period can then be set that anticipates breakdowns fairly well.
Equally important, however, is the relation of preventive maintenance time to repair
time. If It takes Just a long to perform a preventive maintenance as It does to repair
the machine, there is no advantage in preventive maintenance, because the amount
of time that the machine can work is reduced by the amount of time it is shut down
for repairs. In this situation, the machine will spend a minimum amount of time
being down for maintenance if we simply wait until it breaks down.
The effect of downtime costs can modify these conclusions. Suppose that we are
dealing with a machine in a production line. If the machine breakdowns, the entire
line may be shut down, and very high idle labor costs will result. In this situation,
preventive maintenance is more desirable than repair if the preventive maintenance
can take place during second-or third shifts, vacations, or lunch hours, when the line
normally down anyway. This is true even when Tm > Ts. The determination of the
standard preventive maintenance period would require a different, but similar,
analysis in which the percentage of machine working time is expressed as a function
of repair time only, because preventive maintenance takes place outside of normal
work time.
An optimal solution minimizes the total of downtime costs, preventive maintenance
costs, and repair costs. The effect of the downtime costs would be to justify the
shorter standard preventive maintenance periods and to justify making repairs more
quickly (at higher costs) when they do occur. There are many situations, however in
which extra personnel on a repair job would not speed it up. In such cases, total
downtime might be shortened by over time on a multiple shifts and weekends, with
higher costs. Optimal solutions would specify the standard preventive maintenance
period, the machine idle time and the repair crew idle time striking a balance
between downtime costs and maintenance costs.
Overhaul and Replacement:
In maintaining system reliability, sometimes more drastic maintenance actions are
economical. These decisions renew machines through overhauls or replace them
when obsolete. Overhaul and replacement decisions can be related to the capital and
operating costs(including maintenance) of the equipment. Fig. 14.6 shows that
although the operating costs are temporarily improved through preventive
maintenance, repair, and overhaul, there is a gradual cost increase until replacement
is finally justified.
Repair Versus Overhaul:
The decisions concerning the choice between repair and overhaul normally occur at
the time of breakdown. Many organization also have regular schedules for overhaul.
For example, trucking companies may schedule major engine overhauls after the
given number of miles of operation. These preventive maintenance actions are mean
to anticipate breakdowns and the occurrence of down time at inconvenient times and
perhaps to minimize the down time costs.
Because renewals through overhaul involve future costs, these values must be
discounted. For e.g., suppose that a machine breakdown has just occurred. It will
cost Rs. 5000 to repair the equipment, after which the annual operating cost are
expected to be Rs. 20000, Rs. 25000 and Rs. 30000 per year for the next three
years, at which time replacement is planned. If the major overhaul is performed now,
the cost will be Rs. 15000, with operating costs of only Rs. 18000, Rs. 20000 and Rs.
30000 in the following three years, with the replacement decisions probably
postponed. Let us first examine just the next three years of cost to see if the overall is
justified in that time frame. The two alternatives are compared in table 14.1 by
discounting all future costs to present values, using a 10% interest rate. In this
instance, the present value of overhaul is lower and tentatively would be the more
economical.
14.8 Replacement Decisions
If the choice is only between overhaul and repair, the foregoing analysis may
be adequate. However, the replacement alternatives lurk in the background and
need to be considered as a part of the sequential decision strategy. The possible
sequences could include repair, overhaul, perhaps a second overhaul, replacement,
repair, overhaul and so on.
14.9 An Example
Suppose that the machine is used in a productive system and that it is usually
overhaul after a two years of operation, or replaced. The present machine was
purchased two years ago, and decision must now be made concerning overhaul or
possible replacement. The machine cost Rs.90000 installed, and annual operating
cost (including maintenance) are Rs.20000 the first year and Rs.30000 during the
second year. The machine can be overhauled for Rs.5000, but operating costs for the
next two years will be Rs.28000 and Rs.40000 for the first overhaul and Rs.35000
and Rs.50000 for the second overhaul.
In deciding whether to overhaul or replace at this time, you should consider the
available alternate sequences of decisions. For e.g., we can overhaul at this time or
replace. For each of these possible decisions, we have the same options 2 years hence
and so on. Fig. 14.7 shows the simple decision tree structures.
additional sequences created by the third branching to reduce computations for this
example:
1. R-R-R
2. R-OH-R
3. OH-R-OH
4. OH-OH-OH
Table 14.3 summarizes the calculations for the third cycle, the present values for the
first 4 years, and the 6-year present value totals. . Alternative 3 (OH-R-OH) Is now
the lowest-cost strategy. This change In result demonstrates the importance of
choosing a horizon that fairly represents all the alternatives. If a fourth 2-year cycle
were added to the evaluation. It might seem that strategies 3 and 4 are the same, but
reversed in sequence. But they are not the same because we start from an existing
situation with a 2-year old machine. Strategy 2 places two replacements in sequence,
whereas strategy 3 alternates overhauls and replacements.
This example assumes replacement with an identical machine, but it is often true
that alternate machines will have rather different capital and operating costs
characteristics. New machine designs often have improvements (owing to
mechanization or automation) that reduce labor and maintenance costs, and these
cost advantages would affect replacement decisions.
MAINTAINING SEVERAL MACHINES
The single-machine situation contains basic elements of general policy which can be
carried over into the multi-machine case. However, when several machines must be
serviced, our problem more closely resembles the usual waiting line model. If we
assume that all machines have the same breakdown time distribution, breakdowns
are comparable to arrivals in the waiting line model, and the repair crew is the
service station. As machines breakdown, the repair crew services them In the average
time, T8- as before. If the crew Is already working on a machine, successive machines
that breakdown must wait for service and the costs associated with down time grow
with delay. We can reduce the chance that this will happen by increasing the size of
the crew, but the solution also costs money and increases the amount of time that the
crew will be idle, waiting for breakdowns to occur. The problem, then, is one of
striking a balance between the downtime costs of the machines and the idle-time
costs of the maintenance crew.
14.11 SIMULATION OF ALTERNATE PRACTICES
When maintenance is being performed anyway, it is a fairly common practice to
replace parts that have not yet failed in order to prevent a future breakdown. The
incremental cost of replacing these parts is often small since the machine is already
partially disassembled. For example
If an automobile engine is disassembled to replace piston rings, other parts, such as
the connecting rod bearing, also can be replaced for little more than the cost of the
parts. If these parts are not replaced and fall later, the cost to replace them will be
high because the engine must be disassembled again. Whether such practices are
economical or not for individual cases depends on the distribution of part lives and
the relative magnitude maintenance labor, part costs, and down-time costs. Because
of the complexity of Interactive probable lives of parts, simulation is often a practical
way of evaluating alternate practices.
Let us take, for example, the case of a company that maintained a bank of machines
which were exposed to severe service, causing bearing failure to be a common
maintenance problem. There were three bearings In the machines that caused
trouble. The general practice had been to replace bearings at the time that they
failed. However excessive down-time costs raised the question of whether or not a
preventive policy was worthwhile. The Company wished to evaluate 'three alternative
possible practices.
1. The current practice of replacing bearings that fall.
2. When a bearing fails, replace all three.
3. When a bearing falls, replace that bearing plus other bearings that have been In
use 1700 hours are more.
To simulate operation under the three alternate policies, data on bearing lives were
needed, together with cost data. Fig. 14.8 shows the cumulative distribution of
bearing lives; table 14.4 summarizes pertinent time and cost data.
curve In relation to crew size for twenty-two machine i service. The cost factors
included were maintenance labor cost and machine down-time costs. Fig 14.10 is one
of a number of such curves prepared for various numbers of machines in service. The
simulation model could-now furnish information quickly regarding the optimal
number of machines and repair, crew size for a given production level.
14.13 SUMMARY
General concepts of probability, of waiting line theory and of incremental cost
analysis have provided a rational basis for designing preventive maintenance
programs, determining optimal crew sizes and determining capacity requirements so
that the reliability of production systems can be maintained. The continued
development of line production and automatic systems places an emphasis on
general maintenance policy and preventive maintenance in particular, because of the
heavy down-time costs associated with these systems. However it cannot be assumed
that a preventive maintenance policy should always be used. The utility of such a
policy depends on the structure of the pertinent costs.
14.14 KEY CONCEPTS
Breakdown time distribution
Preventive maintenance
Preventive maintenance cycle
Replacement Simulation
1. What kind of costs are associated with machine break-down?
2. What is a break-down time distribution?
3. Discuss the types of situations of machine break-downs.
4. If it takes Just as long to perform a preventive maintenance as it does a repair, is
there an advantage to preventive maintenance.
5. How can the techniques of simulation help in evaluating alternate maintenance
practice?
1. Buffa, "Modern production management", 4th edition, John Whieley.
2. Buffa, "Modem production/operations management", 7th edition, John Whieley.
3. Krishna, N.V., "Preventive maintenance", National productivity council, New
Delhi.
- End Of Chapter -
LESSON - 15
QUALITY CONTROL
OBJECTIVE
This unit with the purpose of inspection and quality control, acceptance sampling by
variables and attributes. Apart from that it also deals with control charts, fraction
defectives and defects.
QUALITY CONTROL
The methods of statistical quality control were introduced in 1924 by Walter
Shewhart in a Bell Laboratories memorandum. In the following years, Shewhart,
Dodge, and others did work on the concept of acceptance inspection. Much of
Shewhart's thinking on these subjects was published in his book, Economic Control
of Quality of Manufactured Product (1931), in which he introduced the basic concepts
of statistical quality control, including the control chart. These concepts have been
enlarged and refined and are widely accepted and applied throughout the advanced
industrial world, particularly in Japan, where W. Edwards Deming introduced the
concepts. Deming, an octogenarian, is the foremost quality control guru and is widely
credited for placing Japan in its world leadership position in the quality of its
manufactured products.
PROCESS CONTROL CHARTS
In general, there are two types of variations that occur in a production process:
chance variations and variations with assignable causes. Chance variations may have
a complex of minor actual causes, none of which can account for a significant part of
the total variation. The result is that these variations occur in a random manner, and
nothing can be done about them, given the process. On the other hand, variations
with assignable causes are relatively large and can be traced. Assignable causes result
due to the following factors:
1. Differences among workers
2. Differences among machines
3. Differences among materials
4.Differences due to the interaction between any two or among all three of the
preceding causes
A comparable set of assignable causes could be developed for any process. For
example, assignable causes for variation in absenteeism might be disease epidemics,
changes in interpersonal relations at home or in the employee's work situation, and
others.
When a process is in a state of statistical control, variations that occur in the number
of defects, the size of a dimension, the chemical composition, the weight, and so on
are due only to normal chance causes. Thus, when variations due to one or more of
the assignable causes are superimposed, it is possible to find the assignable causes
and correct it. These statistical control mechanisms are called control charts.
If we take a set of measurements in sequence, we can arrange the data into a
distribution and compute the mean and standard deviation. If we can assume that
the data come from a normal population distribution, we can make precise
statements about the probability of occurrence associated with the measurements,
given in standard deviation units as follows:
68.26 percent of the values normally fall within +
95.45 percent of the values normally fall within +2
99.73 percent of the values normally fall within +3
These percentage values represent the area under the normal curve between the
given limits; therefore, they state the probability of occurrence for the values that
come from the normal distribution that generated the measurements. For example,
the chances are 99.73 out of 100 that a measurement taken at random will fall within
the 3% limits and only 0.27 out of 100 that it will fall outside these limits. These
values, as well as decimal values for % come from the table for the normal probability
distribution available. The natural tolerance of a process, that is the expected process
variation, is commonly taken, to be 3%. Estimates of the natural tolerance would be
based on sample information. We will use the following notation :
= The population mean (parameter)
x = The mean of a sample drawn from the population (statistic)
= The population standard deviation (parameter)
S = The standard deviation of a sample drawn from the population (statistic)
Since sample information is used to estimate population means and standard
deviations, the natural tolerance of a process is estimated by substituting in the
sample statistics. x 3S
Kinds of control charts
Two basic types of control charts, which are commonly used :
Control charts for variables
Control charts for attributes
Control charts for variables are used when the parameter under control is some
measurement of a variable, such as the dimension of a part. the time for work
performance, and so forth. Variables charts can be based on individual
measurements, mean values of small samples, anti-mean values of measures of
variability.
Control charts for attributes are used when the parameter under control is the
proportion or fraction of defectives. There are several variations for attributes control
charts. Control charts for the number of defects per unit are used when a single
defect may not be of great significance but a large number of defects could add up to
a defective product. All of the above types of control charts; are. being discussed in
the following sections:
CONTROL CHARTS FOR VARIABLES
Consider a variables chart constructed for samples of n = 1 and relate the statistical
properties of this simplest of control charts to the more common X and R control
charts.
If standards are established for the mean and the standard deviation of a normally
distributed variable resulting from normal conditions, these data can be used to
construct a control chart. Taking the natural tolerance of the 3s control limits as a
standard deviation from the mean, the individual measurements are plotted and
checked for stray points that lay outside the limits . It is known that if successive
samples are representative of the original population, the probability that a sample
will fall outside the established control limits, is small. On the other hand, if sample
measurements do fall outside the control limits, then it shows that something in the
process has changed, the cause for which may be investigated and corrected. Figure 1
shows a control chart for samples of n = 1 drawn from the distribution of 200 shaft
diameters with x = 25.000 mm and s = 0.05 mm.
UCL (upper control limit) = 25.150 +3s
the control limits for the control chart in Figure 1
Upper control unit UCL = x+3s = 25.000 + 3 * 0.050
Lower control limit LCL = x-3s = 25.000 - 3 * 0.050
Control Limits
The process form which the sample were drawn in figure 1 appears to be n control
using the 3s control limit criterion. But had 2s control limit been adopted, the next to
last point would have been outside limits. There is a 4.55 percent chance that this
could have occurred by randomness in the data. The occurrence would have triggered
an investigation, and if that investigation indicated that the process had not changed,
the cost of conducting the investigation would have been wasted. On the other hand,
if the control limits were 3s as shown in figure 1 and process had in fact changed, the
observation would have been ignored and more scrap product would have been
produced in the interim before the change in the process was actually discovered.
Thus the issue in setting control limits is one of balancing two costs - the cost of
investigation and inspection against the cost of losses when no investigation is made.
Generally, if the investigation cost is large relative to the possible losses if the process
continues out of control the limits should be fairly broad, perhaps 3s. Conversely, if
the potential loss is high relative to the cost of investigation, more sensitive control
limits are needed.
Usually control charts are constructed for samples larger than one, but the statistical
relationship for figure 1 are sample and are of value in understanding the statistical
basis of other control charts.
Sampling Distributions
For figure 1, the control chart based on sample of n = 1, the normally of the
distribution had already been established. An important reason for taking sample
larger than n = 1 is that the issue of the normally of the population distribution can
be ignored. Although a population distribution may depart radically from normally,
the sample distribution of means of random samples will be approximately normal if
the sample size is large enough. This statement of the central limits theorems of great
importance, here in this context of the design of control limits. Actually, deviation
from normally in the population distribution can be fairly substantial, yet sampling
distribution of the means of samples as small as n = 4 or 5 will follow the normal
distribution quite closely. If sample of n = 4 are taken from the shaft diameter
distribution, the means of the samples will form a new distribution with a mean and
a standard deviation of its own. This distribution is called a sampling distribution of
means of n = 4. To distinguish the statistics from the distribution of individual
Measurements in figure 2 the notation x or the grand means of the sampling
distribution is used and sx for the standard deviation of the sampling distribution. It
is expected that x and x will be very nearly equal and that they will be equal in the
limit as the number of samples increases.
The standard deviation for the sampling distribution will be much smaller than that
for the individual measurements because the variation is reduced by the average
process within each sample. The resulting relationship between the two distributions
for the shaft data is shown Figure 2 the relationship between s and s and is given by
To construct a chart for means, it is necessary to establish standard values for and x
and sx the control limits on the sample means. The means of subsequent samples are
plotted, and action would be called for if a sample mean should fall outside the
control limits. Control mechanisms that employ samples means are called x and R
control charts.
- End Of Chapter -
LESSON - 16
CONTROL CHARTS
X-Charts
In constructing x charts, there are several issues that must be confronted. Sample
size, setting standards for process average and control limits, and practical
procedures for reducing the computations required.
Sample size
In Industry, sample size are, usually, small for good reasons. First, small samples
cost less to gather. Inspect, and process, Next large samples must be taken over a
longer time span, and changes could occur within that time, so response might not be
timely : out-of-control conditions would not be detected as rapidly, and additional
scrap might be produced. Generally, sample sizes of four or five are most common.
These sizes anticipate the problems noted, yet they are large enough for the central
limit theorem to guarantee normality in the sampling distribution. On the other
hand, larger samples have the effect of tightening control limits. Note that samples
size is in the denominator of the formula for s. Thus, a large samples size means
a smallers. Finer variation in process can be detected when samples are larger.
Determine the process average and control limits :
In order to determine the process average x and the control limits that are
representative of the process when it is in state of statistical control. Standard
deviation or both a separate s is computed for a preliminary subgroup for each of the
small samples and then average them. The means of the subgroup samples are
plotted on a control chart based on x+ 3 sx to see whether changes in the process
average have occurred in the period during which the preliminary data were
gathered. To achieve the objectives, the size of the subgroup should be relatively
small, perhaps 20 to 25, and the time period over which the preliminary data are
gathered should be long enough for any changes in the process that occur between
the sampling intervals to be recognized.
Procedures for determining x - chart control limits
The control limits require an estimate of six, onerous, it does require the input of all
the data on which the statistic is based. Practitioners in field have developed short-
cut methods for calculating control limits, using the range instead of the standard
deviation as a measure of variability. Table 1 is small portion of a table of factors used
to convert the average range.R to the 3sx control limits. The procedure is simple.
Select the appropriate factor from table 1 for - charts, and compute the control
limits as follows.
Control Limits = x, A2 R
As an example, if X = 25.000, R = 0.010 and n = 5, then the factor from Table 1 is A2
= 0.577 and the control limits are
UCL = 25.000 + (0.577 * 0.010) = 25.583
LCL = 25.000 - (0.577 * 0.010) = 25.571
The basic calculations for determining the center line and control limits remain the
same, regardless of the variable being measured.
R-Charts-Control Chart for Measures of Variability
In calculating the control limits for the X - chart the statistics used are the small
sample means, and these are the data plotted on the chart. A measure of variability
Such as the standard deviation or the range can be used as the basic statistic. For
each sample, compute a sample standard deviation (or range), such that these
observations are formed into a distribution that approximates the normal
distribution. This new distribution of measures of variability has a mean, a standard
deviation, and a range that can be used to construct a control chart. This control
chart indicates when the variability of the process is greater or less than standard.
In quality control, the statistic chosen is, usually, the range rather than the standard
deviation because of the ease with which the range can be computed in processing
setting. For each sample, the difference between the highest and lowest
measurement is plotted on the R-chart. The distribution of ranges has an average, R,
and a standard deviation, S. The 3SR limits have the same general significance as
with the X- chart.
Procedures for Determining R-chart Control Units
The computation of the control limits for the R-chart has been simplified by using
the Rstatistic rather than the standard deviation. Using the data in Table 1 for the
sample size n, select the factors D3 and D4 and calculate the 3SR control limits as
follows.
UCLR = D4 R
LCL = D3 R
As an example, if any n = 4 and = 3,000 and from Table 1 D4 = 2.282 and D3 = 0,
then the control limits for the Charts are
UCLR = 2.282 3.000 = 6.846
LCLR= 0 3.000 = 0
Examples of X- Charts and R-Charts
Assume a production process to set up both an X-chart and R-chart. In order to
initialize the charts, 20 Samples of n = 5 measurements are taken at random as the
process continues. These observations are shown in Table 2 in column 2 through 6,
each line representing a sample of n = 5. Each sample average is given in column 7,
and the sample range is give in column 8. The grand mean and the average range are
shown at the bottom of the last two columns of the table as X= 0.201. and R = 0.043,
respectively.
X - Charts
The preliminary center line and control limits for the X-chart, are computed as
follows :
UCL = X+ A2 R
= 0.201 + (0.577 0.043) = 0.236
LCL = X- A2 -R
= 0.021 - (0.577 0.043) = 0.176
The preliminary control limits and the center line for the grand mean are shown in
Figure 3, with the 20 sample means computed in column 7 of Table 2 plotted. The
control chart, generally, indicates that we have a stable data generating system, with
the exception of sample 18, which falls below the LCL. It is entirely possible that this
sample mean represents on of the chance occurrences of a mean falling outside the
3sx limits. However, it is known that this event occurs with a probability of only
0.0027, so an investigation is necessary. The investigation reveals that the operator
had been following a nonstandard method at the time that resulted in the low valued
observation an assignable cause. Sample 18 is eliminated from the data and a revised
grand mean and control limits are computed as X = 0.202 and R = 0.044. The
revised control limits are then
UCL = 0.202 + (0.57 * 0.044) = 0.227
LCL = 0.202- (0.577 * 0.044) = 0.177
The following are guidelines to anticipate troubles by taking investigative action.
A Single point goes out of limits, either above or below
Two consecutive points are near an upper or lower control limit
A run of five points above or below the process average
A five - point trend toward either limit
A sharp change of level
Erratic behavior
R-Charts
The preliminary control limit for an R chart are computed using the D3 = 0 and D4 =
2.115 factors from Table 1 as follows :
UCL = D4 = 2.115 0.043 = 0.0909
LCL = D2 = 0 0.043 = 0
Figure 4 shows the R-chart with the preliminary control limits and the 20 sample
ranges plotted. It should be noted that the range for sample 18 does not fall outside
the control limits on the R-chart. Nevertheless, since it was eliminated from the X-
chart. it must also be eliminated from the R-chart; he revised center line and control
limits reflect this procedure. The R-chart indicates that the variability of the process
is normal the revised center lines and control limits in Figure 3 and 4 represent
reasonable standards for comparison of future samples.
Control Charts for Attributes
In control charts for attributes, the populations is divided into two classifications:
defective parts and good parts. In every instance where it is needed to construct a
control chart, this good-not good distinction is made.
p-Charts
Control charts for the proportion or fraction of defectives occurring are called p-
charts: they are based on the binomial distribution. For the binomial distribution, it
is recalled that
The control limits are s et at the process average of defectives plus and minus
three standard deviations, p + 3sp. Table 3 shows a set of data for the number of
defectives found in daily samples of 200 for 24 consecutive production days. First, it
is necessary to determine whether the data exhibit statistical control, and then
whether it is necessary to set up a control chart. The daily fraction defective is
calculated by dividing each daily figure by the sample size, n = 200. Preliminary
figures for p, sp, and UCL and LCL are also calculated in table 3. These preliminary
figures are used to determine whether the process grating the data is in control.
Figure 5 show the resulting plot of the daily proportion defective in relation to the
preliminary control limits. Two points are outside of
limits, and the point for first point, day 7 is nearly outside the upper limit. For the
second point, day 10, it appears that a logical explanation is that three new workers
were taken on the day. The last point, day 19, is explained by the fact that the die had
worn and finally fractured that day.
To set up standards of normal variation, the data for the days for which assignable
causes (day 10 and 19) have been established are eliminated and p, UCL, and LCL are
recomputed as follows:
P = 244
200 X 21
UCL = 0.058+3 X S QUARE ROOT OF (0.058 X 0.942) / 200 = 0.108
LCL = 0.058-3 X S QUARE ROOT OF (0.058 X 0.942) / 200 = 0.008
These revised values reflect the variation due to chances causes. They are now used
as standards for judging the proportion of defective future samples. If any future
samples fall outsides these limits, then it is known that it is highly probable that
there is an assignable cause for the unusual observation of proportion defective. The
cause is then corrected before more scrap has been produced.
p- Charts for variable sample size
In the previous example, the sample size was constant. Often, however, sample sizes
vary, as is true then 100 percent inspection is used and output volumes vary from day
to day. If samples sizes vary only slightly, control limits may be based on the average
sample size. However when sample sizes vary widely, new control limits can be
computed for each sample. These control limit computations can be simplified. For
example, if p= 0.099, then
3 = (SQUARE ROOT OF P (1-P)) / n = 0.896/ (SQUARE ROOT
OF n)
For each sample then, the square root of the sample size is divided into 0.896 to
obtain the 3sp value that must be added to and subtracted from p to obtain the
individual control limits. Of course, a different p- requires a new computation of the
constant.
Another way to handle this problem of variable sample sizes to construct a stabilized
p=chart by converting the deviations from the process average into standard
deviation units. An sp is computed for each sample using the short-cut method just
discussed t(the factor for the example would simply be 0.896/3 = 0.299) and it is
divided into the sample variation from p, p - p. If the sample proportion defective
were p = 0.84 p- = 0.099 as before and n = 95, then sp = 0.299/95 = 0.0306. Then
(p-p) / sp = -0.015 / 0.036 = -0.49 standard deviation units. The control limits are
plotted in terms of standard deviation units and this sample is 0.49 standard
deviations below the mean.
c- Charts = Control charts for defects per Units
Sometimes the parameter to be controlled cannot be expressed as with the p-charts.
In weaving, for example, the number of defects per 10 square yards of material might
be the parameter to be controlled. In such instances, a defect itself might be minor,
but a large number of defects per units area might be objectionable. The Poisson
distribution, the standard decision Sc is equal to the square root of the mean, c.
computation of control limits is then extremely simple, for example, if the mean
number of defects per unit were c = 25, then
_
UCL = c + 3sc = 25+(3 x 5) = 40
_
LCL = c-+ 3sc = 25 - (3 x 5) = 10
- End Of Chapter -
LESSON-17
ACCEPTANCE SAMPLING
When production has already taken place, it is often necessary to know the quality
level of the lot. Acceptance sampling is the statistical quality control technique of
making decisions.
ACCEPTANCE SAMPLING BY ATTRIBUTES
Operating Characteristic (OC) Curves
To specify a particular sampling plan, the sample size n, and the number of
defectives in the sample permitted c (acceptance number), are indicated before the
entire lot from which the sample is drawn is to be rejected. The OC curve for a
particular combination of n and c shows how well the plan discriminates between
good and bad lots. The given Fig 6 is an OC curve for a sampling plan with the
sample size n = 100
and acceptance number c = 2. In this plan, if c = 0, 1 or 2 defectives are found in the
sample of n = 100, the lot would be considered acceptable. If the actual quality is 1%
defectives, the plan in Fig 6 would accept the lot about 91.5 percent of the time and
reject it about 8.5 percent of the time. However, that if the actual lot quality is good is
somewhat worse than 1 percent defectives then the probability of accepting the lot
falls to about 13 percent. Therefore, if the actual quality is good, the plan provides for
a high probability acceptance, but if the actual quality is poor, the probability of
acceptance is low. Thus, the OC curve shows how well a given plan discriminates
between good and poor quality.
The discriminating power of the sampling plan depends on the size of the sample. Fig
7 shows the OC curves for sample sizes of 100, 200 and 300. with the acceptance
number remaining in proportion to the sample size. It is to be noted that the OC
curve becomes more steeper as the sample size goes up. If the discriminating power
of the three plans represented in Fig. 7 are compared then it is seen that all three
accept lots of about 0.7 percent defectives about 83 percent of the time. However, if
the actual quality falls to 3.0 percent defectives, the plan with n = 100 accepts lots
about 20 percent of the time n = 200 accepts lots about 6 percent of the time; and n
= 300, less than 1 percent of the time. Plans with larger sample sizes are definitely
more effective.
Change In Acceptance number
Figure 8 shows OC curves for a sample of n = 50 and acceptance numbers of c = 0,1,2
and 3. It should be noted that the effect is mainly to change the level of the OC curve,
so lower acceptance numbers make
the plan "tighter"; that is, they hold outgoing quality to lower percentages. As a
generalization there is some interaction between sample size and acceptance number
in determining the discriminating power of OC curves.
A sampling plan that discriminates perfectly between good and bad lots would have a
vertical OC curve; that is, it would follow the dashed line in Fig 7. For all lots having
percent defectives to the right of the line, the probability of acceptance is zero.
Unfortunately, the only plan that could achieve this discrimination is one requiring
100 percent inspection. Therefore, the justification of acceptance sampling turns on a
balance between inspection costs and the probable costs of passing bad parts.
By making sampling plans more discriminating (increasing sample sizes) or tighter
(decreasing acceptance numbers), any desired level of outgoing quality can be
approached, but at increasing inspection costs. This increasing inspection effort
would result in lower probable costs of passing defective parts. At some point the
combination of this incremental costs is minimum, this minimum point defines the
most economical sampling plan for a given situation. Obviously, if the cost of passing
defective products is high, a great deal of inspection is economically justified.
To justify 100 percent inspection of a sample, the probable losses due to the passing
of bad products would have to be large in relation to inspection costs, perhaps
resulting in the loss of contracts and customers. It is on this basis that the Japanese
objective of "zero defects" can be justified. On the other hand, to justify no inspection
at all, inspection costs would have to be very large in relation to the probable losses
due to passing bad parts. The most usual situation is between these extremes, where
there is a risk of not accepting lots that are actually good and a risk of accepting lots
that are bad.
DETERMINING OC CURVES
OC curves can be constructed from data obtained from normal or Poisson
distributions. If lots are large, perhaps greater than 10 times the sample size,
probabilities for the OC curve can be obtained from the binomial distribution.
However, if samples are large, the normal or Poisson approximations are also very
good, and they are much more convenient to use. Rules of thumb are as follows:
* If p n > 5, the probabilities can be determined from the normal distribution with a
mean p and standard deviation of (p(l-p)/n)
1/
'
2
.
* If p n 5, use the Poisson distribution.
Usually, the lot percent defective is small and the lots are relatively large, so the
Poisson distribution is used to calculate values for the Percentage probability of
acceptance, pa, for OC curves. The Thorndike chart (Fig 9) provides cumulative
position probability distribution curves for different values of the acceptance number
c. The chart gives the probability of c or fewer defectives in samples of n selected
from an infinite universe in which the percent defective is PD.
Table 4
CALCULATION OF THE VALUES OF P X100 IN FIGURE 9 FROM THE
THORNDIKE CHART
(SAMPLING PLAN n=100 and c= 2)
The Thorndike chart is used to calculate the values for pa used to plot the OC curves
of Fig 9 or any of the other OC curves used as examples. The sampling plan for fig 6
is to be referred where n = 100 and c = 2. The values of pa for 9 points on the OC
curve are calculated in Table 4, reading the values of Pa from the Thorndike chart.
For example, For PD = 2 percent, PD * n/100 = 2 *100/100 = 2.0. From the
horizontal scale of the Thorndike chart the value read is pa = 68 percent for c= 2 on
the vertical scale.
PRODUCER'S RISK AND CONSUMERS RISK
The definition of these risks can be made more specific by referring to a typical OC
curve. Fig 10 shows graphically the following four definitions:
AQL = Acceptable quality level-lots of this level of quality are regarded as good, and
it is wished to have a high probability for their acceptance.
= Producer's risk - the probability that lots of quality level AQL will not be
accepted. Usually = 5 percent in practice.
LTPD =Lot tolerance percent defective-the dividing line selected between good and
bad lots.
Lots of this level of quality is regarded as poor, and it is wished to have a low prob
ability for their acceptance.
= Consumer's risk - the probability that lots of the quality level LTPD will be
accepted. Usually = 10 percent in practice.
When the levels are set for each of these four values, two critical points on the OC
curve are determined, points a and a and b shown in Figure 10.
SPECIFICATION OF A SAMPLING PLAN
To specify a plan that meets the requirements of rail, LTPD, and a combination must
be found with n and c with an OC curve that passes through points a and b, as shown
in the figure 10. the mechanics of actually finding specific plans that fit can be
accomplished by using standard tables, charts, or formulas that result in the
specification of a combination of n and c that closely approximates the requirements
set for AQL, , LTPD,.
Specifications of n and c for single sampling plans
To specify a plan, it is necessary to determine the single sample size n and the
acceptance number c that will produce and OC curve approximating that specified by
the four values AQL, ,LTPD,. This can be done referring to tables or by referring to
the Thorndike chart.
An Example
Assume that the characteristics of the OC curve desired have been already specified
as
AQL = 2 percent
= 5 percent
LTPD = 8 percent
= 10 percent
Step 1. Tabulate values of PD * n/100 for pa = (1- ) = 95 percent and pa = = 10
percent for each value of c from the Thorndike chart. For example, for pa = 95
percent and c = 1, read PD* n/100 = 0.36, and for pa = 10 percent and c = 1, read
PD* n/100 = 3.9. Do this for various values of C. as in columns 1, 2, and 3 of Table 5.
Note that in column 2, the PD we are referring to is AQL. Whereas in column3, It is
LTPD.
Step 2. Compute the ratio of column 3 to column 2 for each of the values of c, as in
column 4 of Table 5. This ratio is LTPD/PD. For the plan we seek, we scan column 4
for the ratio 8/2 = 4, since of our desired plan LTPD = 8 and PD = 2 percent. This
ratio of 4 falls between 4.06 at c = 4 and 3.58 at and PD = 2 percent. The ratio of 4
falls between 4.06 at c= 4 and 3.58 at c = 5.
Step 3. Compute sample sizes as in Table 3, deciding whether to hold fixed and let
float, or vice versa. If, for example, we set c = 4 and hold at 5% then PD* n/100 =
AQL* n/100 = 1.97, and we can solve for the sample size n:
n = (1.97* 100)/2 = 99
The sampling plan would then be n = 99 and c = 4.
Step 4. Check the resulting value of the risk floated. Using the Thorndike chart, fro
plan 1, enter with the values of c = 4 and PD* n/100 = LTPD* n/100 = 8* 99/100 =
7.92, and read the actual value of = 10.5 percent. Table 6 also shows the actual
floating values of and for each of the four plans. For plan 1, the probability of
accepting lots of 8 percent quality increases slightly while holding the other
specification. For plan 2, the probability of rejecting lots of good quality increases
slightly while holding the other rejecting lots of good quality increases slightly while
holding the other specification for and so on. Plans 1 and come closest to meeting
the original specifications and the choice between them depends on the emphasis
desired.
Other values of and
Table 5 was constructed for the common values of and , 5 and 10 percent,
respectively. But obviously a comparable table could be constructed from the
Thorndike chart for any values of and , so the methods described are general.
AVERAGE OUTGOING QUALITY (AOQ) CURVES
Fig 11 shows the flow of good and rejected parts in a typical sampling plan and
provides the structural basis for calculating the average outgoing quality (AOQ). The
random sample of size n is inspected, and any defects found in the sample are
replaced with good
parts. Based on the number of defectives, c, found in the sample, the entire lot in
accepted if c < c and is rejected if c >c.
If the lot is rejected, it is subjected to 100 percent inspection, and all defectives found
are replaced by good parts. Then, the entire lot of N parts is free of defectives. If,
however, the lot is accepted by the sample, we run the risk that some defectives parts
have passed. The average number of defective parts can be calculated.
If the average incoming quality is PD, acceptance occurs with the probability
pa(taken directly from the OC curve for the PD). The average number of defectives is
then the product of the fraction defectives received times the number remaining in
the lot weighted by the probability that acceptance occurs or (pa/100)* (PD/100)*
(N-n). The average outgoing quality AOQ in percent is then:
From the foregoing relationship, a curve can be developed for any given sampling
plan showing the AOQ for any level of incoming quality. Data to plot the curve are
generated by assuming different values for incoming quality. Determining from the
OC curve the pa, and substituting these values in the formula to compute AOQ, as
indicated in the Fig 12. This AOQ curve is based on the OC curve of Fig 6 for a
sampling plan of n = 100, c = 2, and N = 1000.
The interesting characteristics of the AOQ curve should be noted. first there is a
maximum or limiting number of average defectives that can be passed. This peak in
the curve is called the average outgoing quality limit (AOQL). There is an AOQL for
every sampling plan, which depends on the characteristics of the plan. When good
quality is presented to the plan for example, 0 to 2 percent pa is relatively high. so
most of the defectives that will exist will pass. As we go beyond 2 percent incoming
quality, of 100 percent inspection increases. so more defectives are screened out -
outgoing quality improves automatically as incoming quality worsens. Specifically,
AOQ never exceeds 1.25 percent regardless of incoming quality for the plan.
If the defectives are not replaced, then the formula for AOQ becomes
As with single sampling. Dodge - Rooming provides both tables and charts to aid in
plan design. These aids are constructed both for the situation where one wishes to
specify LTPD or AOQL. with = 10 percent, and for minimum total inspection.
SEQUENTIAL SAMPLING PLANS
In sequential sampling, samples are drawn at random, as before. But after each
sample is inspected, the cumulated results are analyzed and a decision made to (1)
accept the lot, (2) reject the lot, or (3) take another sample. Sequential sample sizes
can be small as n = 1. Fig 13 shows the graphical structure of a sequential sampling
plan. The main advantage of sequential sampling is a reduction in the total amount
of inspection required to maintain a given level of protection. In the plan shown in
Fig 13, a minimum of 15 items must be inspected in order to accept a lot. If the
number of rejects on the graph rises such that the point falls on or above the upper
line, the lot is rejected. If the point
falls on or below the lower line, the lot is accepted. Until one of these events occurs,
sampling is continued. As before, the sequential sampling plan is specified by the
four requirements: AQL, LTPD, and. In turn, these requirements determine the
OC curves of the sequential plans that meet the requirements. The disadvantage of
sequential sampling is that the inspection loads vary considerably. Detailed
procedures for the construction of sequential sampling plans are given in Duncan
(1974).
BASES FOR SELECTING SAMPLING PLANS
The relative advantages and disadvantages of alternative sampling plans do not rest
on the protection from poor quality that can be achieved. The risks involved depend
on the OC curve of the plan and can be preset, and specific objectives of LTPD or
AOQL protection can be implemented in all the three. Table 7 provides the
comparison of several factors that influence the choice among the types of plans.
ACCEPTANCE SAMPLING BY VARIABLES
In acceptance sampling by variables, actual measurements are recorded instead of
simply classifying items as good or bad as in attribute sampling. This difference in
procedure changes the details of determining the plan that meets our specifications
of AQL. . LTPD and because the appropriated statistical distribution is now the
normal distribution instead of distributions for proportions. Conceptually, however,
the basic ideas on which the control of outgoing quality is maintained remain the
same. The discriminating power of plan is represented by an OC curve, which shows
the probability of acceptance for different levels of actual quality presented to the
plan. To specify a plan that gives the desired protection requires basically the same
procedure as for sampling by attributes.
KINDS OF VARIABLES SAMPLING PLANS
There are two main categories, which depend on our knowledge of the populations
standard deviation: x : where x is known and constant and where x is unknown
and may be a variable. Furthermore, the classification may be extended to the nature
of the decision criterion: that is, where the criterion is average of measurements and
where the criterion is percent defectives (PD). To summarize, the classification is as
follows:
1. x is known and constant
a. The decision criterion is expressed as the average of measurements, xa
b. The decision criterion is expressed as PD in the lot.
2. x is unknown and may be variable
a. The decision criterion is expressed as the average of measurements, xa
b. The decision criterion is expressed as PD in the lot.
VARIABLE SAMPLING PLANS WHERE x IS KNOWN AND CONSTANT
These procedures will be discussed in the context of an example in which steel bar is
received in batches from a vendor. It has been determined that a tensile strength
of 90,000 Newton per sq. mm is average tensile strength. Lots with an average
tensile strength of 95,000 Nsm are regarded as good quality, and it is specified that
pa = 95 percent for lots of this average tensile strength. x is known to be 6000 Nsm,
and the measurements are normally distributed. To summarize, the plan
specifications are
AQL = 95,000 N/sq.mm
Xt = 90,000 N/sq. mm (equivalent to LTPD in attributes sampling)
= 5 percent
= 10 percent
The objective is to determine a sampling plan that will indicate an acceptance
average for sample tests, xa, and a sample size n that will accept lots to our
specification. The acceptance average for sample test xa is equivalent to acceptance
number, c, in attributes sampling plans. In other words, when xa is less than the
critical value, the lot from which sample was drawn will be rejected and returned to
the supplier. Lots for which the sample average tensile strength is equal to or greater
than xa will be accepted.
The standard deviation of the sampling distribution of means for samples of size n
will be 6000/n . To be accepted 95 percent of the time, AQL = 95 percent of the
time, AQL = 95000 N/sq. mm must be 1,645 units above the grand mean, x = xa,
since 5 percent of the area under a normal curve is beyond + 1,645 . Therefore,
xa - 95000 is 1,645 x units. Then.
xa - 95000 = -1.645* (6000/n)
Also, to ensure that lots of average tensile strength xt = 90000 have only a 10 percent
chance of acceptance, when ensures that samples with x1 = 90000 N/sq. mm must
be 1.28 units below the grand mean.
xa - 90000 = +1.28* (6000/n)
Now there are two independent equations with two unknowns, xa and n. They may
be solved simultaneously to yield the following values:
xa = 92,200 N/sq.mm
n = 12
Figure 14 shows the relationships of the various elements of the problem that answer
the question. What is the grand mean, X, and the sample size, n, of a normal
distribution with = 6000 N/sq. mm and x = 6000/n?
The OC curve for the plan just described is determined by cumulating the areas
under the normal curve for the sampling distribution of sample size n.
UPPER AND LOWER TOLERANCE LEVELS
There are often upper and lower tolerance levels specified for measurements of part
dimensions, chemical content, and so forth. When a measured characteristic may be
too small or too large to be useful, these two-sided tolerance levels can be reflected in
the specifications of variables sampling plans. a sampling plan would then specify a
sample size, with upper lower average acceptance levels. Two equations must then be
written for each limit and solved for xa (upper) and xa (lower) and the integer value
of the sample size n that most nearly satisfies the stated risks and .
FIELD OF APPLICATION OF VARIABLES SAMPLING PLANS
Obiviously, inspection, recording and computing costs will normally be higher with
variables sampling plans than with attributes sampling plans. The most important
reason for using variable plans is that, for a given level of protection, variable plans
will require smaller sample sizes and less total inspection. Table 8 demonstrates the
contrasting sample sizes, but if a plan requires a sample size of 750 for attributes
sampling, comparable protection could be obtained with a sample of only 125 for
variables sampling. These small simple sizes can be very important when the
inspection process destroys the part. From an economic point of view, then, variables
sampling should be used when the smaller sample size tips the balance of the cost of
inspection, scrap, recording, and computing in addition to the possible cost
advantages, the data generated by variables sampling (x and s) provide additional
valuable diagnostic for controlling production processes.
References
Duncan, A.J. Quality Control and Industrial Statistic (4th ed.). Irwin. Homewood
III. 1974.
Elwood S. Buffa and Rakesh K. Sari, Modern Production (Operations Management
(8th ed.) John whey & Sons, Inc. Singapore...1987.
Grand. EL., and R.S. Leaventworth, Statistical Quality Control (5th ed.) McGraw -
Hill, New York, 1980.
Shewhart, W.A. Economic Control of Quality for Managers and Engineers, Van
Nostrand, Princeton, N.J. 1931.
Model Questions :
1. Why is acceptance sampling not considered an attempt to control the quality of a
process?
2. Why is it necessary to control both and variations for control of variables?
3. Distinguish between the types of inspection required for a p-chart and a c-chart
4. Discuss the considerations involved in selecting the inspection points within a
process.
- End Of Chapter -
LESSON-18
METHODS ANALYSIS & WORK MEASUREMENT
INTRODUCTION
Resource required to produce goods and services would be from the following:
(a) Man
(b) Materials
(c) Machines
(d) Money
(e) Technology and
(f) Time.
They are to be deployed in the most effective and efficient manner. This process of
deployment is a continuous one since the best available combination of the resources
at some point would not necessarily coincide with the best available combination at
some later point of time. This emphasises that there is a need for analysing existing
working methods to develop more efficient working methods for the future.
DEFINITION OF METHOD STUDY
Method Study is the systematic recording and critical examination of existing and
proposed ways of doing work, as a means of developing and applying easier and
more effective methods and reducing costs.
OBJECTIVES OF METHOD STUDY
The objectives of method Study are:
1. Improvement of processes and procedures,
2. Improvement in the design of plant and equipment,
3. Improvement of plant layout,
4. Improvement in the use of men, materials and machines,
5. Efficient materials handling,
6. Improvement in the flow of production and processes,
7. Economy in human effort and the reduction of unnecessary fatigue,
8. Method standardisation,
9. Improvement in safety standards,
10. Development of a better physical working environment.
THE METHOD STUDY PROCEDURE.-
The solution of any problem follows the following sequence of phases in that order:
1. DEFINE the problem
2. RECORD all the facts critically but impartially.
3. EXAMINE the facts critically but impartially.
4. CONSIDER the courses of actions (possible solutions) and decide which to follow.
5. IMPLEMENT the solution.
6. FOLLOW UP the development. The basic procedure for method study is as
follows:
a) SELECT the work to be studied.
b) RECORD all the relevant facts about the present method by direct
observation.
c) EXAMINE those facts critically and in an ordered sequence, using the
techniques best suited to the purpose.
d) DEVELOP the most practical, economic and effective method, having due
regard to all contingent circumstances.
e) DEFINE the new method so that it can always be identified.
f) INSTALL that methods as standard practice.
g) MAINTAIN that standard practice by regular routine checks.
These are the seven essential stages in the application of method study; none can be
excluded. Strict adherence to their sequence, as well as to their content, is essential
for the success of an investigation. They are shown diagrammatically on the chart in
Figure.
1. SELECTION OF JOB: When a study team is considering whether a method
study investigation of a particular job should be carried out, certain factors should be
kept in mind. These are:
i. Economic considerations
ii. Technical considerations
iii. Human relations
i) Economic considerations: The cost of the study, the loss of time due to the
investigation, the cost both short-term and long term associated with the prospective
changes in the recommended working method of the job should be carefully
estimated and examined. If the accumulated estimated benefits from the
recommended method outweigh the estimated total cost, for any job then we should
take up the job under study.
Under preliminary considerations the early job choices are: Bottlenecks which are
holding up other production operation. Movement of materials over long distances
between shops or operations involving a great deal of man-power or where there is
repeated handling of material. Operations involving repetitive work using a great
deal of labour liable to run for a long time.
A machine tool constituting a bottleneck in production is known to be running at a
speed below that at which the high-speed or ceramic cutting tools will operate
effectively.
iii) Human relations: Trade union official workers' representatives and the
operators themselves should be educated in the general principles and objectives of
method study. Participative management may facilitate overcoming the negative
human reactions to Investigation and "changes of method. If the study of a particular
job appears to be leading to unrest or ill feeling leave it alone, however, promising it
may be from the economic point of view. If other jobs are tackled successfully and
can be seen by all to benefit the people working on them, opinions will change and it
will be possible in time to go back to the original choice.
2. RECORD, EXAMINE, DEVELOP: After selecting the work to be studied
systematic recording of all the facts of the existing method and critical examination
of these are carried out to eliminate every unnecessary element or operation and to
develop the quickest and best method by having an improved sequence of doing the
work, omitting the redundant elements, selecting more appropriate person and more
suitable place for doing the work.
The most commonly used method study charts are Outline process chart. Flow
process chart- man type, Flow process chart- material type, Flow process chart-
equipment type and two handed process chart. Charts indicating process sequence
provide a systematic description of a process or work-cycle with details for the
analyst to develop method improvements.
PROCESS CHART SYMBOLS
OPERATION - indicates the main steps in a process, method or procedure. Usually
the part, material or product concerned is modified or changed during the operation.
INSPECTION- indicates an inspection for quality and/or check for quantity.
TRANSPORT - indicates the movement of workers, materials or equipment from
place to place.
TEMPORARY STORAGE or DELAY - indicates a delay in the sequence of
events: for example, work waiting between consecutive operations or any object laid
aside temporarily without record until required.
PERMANENT STORAGE - indicates a controlled 'storage in which material is
received into or issued from a store under some form of authorisation; or an item is
retained for reference purposes.
FLOW PROCESS CHART (an example)
A flow process chart is a process chart setting out the sequence of the flow of a
product or a procedure by recording all events under review using the appropriate
process chart symbols. An example of a material type flow process chart constructed
to study what happened when a bus engine was stripped a degreased and cleaned for
inspection is given in Figure 2. When flow process charts are being made regularly, it
is convenient to use printed or stenciled sheets similar to that shown in Figure 3.
Some points must be remembered in the preparation of process charts.
1. Charting is used for recording because it gives a complete picture of what is being
done and helps the mind to understand the facts and their relationships to one
another.
2. The details which appear on a chart must be obtained from direct observation.
Once they have been recorded on the chart the mind is freed from the task of
carrying them but they remain available for reference and for explaining the situation
to others. Charts must not be based on memory but must be prepared as the work is
observed.
3. A high standard of neatness and accuracy should be maintained in preparing fair
copies of charts constructed from direct observation.
4. To maintain their value for future reference and to provide as complete
information as possible, all charts should carry a heading and giving the following
information, (see figure 3.)
a) The name of the product, material or equipment charted, withdrawing
numbers or code numbers.
b) The job or process being carried out, clearly stating the starting point and
the end point, and whether the method is the present or the proposed one.
c) The location in which the operation is taking place.
d) The chart reference number, sheet number and the total number of sheets.
e) The observers name and, if desired, that of the person approving the chart.
f) The date of the study.
g) A key to the symbols used.
h) A summary of distance, time and, if desired, cost of labour and material, for
comparison of old and new methods.
5. Before leaving the chart, check the following points:
a) Have the facts been correctly recorded?
b) Have any over-simplifying assumptions been made?
c) Have all the factor contributing to the process been recorded?
EXAMINE CRITICALLY
The questioning technique is the means by which the critical examination is
conducted, each activity been subjected in turn to a systematic and progressive series
of questions.
The five sets of activities recorded on the flow process charts fall naturally into two
main categories, namely-
Those in which something is actually happening to the material or the work
piece under consideration, ie. it is being worked upon, moved or examined;
and
Those in which it is not being touched, being either in storage or at a standstill
owing to the delay.
Activities in the first category may be subdivided into three groups.
MAKE READY activities required to prepare the material or work piece and
set it in position ready to be worked on.
DO operations in which a change is made in the shape, chemical composition
or physical condition of the product.
PUT AWAY activities during which the work is moved aside from the machine
or work place.
Detailed examination of the chart leads to a number of questions. For example, it will
be seen that an engine been transported from old-engine stores has to change cranes
in the middle of the journey. Let us apply the questioning technique to these first
transports:
Q. What is done?
A. The engine is carried part of the way through the stores by one electric crane, is
placed on the ground and is then picked up by another which, transports it to the
stripping bay.
Q. Why Is this done?
A. Because the engines are stores in such a way that they cannot be directly picked up
by the monorail crane which runs through the stores and degreasing shop.
Q. What else might be done?
A. The engines could be stored so that they are immediately accessible to the
monorail crane, which could then pick them up and run directly to the stripping bay.
Q. What should be done?
A. The above suggestion should be adopted.
DEVELOP THE IMPROVED METHOD
From the very brief example of the use of the questioning sequence given above, it
will be seen that once the questions have been asked most of them almost answer
themselves.
The first step in doing so is to make a record of the proposed method on a flow
process chart, so that it can be compared with the original method and can be
checked to make sure that no point has been overlooked.
This will also enable a record to be made in the summary of the total numbers of
activities taking place under both methods, the savings in distance and time which
may be expected to accrue from the change and the possible savings in money which
will result. The Improved method for the example discussed ss shown In Figure 4.
- End Of Chapter -
LESSON - 19
TIME STUDY
DEFINITION AND PURPOSE OF TIME STUDY
Time study is defined as a work measurement technique for recording the times and
rates of working for the elements of a specified job carried out under specified
conditions, and for analysing the data so as to obtain the time necessary for carrying
out the job at a defined level of performance.
BASIC STEPS IN TIME STUDY
The following eight steps constitute the time study process excluding the selections of
the job for the worker which have to be done before the steps in the list are taken up:
a) Obtaining and recording all the available information about the job, operator and
the surrounding conditions likely to affect the execution of work.
b) Recording the complete description of the method, breaking down the operation
into 'elements'.
c) Examining the detailed breakdown to ensure the most effective method and
motions are being used and determining sample size.
d) Measuring with a timing device (stop-watch), and recording the time taken by the
operator to perform each element of the operation.
e) At the same time, assessing the effective speed of working the operator relative to
the observers concept of the rate corresponding to standard rating.
f) Extending observed time to "basic times".
g) Determining the allowances to be made over and above the basic time for the
operation.
h) Determining the "standard time" for the operation.
THE STOP WATCH
Usually, three types of stop watches are used for performing time study:
i) Flyback type,
ii) Non-flyback type, and
iii) The split hand stop-watch type.
However the first two types are used for a large majority of cases.
TIMING ELEMENTS BY STOP-WATCH:
There are two principal methods of timing with the stop-watch:
a) Cumulative timing and
b) Flyback timing.
In cumulative method the watch runs continuously throughout the study. It is started
at the beginning of the first element of the first cycle to be timed and is stopped only
after the study is completed. The purpose of this procedure is to ensure that all the
time during which the job is observed is recorded in the study.
In flyback method the stop-watch is reset to zero reading, by returning the hands of
the watch to zero, at the end of each element and the hands of the watching are
allowed to start immediately at the beginning of the next element, the time for each
element
In case of flyback timing, the study man reaches the clock at an exact minute,
preferably at the next major division such as the hour or one of the five minute
points, and sets his stop-watch running, noting the exact time in the "time on" space.
He reaches the location where the study is to be made water running and allows it to
do so till he is ready to start timing. At the beginning of the first element of the first
work cycle, as the hands are snapped back there is nothing in the first entry to show
for the time that has elapsed. At the end of the study, the hand is snapped back to
zero on completion of the last element of the last cycle and thereafter allowed to run
continuously until he can again reach the clock and note the time of finishing when
the watch is finally stopped. The final clock time is entered in the "time off" space on
the form. The two times recorded before and after the study are known as "check
times". The clock reading at the beginning of the study is subtracted from the clock
reading at the end of the study yielding the elapsed time, to be entered in its
appropriate location.
The recorded time is obtained as the aggregate of time of all the elements, ie., other
activities noted in the study and ineffective time and check time are also noted. This
aggregate should ideally equal the elapsed time but in practice is found-to be
different from the elapsed time. The difference may be attributed to the cumulative
loss of very small fractions of time at the return of the hand to zero and to bad
reading of missed elements. The difference observed in case of cumulative timing is
less since there is no loss due to snapback effects.
Cumulative timing has the significant advantage that even in the event of missing
element or non-recording of some occasional element it does not have any effect on
the overall time. However, cumulative timing calls for spending of more time in
determining individual element timing which can be only obtained after performing
a subtraction operation.
PERFORMANCE RATING
Rating and allowances are the two most controversial aspects of time study. Most
time study in industry are used to determine times for setting workloads and as a
basis for incentive plans. The procedures employed have a bearing on the earnings of
the workers as well as on the productivity and possibly, the profits of the enterprise.
Time study is not an exact science, although much research has been and continues
to be undertaken to attempt to establish a scientific basis for it. Rating (the
assessment of a worker's rate of working) and the allowances to be given for recovery
from fatigue and other purposes are still largely matters of judgement and therefore
of bargaining between management and labour.
It has, already, been said that time studies should be made, as far as possible, on a
number of qualified workers; and that very fast or very slow workers should be
avoided, at least while making the first few studies of an operation. What is a
"qualified worker"? A QUALIFIED WORKER is one who is accepted as having the
necessary physical attributes, who possesses the required intelligence and education,
and who has acquired the necessary skill and knowledge to carry out the work in
hand to satisfactory standards of safety, quantity and quality.
The acquisition of skill is a complicated process. It has been observed that among the
attributes which differentiate the experienced worker from the inexperienced are the
following:
a) Achieves smooth and consistent movements; ,
b) Acquires rhythm;
c) Responds more rapidly to signals;
d) Anticipates difficulties and is more ready to overcome them;
e) Carries out the task without giving the appearance of conscious attention and is
therefore more relaxed.
RATING is the assessment of the worker's rate of working relative to the observer's
concept of the rate corresponding to standard pace. And STANDARD
PERFORMANCE is the rate of output which qualified workers will naturally achieve
without over-exertion as an average over the working day or shift, provided that they
know and adhere to the specified method and provided that they are motivated to
apply themselves to their work. This performance is denoted as 100 on the standard
rating and performance scales.
RATING OF EFFORT
The purpose of rating is to determine, from the time actually taken by the operative
being observed, the standard time which can be maintained by the average qualified
worker and which can be .used as a realistic basis for planning, control and incentive
schemes. What the study man is concerned within therefore the speed with which the
operative carries out the work, in relation to the study man's concept of a normal
speed.
Speed of what? Certainly not merely speed of movement, because an unskilled
operative may move extremely fast and yet take longer to perform an operation than
a skilled operative who appears to be working quite slowly. The unskilled operative
puts in a lot of unnecessary movements which the experienced operative has long
since eliminated. The only thing that counts is the effective speed of the operation.
Judgement of effective speed can only be acquired, through experience and
knowledge of the operations being observed. It is very easy for an inexperienced
study man either to be fooled by a large number of rapid movements into believing
that an operative is working apparently slow movements are very economical of
motion. The amount of effort which has to be exerted and the difficulty encountered
by the operative is a matter for the study man to judge in the light of his experience
with the type of job. Operations involving mental activities (judgement of finish, for
example, in inspection of work) are most difficult to assess. Experience of the type of
work is required before satisfactory assessments can be made. Inexperienced study
men can be made to look very foolish in such cases, and moreover can be unjust to
above-average and conscientious workers.
In any job the speed of accomplishment must be related to an idea of a normal speed
for the same type of work. This is an important reason for doing a proper method
study on a job before attempting to set a time standard. It enables the study man to
gain a clear understanding of the nature of the work and often enables him to
eliminate excessive effort or judgement and so bring his rating process nearer to a
simple assessment of speed.
FACTORS AFFECTING THE RATE OF WORKING
Variations in actual times for a particular element may be due to Factors outside or
within the control of the worker. Those outside his control may be
1. Variations in the quality or other characteristics of the material used, although they
may be within the prescribed tolerance limits.
2. Changes in the operating efficiency of tools or equipment within their useful life.
3. Minor or unavoidable changes in methods or conditions of operation.
4. Variations in the mental attention necessary for the performance of certain of the
elements.
5. Changes in climatic and other surrounding conditions such
These can, generally, be accounted for by taking a sufficient number of studies to
ensure that a representative sample of times is obtained.
Factors within his control may be-
a) Acceptable variations in the quality of the product,
b) Variations due to his ability.
c) Variations due to his attitude of mind, especially his attitude to the organisation
for which he works.
The optimum pace at which the worker will work depends on-
1) The physical effort demanded by the work.
2) The care required on the part of the worker.
3) His training and experience.
Greater physical effort will tend to slow up the pace. The ease with which the effort is
made will also influence the pace. For example, an effort made in conditions where
the operative cannot exert his strength in the most convenient way will be made
much more slowly than one of the same magnitude In which he can exert his
strength in a straightforward manner (for Instance, pushing a car with one hand
through the window on the steering wheel, as opposed to pushing It from behind).
Care must be taken to distinguish between slowing up due to effort and slowing up
due to fatigue.
An increased need for care in carrying out an element will reduce the pace. An
example is placing a peg with parallel sides In a hole, which requires more care than
If the peg is tapered.
The study man should be careful not to rate too highly when-
a) The worker is worried or looks hurried.
b) The worker Is obviously being over-careful.
c) The job looks difficult to the study man.
d) The study man himself is working very fast, as when recording a short-element
study.
Conversely, there Is a danger of rating too low when-
a) The worker makes the job look easy.
b) The worker Is using smooth, rhythmic movements.
c) The worker does not pause to think when the study man expects him to do so.
d) The worker is performing heavy manual work,
e) The study man himself is tired.
Scale of Rating
There are several scales of rating in use, the most common of which are those
designated the 100-133 scale, the 60-60, the 75-100, and the British Standard scale
which is the 0-100 scale. The newer 0-100 scale has, however, certain important
advantages which have led to the adoption as the British Standard. In the 0-100
scale. 0 represents zero activity and 100 the normal rate of working of the motivated
qualified worker - that is, the standard rate.
Determination of Basic Time
The number 100 represents standard performance. If the study mean decides that
the operation he is observing is being performed with less effective speed that his
concept of standard, he will use a factor of less than 100, say 90 or 75 or whatever he
considers represents a proper assessment. If, on the other had he decides that the
effective rate of working is above standard, he gives it a factor greater than 100 - say
110, 115 or 120.
It is usual practice to round of ratings to the nearest multiple of five on the scale; that
is to say, if the rate is judged to be 13% above standard. It would be put down at 115.
During the first weeks of their training, study men are unlikely to be able to rate
more closely than the nearest ten.
If the study man's ratings were always impeccable, then, however, many times he
rates and times an element the result should be that -
Observed Time * Rating= A Constant
An example expressed numerically, might read as follows.
Cycle Observed time Rating Constant
1. 0.20 * 100 = 20
2. 0.16 * 125 = 20
3. 0.25 * 80 = 20
4.
and so on
It is always a comparison with the standard rating. So, if the standard rating a taken
to be 100, then dividing the constant by the standard rating (100) will yield the
constant known as the basic time for the element.
Observation Time * Rating = Basic Time
Standard Rating
For example:
0.16 * 125/100= 0.20 min.
RECORDING THE RATING: In general, each element of activity must be rated
during its performance before the time is recorded, without regard to previous or
succeeding elements.
It is important that the rating should be made while the element is in progress and
that it should be noted before the time is taken, as otherwise there is a very great risk
that previous times and ratings for the same element will influence the assessment.
Since the rating of an element represents the assessment of the average rate of
performance for that element, the longer the element the more difficult it is for the
study man to adjust his judgment to that average. Long elements, though timed as a
whole up to the break points, should be rated every half minute.
Ratings to the nearest five are found to give sufficient accuracy in the final result.
Greater accuracy than this can be attained only after very long training and practice.
- End Of Chapter -
LESSON - 20
ALLOWANCE FACTORS
The determination of allowances is the most controversial part of work study. The
fact that the calculation of allowances cannot be altogether accurate under all
circumstances Is no excuse for using them as a dumping ground for any factors that
have been missed or neglected in making the time study. The difficulty experienced
In preparing a universally accepted set of precise allowances that can be applied to
every working situation is due to various reasons. The most important among them
are-
1) Factors related to the Individual : If every worker In a particular working
area was to be considered individually it might well be found that a thin, active, alert
worker at the peak of physical condition required a smaller allowance to recover from
fatigue than an obese, inept worker. Similarly, every worker has a unique learning
curve which can affect the manner in which he conducts his work. There is also some
reason to believe that there may be ethnic variations In the response to the degree of
fatigue experienced by workers, particularly when engaged on heavy manual work.
2) Factors related to the nature of work itself : Many of the tables developed
for the calculation of allowances give figures which may be acceptable for light and
medium work in Industry but which are inadequate when applied to operations
involving very heavy and strenuous work such as work beside furnaces in steel mills.
Moreover every working situation has Its own particular attributes which may affect
the degree of fatigue experienced by the worker or may lead to unavoidable delay In
the execution of a job. Other factors inherent in the job can also contribute to the
need for allowances, although in a different way- for example, when protective
clothing or gloves have to be worn, or when there is constant danger or when there is
a risk of spoiling or damaging the product.
3) Factors related to the environment : Allowances in particular relaxation
allowances, have to be determined with due regard to various environmental factors
such as heat, humidity, noise, dirt, vibration, light intensity, dust, wet conditions and
so on.- Each of these will affect the amount of relaxation allowances needed.
Environmental factors may also be seasonal in nature. This is particularly so for
those who work in the open air, such as workers in the construction industry or in
shipyards.
CALCULATION OF ALLOWANCES
The basic model for the calculation of allowances is shown In Figure 5. It will be seen
from this model that relaxation allowances are
the only essential part of the time added to the basic time. Other allowances such as
contingency, policy and special allowances are applied under certain conditions only.
Relaxation allowances : Relaxation allowance is an addition to the basic time
Intended to, provide the worker with the opportunity to recover from the
physiological and psychological effects of carrying out specified work under specified
conditions and to allow attention to personal needs. The amount of allowance will
depend on the nature of the job.
Relaxation allowances are calculated so as to allow the worker to recover from
fatigue. Fatigue may be defined as physical and/or mental weariness, real or
imagined, existing in a person and adversely affecting his ability to perform work.
The effects of fatigue can be lessened by rest pauses, during which the body recovers
from its exertion, or by slowing down the rate of working and thus reducing the
expenditure of energy.
Allowances for fatigue are normally added element by element to the basic times, so
that a work value for each element Is built up separately, the element standard times
being combined to yield the standard time for the whole job or operation. In this way
it is possible to deal with any extra allowance which may be required to compensate
for severe climatic conditions, since the element may sometimes be performed in
cool weather and sometimes when it is very hot. Allowances for climatic conditions
have to be applied to the working shift or working day rather than to the element or
job, in such a way that the amount of work which the worker is expected to produce
over the day or the shift is reduced. The standard time for the job remains, the same,
whether the job is performed in summer or winter, since it is intended to be a
measure of the work that the job contains.
Relaxation allowances have two major components; fixed allowances and variable
allowances.
Fixed allowances are composed of:
1. Allowances for personal needs. This allowance provides for the necessity to leave
the workplace to attend to personal needs such as washing, going to the lavatory and
getting a drink. Common figures applied by many enterprises range from 5 to 7%.
2. Allowances for basic fatigue. This allowance always a constant is given to take
account of the energy expended while carrying out work and to alleviate monotony. A
common figure is 4% of basic time. This is considered to be adequate for a worker
who carried out the Job while seated who is engaged on light work in good working
conditions and who is called upon to make only normal use of hands; legs and
senses.
Variable allowances are added to fixed allowances when working conditions differ
markedly from those stated above, for instance because of poor environmental
conditions that cannot be improved, added stress, and strain in performing the job in
question and so on.
Rest pauses: Relaxation allowances can be taken in the form of rest pauses. While
there is no hard and fast rule governing rest pauses, a common practice is to allow a
10 to 15 minutes break at mid-morning and mid-afternoon often coupled with
facilities for tea, coffee or cool drinks or snacks and to permit the remainder of the
relaxation allowance to be 'taken at the discretion of the worker.
Rest pauses are important for the following reasons:
1) They decrease the variation in the worker's performance throughout the day and
tend to maintain the level nearer the optimum.
2) They break up the monotony of the day.
3) They give the workers the chance to recover from fatigue and to attend to personal
needs.
4) They reduce the amount of time off taken by workers during working hours.
Contingency Allowances : A contingency allowance is a small allowance of time
which may be included in a standard time to meet legitimate and expected items of
work or delays, the precise measurement of which 'is uneconomical because of their
infrequent or irregular occurrence.
The allowance provides for small unavoidable delays as well as for occasional and
minor extra work and so it would be proper to split the allowance into these
components, the contingency allowance for work being allowed to attract fatigue
allowance Just as any other items of work does, and the delay part of the allowance
being given with only a personal needs increment. In practice this is a distinction
which is often ignored. Contingency allowances are always small and it is usual to
express them as a percentage of the total repetitive basic minutes in the job, adding
them to the rest .of the work in the job and adding a relaxation percentage to the
whole contingency allowance. Contingency allowance should not be more than 5%
and should only be given in cases where the study man is absolutely satisfied that the
contingencies cannot be eliminated and that they are justified.
Policy allowances : A policy allowance is an increment, other than bonus
increment, applied to standard time (or to some constituent part of it, eg. work
content) to provide a satisfactory level of earnings for a specified level of
performance under exceptional circumstances.
Policy allowances are not a genuine part of time study and should be used with the
utmost caution and only in clearly defined circumstances. They should always be
dealt with quite separately from basic times, and if used at all, should preferably be
arranged as an addition to standard times, so as not to interfere with the time
standards set by time study.
The usual reason for making a policy allowance is to line up standard times with the
requirements of wage agreements between employers and trade unions. In several
enterprises in the United Kingdom, for example, the incentive performance is
generally set at such a level that the average qualified worker as defined, can earn a
bonus of 33.5% of his basic time rate if he achieves standard performance. There is
no need to apply a policy allowance to achieve this state of affairs; it is simply
necessary to arrange for the rate paid per standard minute of work produced to be
133.5% of the basic time rate per minute, and in general it is better to accommodate
any special wage requirements in this way, by adjusting the rate paid per unit of work
rather than the standard time.
Special Allowances : Special allowances may be given for any activities which are
not normally part of the operation cycle but which are essential to the satisfactory
performance of the work. Such allowances may be permanent or temporary.
Wherever possible, these allowances should be determined by time study.
When time standards are sued as the basic for a payment of results scheme. It may
be necessary to make a start-up to allowance to compensate for time taken by any
work and any enforced waiting time which necessarily occurs at the start of a shift or
work period before production can begin. A shut down allowance may similarly be
given for work or waiting time occurring at the end of the day. A cleaning allowance
is of much the same character. It is given when the worker has to give attention from
time to time to cleaning this machine or workplace. Tool allowance is an allowance of
time to cover the adjustment and maintenance of tools.
A small batch allowance is required to enable a worker working on small batches to
decide what to do and how to go about it and the work up to a standard performance
by practice and repetition. The calculation of this allowance will depend on whether
it is a one of a type batch or not, on the length and batch size or run length and on the
frequency of similar work and its degree of complexity.
The Standard Time : It is now possible to obtain a complete picture of the
standard time for a straightforward manual job or operation, one which is considered
to attract only the two allowance which have so far been discussed in detail;
contingency allowance and relaxation allowance. The standard time for the job will
be the sum of the standard times for all the elements of which it is made up, due
regard being paid to the frequencies with which the elements recur, plus the
contingency allowance (with its relaxation allowance increment) In other
words, Standard Time is the total time in which is job should be completed at
standard performance. The standard time may be represented graphically as shown
in Figure 6
In a case where the observed time is rated at less than standard pace, the rating
factor will, of course, be shown inside the observed.
The contingencies and relaxation allowances, however, are still percentages of the
baisc time. The standard time is expressed in standard minutes or standard hours.
Example:
The observed time is recorded to be 15 minutes for a job done by a worker whose
rating is 80. Following allowance are recommended by the management.
i) Personal needs allowance - 5% of basic time
ii) Basic fatigue allowance - 2% of basic time
iii) Contingency work allowance - 1% of basic time
iv) Contingency delay allowance - 2% of basic time
Determine basic time, work content and standard time for the job.
From the relationship,
Basic Time = Observed Time * Rating
Standard Rating
basic time for the job in the above example is calculated as,
Basic Time = 15* 80/100 = 12 minutes
So, recommended allowance can be determined as follows
i) Personal needs allowance = (5/100)*12 = 3/5 minutes = 36 seconds
ii) Basic fatigue allowance = (2/100)*12=6/25 minutes = 14.4 seconds
iii) Contingency work allowance = (1/100)*12 = 3/25 minutes = 7.2 seconds
iv) Contingency delay allowance = (2/100)*12= 6/25 minutes = 14.4 seconds
Work content = Basic time + Relaxation allowance + Contingency work allowance
= Basic time + Personal needs allowance + Basic fatigue allowance +
Contingency work allowance
= 12 minutes + 36 seconds + 14.4 seconds + 7.2 seconds
= 12 minutes, 57.6 seconds
Standard Time = Work content + Contingency delay allowance
= 12 minutes 57.6 second + 14.4 seconds
= 13 minutes 12 seconds
Work Sampling Technique
Basic Concepts and Definition
Work sampling is a work measurement technique in which a large number of
instantaneous observations are made at random intervals over a specified period of
time of a group of worker, machines and process. Each observation of observations
recorded for a particular activity or delay over the specified period is a measure of the
percentage of time during which that activity or delay occurs. This estimate
resembles to the actual situation if the specified time interval is taken to be very long.
Work sampling is defined as - Work Sampling is a method of finding the percentage
occurrence of a certain activity by statistical sampling and random observations.
PROCEDURE
The work sampling procedure can be divided into the following three phases.
a) Prepare for work sampling.
i) Statement of the main objective of the study.
ii) Obtain the approval of the supervisor of the department in which work
sampling is to be performed.
iii) Establish quantitative measure of activity.
iv) Selection of training of personnel.
v) Making a detail plan for taking observations.
b) Performing work sampling.
i) Describing and classifying the elements to be studied in details.
ii) Design the observation form.
iii) Determine the number of days or shifts required for the study.
iv) Develop properly randomized times of observations.
v) Observing activity and recording data.
vi) Summarizing the data at the end of each day.
c) Evaluating and presenting results of work sampling.
i) Evaluate the validity and reliability of data.
ii) Presenting and analysing data.
iii) Planning for future studies.
CONDUCTING THE WORK SAMPLING STUDY
It is important in the outset that we decide on the objective of work sampling. The
simplest objective is that of determining whether a given machine is idle or working,
our observations then aim at detecting one of two possibilities only:
observations
Machine working machine idle
We can, however, extend this simple model to try and find out the cause of the
stoppage of the machine.
Observations
Machine working Machine idle
waiting waiting Personnel I
dle
for for needs of
repairs supplies workers
percentage of time spent on each activity while the machine is working.
We may also be interested in the percentage time spent by a worker or groups of
workers on a given element of work. If a certain job consists of ten different
elements, by observing a worker at the defined points in time we can record on which
element he is working and therefore arrive at a percentage distribution of the time he
has been spending on each element.
The objective to be reached by the study will therefore determine the design of the
recording sheet used in work sampling, as can be seen from Figure 7, 8, and 9.
MAKING THE OBSERVATIONS
In making the observations it is essential from the outset that the work study man is
clear in his own mind about what he wants to achieve and why. He should avoid
ambiguity when classifying activities.
The observation itself should be made at the same point relative to each machine.
The work study man should not note what is happening at the machines ahead of
him, as this tends to falsify the study.
The recording itself as can be seen consists simply of making a stroke in front of the
appropriate activity on the record sheet at the proper and predetermined time. No
stop watches are used.
The analysis of the results can be calculated readily on the record sheet. It is possible
to find out the percentage of effective time compared with that of delays, to analyse
the reasons for ineffective time and to ascertain the percentage time spent by a
worker, groups of workers or a machine on a given work element. These provide
useful information in a simple and reasonably quick way.
USES OF WORK SAMPLING
It is a relatively simple technique that can be used advantageously in a wide variety
of situations, such as manufacturing, servicing and office operations. It is a relatively
low cost method and one that is less controversial than stop watch time study. The
information derived from work sampling can be used to compare the efficiency of
two departments; to provide for a more equitable distribution of work in a group and
to provide the management with an appreciation of the percentage of and reasons
behind ineffective time. Some of the uses of work sampling can be stated as follows:
1. To aid in determination of time standards and delay allowances.
2. To aim in the measurement of overall performances.
3. To determine the nature and extend of cycles and peak load variations in
observable activity.
4. To study the time utilisation by supervisors and establishing goals for
supervision.
5. To aid in job evaluation.
6. To assist in engineering economy studies.
7. To aid in man power planning.
8. For appraisal of safety performance.
9. For appraisal of organisational efficiency.
MODEL QUESTIONS
1. What factors affect a decision to make a macro motion (or) micromotion analysis?
2. Why is it so difficult for all industries to agree on a universal conception of normal
performance?
3. How does the practice of including allowances as part of the standard time for an
operation promote "effective motivation"?
4. What measures can be taken to assure representative work samples?
- End Of Chapter -
LESSON -21
DYNAMIC PURCHASING
OBJECTIVE
This unit is dealing with dynamic purchasing: purchasing function, selection of
materials and vendors, purchasing organisation, concept of value analysis, store
keeping and ware housing management, cost control and cost reduction
programmes.
INTRODUCTION
Purchasing is the function which controls the buying of materials, finished parts and
supplies in a factory. The function of purchase department in any organization is to
find sources of supply, obtaining quotations and placing purchase orders. Issuing
delivery schedules to suppliers and progressing the supply of goods etc. The quality
standards required are laid down as part of the function of product specification.
PURCHASING FUNCTION
For an organization, purchasing is a window to the outside world. The prime
function of purchasing, is that of being sensitive to the external supply market
situation and also of feeding back this information to the other functions of the
organization. However, it is usually, understood to be to get the right quantity of
material of the right quality at the right time, at the right place, from the right source
and at the right cost. Quite often it is not understood, by even top management, that
a considerable profit potential exists in the purchasing activity. In fact, it has been
quoted that 20-30% of a company's profits can come from savings generated in the
purchasing department. There is more potential in reducing the purchasing cost as
compared to increasing the sales turnover.
Moreover, the increased savings in purchasing require only one or two purchasing
executives doing a proper study and analysis of the external market. Whereas an
increase in sales volume, usually, means an increased capital outlay on equipment an
increased sales and marketing expense through increased advertising and
promotional expenses, and much more leg work by the salesmen. All this means
more efforts, expenses and risks. Compare this with the efforts required in
generating equal profit contribution from the purchasing department and one will
realise that the latter does not require such enhanced management effort and risk. A
point to be noted is that the cost of materials in the production cost of an item, on an
average, in the Indian industry takes a lions share of almost 65%. for some
industries this component could be still high.
Purchasing has important links with most of the organizational functions. The
production planning and control or materials department might have a say in the
inventory of raw materials and bought out parts.
But the purchasing executive has a firsthand knowledge of the market situation for
the supply of these items. For instance:
(a) is there going to be any shortage of materials in the near future?
(b) How will the shortage escalate the prices?
(c) Are there any good substitutes available?
(d) Will there be an industrial relations problem in the important suppliers company
and how will this affect the companys production?
(e) Which supplier can supply better quality material and better quality component
parts at the same or less price?
All such information regarding the outside market is of much importance to the
production, marketing, finance and other departments. If a company buys
component parts which are incorporated into its own produces, the purchasing
manager will have to play a role which can perhaps, be described as external
manufacturing manager.
Increasing the sales does not always result in increasing profit. Sometimes increase
in sales may mean a decrease in profits because with an increase in volume, the cost
of input material may also rise. This is where the purchasing departments feedback
information is useful. It can apprise the management of what an increase in sales
activity will entail. The marketing/sales and purchasing departments have to work
hand-in-hand in order to take care of such situations. Purchasing is as much in
contact with the external market, whereas the purchase department may be looking
at the supply market. But essentially, both are looking at the external environment
and therefore, exchanging of notes between the two departments is important to the
planning and control departments set certain inventory levels for raw materials,
these norms for stocking levels are for average situations. When external market is
other than usual, the purchasing executives feel of the supply market should provide
valuable input to PPC or inventory control. The normal stocking levels and service
levels do not mean much in such situations. Purchasing can also provide valuable
information regarding substitutes which may be cheaper and functionally better or at
least as good. The purchasing department may also spot certain extraordinary
opportunities to get the raw material at a low cost.
The point that is being made is that an organization can make use of the valuable
market information provided by the purchasing department, and use the purchasing
department not merely as a department processing purchase requisitions but as a
vital link between the external environment and the organization. A purchasing
manager should provide this link consistently.
Some of the important objectives of purchase department are:
- To ensure that proper quantities of proper materials are made available for a
smooth functioning of the production department.
- To procure the materials at reasonably low costs to the company
- To ensure that the desired quality of materials are supplied.
- To select the proper sources of supply in order to ensure price, quality etc.
- To keep abreast of the various substitute materials available in the supply market,
their prices and utility to the organization and to pass such information or discuss
such formation with the various other departments of the company such as design,
production, sales, finance etc.
- To do a study or research on the possible substitutes for the raw materials
and bought-out component parts, for this, the technique of value analysis will be
useful.
- In order to ensure the continuity of the quantity and quality of the supply of raw
materials, to develop new vendors and develop good relations with existing vendors.
Vendor relations, vendor monitoring or vendor evaluation and development of new
vendors is an integral part of the purchase department job.
- To develop good procedures and systems for the purchasing department, so that
the various purchasing objectives do not remain personalized but become
institutionalized.
- To co-ordinate with other functional departments of the organization and achieve
as much continuity of Information flow and integration between different
departments as possible. For this purpose, it becomes essential for the purchasing
executives to keep in touch with the various functions of the company such as design,
production, sales, finance etc.
A Purchasing executive should be one of the most knowledgeable managers in the
company who should understand design, engineering, production, marketing and
other related functions in sufficient detail. Purchasing executive's role is not
restricted to procuring the requisitioned goods at a low price and at proper time, but
is also to be knowledgeable and informed about not only what Is being bought, but
also about why it is being bought, so the role of a purchasing manager is that of being
well informed about the internal operations of the company as also about the
external supply market and to combine these two in procuring materials at the right
quantity, quality, time and cost so that the organization as a whole benefits on a
sustained basis.
However, the purchasing manager is not always the final decision-making authority
regarding the quality, quantity, time or cost of the materials. It may be so in some
organisations, and not so in many others. The integrated approach towards the
management of supply of materials by being sensitive to the internal} and external
environment and being one of a team of decision-makers for the input materials. The
purchasing manager should serve as a link for the various departments and external
environment. He should be an advisor, informer to the various departments in the
organisation and a consolidator of objectives inside and outside the organization.
Often this is misunderstood to mean that the purchasing executive should have an
authority over all the segments of the function of procuring the input materials. Such
authority may not exist in most of the cases. A purchasing executive has to produce
results by advising and coordinating his activities with that of various other internal
departments and external market.
SELECTION OF MATERIALS AND VENDORS
In order to reduce the cost of the product, materials of lower or different quality
which will not affect the utility of the product are selected. Common examples of
such substitution of materials are- use of steel or window frames instead of timber
frames, use of aluminum instead of copper in electric transmission lines. This
process of substitution is based on the principle that, if a cheaper material can work
satisfactorily then there is no use in using costly material. Sometimes another
alternative is desired to be found e.g. in the radio valve industry many parts made
from expensive nickel can be manufactured with nickel-plated mild steel, similarly
copper plated mild steel can be used in place of pure copper.
The most important job of purchasing department is to give suggestions about, the
source of various materials availability and its specifications to the extent possible sp
as to select suitable material by the design and production departments. In this
process one can use his best knowledge about various materials that are available in
the market considering the scarcity of those materials etc. The purchasing executive
can go for market forecast, value analysis etc. in selecting the material for purchase
keeping design and production requirements in mind.
While selecting suitable material one has to consider the type of production facilities
that the organization is having and the level of skill required by the human force and
the process capabilities (Technology knowhow) etc., are the major factors that one
should take into account while purchasing the required materials i.e., it is an
integrated approach of the requirement of the whole organization.
An important objective in purchasing is that of maintaining good relations with
vendors. A good vendor is an asset to the company, and therefore, just as customer
good-will is considered important, a good relationship with the vendor should also be
treated likewise. A vendor who supplies the proper quality material in proper
amounts in proper time is not very easy to find. Moreover, there are many situations
where materials are required in a hurry. There are few situations where
materials are in shortage in the supply market. In all such situations, good
relationships with the vendors pay dividends. This may entail, personal relationship,
professional relationship: by helping the vendor in times of stress and strain with
financial aid, technical aid, by providing management skills if necessary and
maintaining a healthy professional relationship by fair negotiations, fair evaluations
and fair compensation. A continuous programme of developing new vendors and of
selecting new vendors should be in existence in any organisation. When selecting
vendors the following are the some of the important aspects the buyer should look
for:
a) The Production capabilities of the vendor:
- Capacity to manufacture the required product in desired quantities.
- Possibility of future expansion in capacity
- The understanding or the knowledge of the vendor regarding the buying
company and its needs.
b) The financial soundness of the company:
- The vendor company's capital structure
- Whether it belongs to a larger group of companies, private of public company
- The profitability record of the company in the past
- Expansion plans of the company in the future
c) Technical capabilities, regarding quality:
- Whether the available machines are capable of the required quality of
materials? What are the future plans of vendor?
- Whether there are enough technical skills (skilled manpower) available with
the vendor?
- Whether there is proper research, design and development facility available
with the vendor?
- What is the record of the vendor in filling the orders of other buying companies
in the same business?
- What has been the consistency in the quality produced by the vendor?
- Whether the vendor has appropriate storage and warehouse facilities to retain
the quality of the produced product?
- Whether proper quality control procedures are being followed in the vendor
company?
d) Other considerations:
- What are the working conditions in the vendor company?
- How are the industrial relations in the vendor company?
- Whether there is any possibility of disruptions of the supply of materials in
terms of materials in terms of quantity due to human relations problem in the vendor
company?
The next job of purchasing department is to buy the companys requirement from the
suppliers (From the vendors list of the company), for this purpose the following
procedure may be followed:
1. Select a short list of suitable firms
2. Send enquiries to each asking for prices and confirmation that delivery
requirements can be met.
3. Compare the quotations received in reply and choose a supplier.
4. Send a purchase order to the chosen supplier.
Selection of possible suppliers
The job of selecting the short list of possible is one which in most companies is left to
the experience of the buyer. A better method is to maintain a register of approved
suppliers, all or whom are visited and assessed for technical ability, capacity,
financial strength and so on. If this is kept up to date by regular visits and
performance records a great.
deal can be done to eliminate the costly delays which arise when an inefficient
supplier is chosen for an order. Figure 6.1 shows a typical form used to assess the
suppliers. It includes financial checks, a record of visits, brief details of any disputes
and particulars of failure to deliver to schedule etc. Once a year all cards are
examined and the suppliers are rated at a special meeting for the purpose. All
suppliers given a Crating or lower are then either replaced or given a special visit by
the chief buyer and re-checked at frequent intervals.
The enquiry
Having chosen a number of suitable suppliers, an enquiry form is prepared and
copies are sent to each of the possible. Great care has to be taken in framing the
enquiry to ensure that there is no ambiguity and that all are quoting for the same job,
for example:
How and when deliveries will be accepted?
If any special finishing processes are required?
What acceptance test will be used?
What special packing is required and how the goods are to be delivered
(standard boxes, pallets etc)
Who is responsible for delivery to the factory and for payment for transport?
Who is responsible for providing tooling, who will own it when it is made and
whether it is to be charged separately or included in unit price?
The terms of shipment (FOB: FOR) etc.
Some of these points can be covered by the drawings and by general conditions of
order which can be printed on the back of the enquiry form but others with particular
reference to individual items will have to be individually recorded on the face of the
enquiry form. Slightly different information will be required for each of type of
buying and the forms should be specially designed to meet the particular needs of the
company using them.
Comparison of quotations
Provided that the enquiry form is sent only to approved suppliers-suppliers who are
known to be capable of doing the work satisfactorily and providing that the
conditions governing the order are carefully and exactly stated so that there is no
question of differences in standard then the choice between quotations must rest on
price. It is usual to compare the different quotations on a comparison sheet and is
shown in figure 6.2. This illustrates one difficulty in comparison, which arises when
the supplier is asked to quote separate prices for tooling and for parts. When this
occurs, it is often difficult to decide whether to accept a low tooling cost and high unit
cost, or vice versa.
The best way of making the decision in these cases is to specify a write-off quantity
for the tooling, find tooling cost per piece by dividing the tolling cost in each case by
the write-off quantity and then add this additional cost to the quoted cost per piece.
In practice there may be wide spread between the prices quoted by different
suppliers. Apart from occasional mistakes and misunderstandings, there are two
principal reasons for this:
1. A supplier who is already employed will normally quote high rather than risk
offending a customer by refusing to quote.
2. A supplier whose load is light or unbalanced win often find it more profitable
to take on work at a little over marginal cost rather than dismiss labour and close
down part of the plant.
To overcome the problem of loose price, some companies estimate target prices or
price limits for all items before sending out enquiries and query any prices which are
widely out in comparison with the targets.
The purchase order
Having chosen a supplier, the next operation is to send a purchase order. A typical
order form is illustrated in figure 6.3 and it will be seen that the order is set of five
forms. The remaining four are two copy orders-one for the buying office and another
for the goods receiving department-a purchase delivery record card and an
acknowledgment of order form. The acknowledgment of order is sent with the
purchase order and carries a request that it should be signed and returned
immediately. The significance of the acknowledgment of order is that it completes a
contract in which the conditions of order with certain reservations are those listed on
the buyers purchase order. A purchase contract is in being when there has been an
offer and an acceptance in broadly the same terms. If no acknowledgment of order is
received then the only offer is the suppliers quotation and the acceptance is the
purchase order. If as often happens the conditions on these two forms are widely
different, then it may be more difficult later to enforce the contract. Some companies
make it a condition of order that the acknowledgment of order be returned within a
set period.
- End Of Chapter -
LESSON - 22
PURCHASING ORGANIZATION
Purchase organisations or follow-up is the function of seeing that deliveries are made
by the required dates. In a small number of companies this follow-up work is
controlled by the production control progress section, independently of the buying
office. It is doubtful, however, if this divided responsibility ever gives the best results
and here it will be considered as a buying function. Purchase organisation can the
considered in two parts:
(i) Pre-delivery follow-up and
(ii) Shortage chasing.
1. Pre-delivery follow-up is concerned with ensuring that the supplier does not
forget the due-date and the ample warning is obtained of any likely delay. Typical
methods used are:
A reminder card, letter of phone call at a set period before due-date.
Regular visits-particularly to new suppliers-to review progress
Delivery confirmation cards to be returned by the supplier with confirmation
that delivery will be made by the promised date.
Some companies do very little of this pre-delivery follow-up on the grounds that it is
the suppliers responsibility to deliver on time and bad psychology to give the
impression that you expect him t fall and are taking the responsibility for reminding
him when orders are due.
2. Shortage chasing, on the other hand, is universally accepted as a necessary and
vital art of purchase organisation. Methods vary but the purpose should always be
the same i.e.., to obtain the shortage material as soon as possible and to create a
feeling at the suppliers works that it is less trouble to deliver on time to this
particular company that to have them progressing shortage. In the long run the
second of these purposes is the most important and in some successful companies
the follow-up, after the immediate shortage has been cleared is considered as the
most important part of the exercise. The failure to deliver on time is not forgotten
until undertakings have been made by the supplier that he will take steps to prevent a
re-occurrence.
3. Goods receiving: Goods receiving at the factory is another function which is not
always controlled by the purchasing division. There are, however, advantages in
combining the two , and in making the one authority responsible for the whole
operation of getting the supplies cleared into the factory and passed to production.
Here goods receiving will be considered as against a purchasing function. The first
step in receiving is to take delivery from the carrier. Normally, this entails signing
the carrier note/consignment note and care should be taken to see that the signature
given does not accept the goods without question. In some
companies it is the practice to stamp all carrier notes with some such imprint as
subject to inspection and then sign under the impression. The next step is to enter
full details of each consignment on a goods received note which is shown in figure,
6.4 to give a record of all goods received in the factory and provide a method of
checking the supplier's Invoice. The goods received note is first checked against the
advice note or consignment note from the supplier and the supplier is notified of any
discrepancies. Next the goods are inspected and the supplier is notified of any rejects.
Customs vary in different industries but in the engineering industry, for example, the
rejects are normally held for n period and the supplier is given the option of viewing
them at the customers works or of having them returned for examination. Details of
any rejects are entered on the goods received note, which is sent to the accounts
department.
Finally the accepted material is passed into stock. A copy of the goods received note
can be used as a stores inward note to advise the stores of the quantity they are
receiving. The final check of the suppliers invoices against the goods received not is
generally carried out by the accounts department as a guard against over changing by
the supplier and against fraud inside the factory.
SPECULATIVE BUYING
The purchasing function can be summarized as
1. Production control department decides what is required, in what quantities
deliveries are to be made, and when.
2. Higher management fix a sanction quantity which is the largest quantity for which
the buyer may commit the company.
3. Working inside these limitations, the buyer makes the best bargain possible.
This is not, however, the only system used in practice and systems must, now, be
considered in which the buyer is allowed to choose how much to buy and when he
will buy it, provide only that he keeps the company supplied.
This type of buying is often used in industries such as the woolen where the value of
the raw material varies considerably from one period of the year to the next. Many
buyers in this type of situation, carefully record the variations in price and attempt to
forecast future price changes, so that they can buy large quantities when price are
low and small consignments when they are high. Apart from being hazardous
because the forecasts can never be exact, the results achieved are very difficult to
assess. Even the rare spectacular successes are often found on analysis to give a
worse result than could have been obtained by regular purchases at the current
ruling prices and some other investment for the capital released from stock.
There may be occasions when it is possible to use speculative buying with success,
but as a general rule speculative buying has much the same value, as a system of
investing capital, as has the backing of horses. It is sometimes argued that widely
spread speculative buying serves a useful purpose in stabilising prices. It is more
probable, however, that the speculation itself is largely responsible for the variations
in price.
CONCEPT OF VALUE ANALYSIS
Value analysis is an approach to cost reduction developed by General Electric in the
1940s. It incorporates other cost reduction techniques, but the distinguishing the
feature of value analysis is that it focuses on providing a function at minimum cost.
For example, one part in a product may be a screw fastening two other parts
together. Traditional cost reduction techniques applied to the screw would only
consider ways of making the screw at lower cost. However, value analysis would also
consider alternate ways of performing the function of holding the two parts together.
Perhaps the two parts could be made as one part, or perhaps they could be designed
to fit together without the need of a fastener. Could a standard fastener be
substituted for the custom-designed screw at lower cost?
Value analysis/Value Engineering is very useful tool in purchase management. It is a
systematic method of thinking about substitutes. It basically consists of studying in
detail the value of the material. The value could be due to the functional
characteristics (performance) of the product or due to other considerations of value
such as the esteem value. In purchasing we largely do not encounter the latter kind of
value. The idea behind value analysis is to find a substitute giving the same
functional value. yet costing the same or less. In general the value analysis/value
engineering can be divided into the following phases:
Information phase: Here all the relevant information regarding raw material and
the finished product in which it is incorporated, such as the cost, the manufacturing
method, the performance characteristics etc., is gathered. The more detailed the
information gathered in this initial phase, the better will be the value analysis. Here
one may ask questions in detail, such as what, where, when, how and why (for each
of them).
Functional phase: At this phase, the functions that the material performs are
listed in terms of basic function and secondary functions. It is advised that the
functions be described in two words a verb and a noun- as far as possible. This is to
avoid long winding descriptions of the functions. After having listed the functions,
each of these functions is given the value points or the weight ages in terms of its
importance or desirability. If the value or worth, is expressed in terms of 0-100
points, then the total for all the functions of a material should add to 100 points.
Alongside, we also mention the cost incurred or price paid for each of the functions.
Placing the cost and the value points side by side immediately reveals those areas of
the material where much money is spent for little value. These high cost-to-worth
functions are the focus of our attention in suggesting a substitute design of a bough-
out part or a substitute material. If the value of a function is small, then that function
can be dropped altogether in the substitute product.
Brain Storming Phase: Having done the analysis of the functions and costs of the
material, now it is ready to think of various alternative possibilities for the material.
The main idea, here, is to encourage creativity. Many of the suggestions may seem
like wild guesses. Still, these are recorded even if all suggestions are not feasible. The
idea is to break away from rigid thinking and encourage creativity. Some systems of
brain-storming start idea-generation from such widely differing triggers as politics
and geography and develop them further so as to apply to the problem at
hand(alternate design). For such idea-generation, a heterogeneous group is
preferred.
Evaluation phase: Each of the idea is evaluated again in terms of a functional
analysis, i.e., by finding the various functions that the substitute can perform-to what
extent and at what cost for each of those functions. Such an analysis will indicate a
few of the alternatives which might offer similar functional value as the earlier
material, but at a reduced cost. We may even find some substitutes with enhanced
important functional values.
Implementation phase: In this phase, the selected substitutes, or new ideas are
discussed with the appropriate departments for their implement ability. It is possible
that some will be screened out and only one or two ideas might be implementable.
Such a systematic analysis of the functional values of input material along with their
cost structure will help the purchasing executive in finding alternative materials of
equal functional value or better value while reducing the procurement costs. Value
analysis, of course, should be done as team work since it involves a lot of creative and
interdisciplinary thinking.
The term value analysis has been used when the activity is centered in purchasing
and value engineering when centered in engineering. Today this is, usually, a
cooperative activity with purchasing, working with design engineering
manufacturing engineering and quality control. The main reason purchasing is
involved is that it is in a position to tap the expertise existing in the supplier
companies. suppliers may have recommendations regarding new materials or
production processes that would not otherwise come to the attention of the engineers
in the buying company, Getting vendors to contribute their expertise is most effective
during the design phase for new products.
- End Of Chapter -
LESSON - 23
STORE-KEEPING AND WAREHOUSE MANAGEMENT
Apart from inventory control production etc., a good system of storekeeping is
important in any system. It has to be realized that only materials that are on hand
can be put to use. And it is assumed that inventory records agree with the physical
stocks of materials in the stores. If, however, it is found that they do not agree,
records must be adjusted after periodical physical verification of stores. Needless to
mention that no amount of inventory control will work successfully if accurate
records are not maintained and much of its value will be lost if stores are badly kept
and handled. Therefore, certain amount of care is always necessary to ensure good
storekeeping. The essential facilities should be responsible for all stores under their
charge. Proper classification and codification of stores based on standard
nomenclature are essential prerequisites for the smooth operation of stores. The
methods of classification should correspond, with those used for purpose of
inventory control, although actual arrangement of the stocks needs not follow this
method, which will largely depend upon the nature of the item, Its accessibility and
frequency of issue.
All issues from stores should be priced. There are several methods, choice of which
lies with the top-management. One method is to charge average unit price. A second
method is to value the stock at standard cost, supplied generally by cost-accounting
section. The third method is First-in, First-out (FIFO) method. Fourth one is Last-in,
Last-out (LILO). Still another method is Cost or market price method, whichever is
lower. However, their choice has little bearing on the actual storeroom operation. As
such, evaluation of their merits or demerits is thought a digression for our purpose.
Suffice it to say that control of physical materials is as much a part of materials
management, as any system of stock or inventory control.
The principal functions of warehousing are:
- Receiving: Material is accepted from manufacturing from vendors, or from
customers. This is matched against receiving papers, counted, and possibly inspected
for quality. Items may be marked or tagged to facilitate later identification.
- Put away: Items are sorted by storage area, transported to those areas, and put
away in racks or other storage equipment.
- Storage: Items are held and protected in storage until they are needed.
- Order picking: Items listed on orders received from manufacturing or customers
are withdrawn from their storage locations.
- Marshaling: The items constituting an order are assembled and checked. Where
several orders are to be transported together on one truck or wagon, these orders are
grouped.
- Shipping: Manufacturing orders are transported by fork-lift truck of other
conveyance to the gateway production department for the order. For customer
orders, they are packaged, moved to the appropriate dock and loaded on a waiting
vehicle. In some cases, orders are staged awaiting availability of a truck or wagon.
- Physical inventory: Items held in storage must be counted to verify the accuracy
of the Inventory records. This may be done periodically such as annually or
continuously called cycle counting.
- Reporting All receipts, issues and adjustments due to physical inventories must be
reported so that the inventory records are kept current.
- Processing : In some warehouse, particularly distribution warehouses remote
from the manufacturing plant, some processing such as painting or adding options
may be performed. The objective is to delay that final product differentiation as long
as possible.
Stores management, looking after the items and controlling their flow. This is the
component of the stores management with which the production department relates
directly on a day-to-day or perhaps hour-to-hour basis. The important functions of
this is on the
(i) incoming and
(ii) outgoing and
(iii) remaining items of materials.
A good MIS is the heart of stores management. The various operations related to
stores management are : Receiving and inspection, issue and dispatch. Stock-
records, Stores accounting, Stock-taking and checking, Stores preservation and
Stores arrangement.
The success of purchase department largely depends on the effective execution in
warehousing. Warehousing must provide timely put away stocks and picking of
orders, secure storage and accurate inventories and all at minimum cost.
In the industrial sector, service by stores boils down to in optimization exercise.
wherein limited available resources have to be disbursed equitably. The problem
arises from the materials that are held in stock in an expenditure in the form of
capital cost, storage loses, pilferage, obsolescence, insurance, handling,
documentation etc. This calls form striking a balance between the storage costs and
the level of service that can be maintained and hence the concept, stores in money,
should be understood by everyone in the organization.
Location and Layout : The normal practice is to locate the stores near the user
department, in order to minimize the handling. The material manager or the stores
personal are rarely consulted in location or layout of stores. The following are the
some of the important issues concerned with the location of stores :
Should be located nearest to the user with the central store keeping high value
and items common to more than one department.
Should be easy to identify the material.
Easy storage and retrival.
Proper preservation to protect from rain, sun, humidity, natural deterioration
etc.
Easy accessibility to different modes of transportation.
Flexibility
For future expansion.
Clear and adequate lighting, better working environment.
Safe working condition and better provision for fighting facilities to minimize
accidents.
Provision be made for toilets, smoking area, routine maintenance of stores
equipments, safe electrical wiring etc.
Balancing should be done in the cost of investment, cost of supplying imputs,
cost of manufacturing, cost of handling and cost of transporting to customer
in locating the stores.
Suitable division of available area for various purposes.
Items handled frequently must be located to minimize the distance travelled.
Regulation of factory act and other regulatory measures should be followed by
keeping the premises clean by using disinfectants and by providing adequate
drainage facility with proper ventilation
Sufficient care should be taken to utilize the stores area as cubic space and not
by calculating square area.
The aisle widths have to designed on the basic of handling equipments, like fork-lift
and clearly marked. Utilization of heights has to be decided on the basis of ease of
storage, retrieval, type of package, load characteristics, flooring roofing, handling,
pressures on beams and columns, provision of moving ladders, exhaust
arrangements and installation of fire prevention systems.
In block stacking method, the units loads are stacked one over the other and
the stack heights will have to reduced. If random access is needed, this
method can not to be applied. If strictly first-in first-out method has to be
used for issue.
The use of racks, bins, shelves and pigeon holes, is a common method of
storage, where wooden or metallic structures are method of storage, where
wooden or metallic structures are divided into compartments, in order to keep
items individually.
The racks are usually arranged either along the walls or back to-back and can
reach up to roof top and the opening can be suitably arranged of keeping the
sizes of the item. Sometimes revolving racks with castor wheels are also used.
Normally bins are used to hold loose items and the compartments can be
multi-tier or single tier to suit the needs. For small items, compartment/trays
can be used.
Small, but costly items are kept locked to present theft and pilferage.
Cap storage cover and plinth is adopted by food corporations, where the food
grains are kept in the open wooden orates under polythene cover. This
protects the grain sun and rain and is made rodent proof.
To facilitate loading and unloading, truck and wagons are parked against the
walls, most of the transport companies use an iron framework and a wooden
plank at an inclined plane but care should be taken for sufficient
maneuvering.
The normal loading condition for a warehouse should be maintained :
Doors should be built as large as possible, in order to facilitate handling.
Columns in the stores must be at least 30 ft. apart. Storage of bulk
commodities can create plenty of wastage of space.
The access to storage issue areas must be restricted and confined only to
authorized stores personnel, in order to prevent pilferage, theft, accident, etc.,
and all workers must be trained in using fire-fighting equipments.
Receiving and inspection :
The important duties are :
- Checking supplies for quantity and quality.
- Preparing documents : for posting to stock-records and stores accounts
accordingly, and for providing evidence of receipt.
In order to help the stores personnel in the checking function in ,the stores may be
advised about the items requisitioned. A copy of the purchase order would generally
suffice. The supplier may also, for non-routine and high value items, send in advance
an advice note giving details of goods being shipped, quantity, mode of transport,
date of dispatch etc. The items, when they arrive, may also be accompanied by the
suppliers packing information and the carriers consignment note. On the basis of
the checking of the consignment, a good received note (GRN) is made by the store-
keeper. Since this document will be used for setting bills, it should contain all the
details, such as : supplier, his advice note number, purchase order number, date and
time received, mode of transport, vehicle number, description of the item, code
number, number and type of packages, shortage discovered if any, damage to the
goods if any, excess items if any, and inspected by who,. A separate damage/shortage
report or a rejection report also needs to be prepared.
Since receiving and inspection operations control the entry point, proper information
to and documentation by the stores person is important.
Issues : Since has is the outflow point, the authorization for issue should be proper,
carrying details such as code number, description, job number or cost code number
for which required, quantity required, quantity issued, person authorizing, date of
issue and value of items issued. For all items such individual document is not always
necessary, e.g. issues for assemblies or a production batch-where only the number of
assemblies or the particular production programme may be sufficient for the stores
to supply all the necessary materials.
Stock Records : The purpose of record-keeping is to facilitate materials control by
bringing information on actual stocks position, consumption rates and order and
supply position up to date along with the proper pricing and evaluation of the usage
and of the balance of stock. Whether the system is manual or mechanized or
combination of both, the important managerial control information should be
provided by this stock-record system. The management should get information
regarding.
Daily operations of the stores, issues, receipts, direct deliveries etc.
Stock at each location
Allocation of stocks for certain project or job
Review and provisioning of stock
Order, performance giving the details on quantity ordered, supplier, delivery
promised, progress, when delivery received etc.
Stocks consumption history and change in consumption rates and
Money value of the movement / consumption of stocks and balances on hand.
Stores Accounting : This information system is necessary in order to :
- Know and show the value of stock in the balance - sheet and to help in production
cost control. The alternative methods of costing the issues are-cost price, average
price, market price and standard price.
Cost pricing uses actual purchase price paid (up to the delivery point) of the items
when accounting for receipt and issue of these items. Whereas, average pricing
average the price of the item and uses this average price figure while computing the
issues and stock balances. Market pricing involves pricing all material issues for
stocks) at the prevailing market price at the time of issues. It is not very easy to get
information on current market prices. Moreover, in a fluctuating price situation, the
method of market pricing for issues results in faulty accounting of the stock balances.
Standard pricing avoids the latter problem by having a pre-determined price fixed on
the basis of the knowledge of market prices and trends. For balance sheet purpose,
the stock balance needs to be shown at either the market price or the cost price
whichever is lower. However, for internal costing purpose, any method may be used.
Due to its obvious advantages, standard pricing is widely used with the variation
account to take care of the difference between the actual purchase price and the
standard price.
Store accounting is an important feedback information, for the production and other
materials-using departments to assess their own efficiency in material usage. It is
also important from the view point of the valuation of the stock-balance and
movement at any point of time. From management control angle this has a number
of uses.
Stores arrangement: Proper arrangement and documentation of the storage
space and storage facilities is helpful in getting materials for production on time as
requisitioned from the stores. The arrangement of the racks, shelves, bins and spaces
for movement of material-handling equipment should facilitate quick location,
drawal and transporting of the desired materials. The important features of a good
stores arrangement are :
- Correct knowledge of which particular items exist where.
- Easy accessibility of the items.
- Easy movement of the materials-handling equipment and men.
- Proper utilization of the available stores space etc.
The store should be so arranged that different types of materials such as tubular
sheet, heavy materials, bulky materials, small size materials, breakable materials etc.,
can be stored in distinct areas. Bars, tubes and lengthy items may be stored in
specially designed antler racks. The bundle of tubes is held horizontally on the
projection or antler. In order to save floor space and use the vertical space in some
cases these long items are stacked vertically. However, the latter type of stacking is
not amenable to handling by machines. For plates and sheets of metal the best form
of keep them on the floor itself. While making the arrangement for gangways, also,
doors, inlets and exits, ceilings and floors, care should be taken that the material
handling equipment used for this purpose is kept in mind. The main aisle should be
wide enough to allow two people with hand-trucks. Fork lift operation, different
dimensions may have to be used for the space between two rows of racks. The
location of the material should be appropriately numbered so that locating a location
would be easy. Care should be taken to store the same material at the same location
and to document the material location.
Stock-taking :
This is essential in order to verify the stock-records with the actual count. Lacunae in
stock record-keeping and control are thus brought out as also any frauds or other
losses. Stock-taking is either continuous or periodic. The latter is done once in a year,
generally, and the stores then have to be closed for the days of stock-taking. The
former is done throughout the field at least once in a year. Advantages of continuous
stock-taking are that :
- the normal business of the stores can go on as usual, and
- more importantly, the discrepancies do not come out al at once as in the annual
stock-taking, so there is time to investigate discrepancies thoroughly. However,
continuous stock-taking can be done only if complete detailed stock records are kept
showing receipts, issues and balances. Stores management is the vital and direct link
between the production and materials functions.
Therefore it is necessary that adequate attention is paid to the management of stores.
Over the past three decades, there has been a revolutionary change in
warehousing based on the use of computer-based information systems and
automated storage and handling equipment paralleling similar developments in
production. Today there is a wide variety of automated equipment and systems for
warehouse management to choose from where automated systems have been
carefully planned and implemented, there have been large gains in productivity and
space utilization, improvements in inventory accuracy and reductions in damage to
goods and in operating costs.
- End Of Chapter -
LESSON - 24
COST CONTROL AND COST REDUCTION PROGRAMMES
Cost control means the procedures and measures by which the cost of carrying out an
activity is kept under check. The aim of cost control is two-fold
To see that cost do not exceeds beyond a certain level.
Thereafter, as a further step, it must adopt such measures and procedures by
which the cost is further reduced.
The important elements of cost are material, labour and expenses. If we make
complete check on each and every element of cost then it can be kept in control. If a
businessman does not have any check and a scientific way of calculating the total cost
of the products produced then he may not earn exact profits, and even he may run
into losses. Therefore, to earn good profits, it is essential to keep control over each
and every element of cost , such as:
Control on prime cost
Control on overheads and
Control on indirect materials and tools.
Control on prime cost: This cost has got a great role in the total cost of a product.
It consists of direct material and direct labour cost. Direct material cost is the most
important item of expenditure and it needs careful and correct recording. To keep
control on it, the following factors must be considered:
An efficient system of store-keeping is needed.
To see that always right quantities of materials are consumed with less
wastage.
Over-stocking should be avoided.
As far as possible there should be minimum handling and steps must be taken
to reduce handling charges.
It should be predetermined, if waste and scrap materials can be used for some
other work (by products).
It is necessary to express labour charges in terms of time.
Labour rates should be fixed accurately with the help of time and motion
study.
A right system of time recording can be introduced can be introduced to
calculate the time taken by each worker.
Suitable inspection and supervision methods should be introduced.
A suitable method of wage payment should be selected and introduced.
Control on overheads: For efficient run. It is very essential to have strict control
on the overheads. Prime cost of product does not vary much from industry to
industry for the same product. It is the overhead charges which are much
responsible. If these are minimised, cost can be controlled to a large extent. For this
purpose following steps could be followed:
A set procedure for determining the total overhead charges of different
departments should be followed and charges of each department should be
compared whether they are in excess or not.
Keep control on the indirect labour force.
Simplification and set procedure for accounts and all administrative work is
required to be done.
As far as possible less work should be got done during extra hours.
Control on indirect materials and tools: This can be kept under control by
allowing a fixed amount for each shop and should be revised at regular intervals
according to the needs.
As standard cost is a tool to keep control over the total cost, therefore, total cost
should always be compared with it and short-coming and defects are to be found cut.
As the cost of the product consists of material. Labour and overheads, it is necessary
to bring down the expenditure on these elements.
There is a growing trend to linking buying companies with suppliers through
electronic data systems. The advantages include faster communications, reduced
paper work and greater accuracy etc. Value analysis seeks to find lower-cost ways of
performing the functions of purchased items. Purchasing contributes to this process
by tapping the expertise of the personnel in supplier companies regarding new
materials, processes and design concepts.
The amount of wasted materials and supplies in any industry is of utmost concern in
modern production system. For instance. If cost materials and supplies is only 20%
of sales, saving a quarter of this may double the profits. This can be achieved by
carefully observing the under mentioned steps:
Analyse cost and usage
Check purchasing practices
Use value analysis
Standardize material
Update old ideas
Analyse cost and usage: Look at the total use of material and supplies in the
organization. An itemwise value list of a particular month's usage will highlight the
most significant items that have the greatest sving potential when you spot what
seems like excessive use of material or supplies in a given operation, watch the
operation and find out the causes. You may ask yourself such questions as:
Where is the material used and for what?
Is the use reasonable? If not now can it be reduced?
Is the job worth the amount of material? Why is one person using more raw
materials for a product than another? and why is a tool wearing out too fast?
Example: In making a study one concern found that its plant spraying shop used
700 to 800 litres of paint per day but on Mondays 1000 litres. It turned out that
paints was normally sprayed on what hot agitator and heater were turned off on
Sundays and turned on again on Monday morning, But the heater get cold over the
week end and took about 5 hours to get up the proper temperature. In that time, the
painters has to use extra paint to get it to cover. The company has found that the
savings of 15000 litres of paint in a year is more than the cost ofhaving the heater go
on earlier.
In the same way use of machinery and tools can be first analysed in one plant, for
instance, a machine tool was changed every four hours. When the foreman found
that most of these tools has to be changed every two hours, he looked around for the
reason and found that tools that were wearing out had not been properly ground and
hence did not hold up as well. Then the situation was improved. When you have
made as many savings as possible from your list of major expenses item, give
attention to smaller items.
Check purchasing practices: The purchasing department is one of the main sources
of ideas for saving materials and supplies. They are in constant touch witht the
supply market, where they hear and read about new developments. If the department
keep them informed of interests and needs, they may come up with good suggestions.
The following may be used in purchase procedure:
Before you contact to buy a specially designed component, make certain a
readily available unit is not on the market. For example, a savings of 40% were
realized when a standard one is substituted for a more expensive one
originally specified.
Make sure you know what you want. Much of the price the supplier charges is
hidden in your specification to determine, if you have over specified.
Check items you buy to spot too stringent specifications. Relaxing item
requirements may expand supply sources and cut procurement costs.
Buy and store liquids in bulks to cut costs and handling. Make use of quantity
discounts, Economic purchase quantity concept (inventory control policy) etc.
Cash in a consolidated purchasing. It saves a lot of money and time purchases
should be grouped by size, types and gauge of material.
Cut inventories of little used supplies. So that free spaces, cut record keeping
costs etc.
Group buying often reduces paper works.
Before ordering any new supplies, stores should be checked to confirm that
particular one is needed.
Review purchases of often ordered items with grouping requirements in mind.
Suppliers should be asked to submit rates on the basis of a six month or one
year usage figure, supplies to be delivered as required. It will allow the
advantage like reduction in stirage floor space, simplified records, less
purchasing time, discounted qualities, simpler receiving and inspection
procedure.
Before purchasing new items, screen the existing stocks to see if available
items can be modified for less cost to meet the needs.
Use value analysis: This is a technique that analyze the users wants from a
product. The aim is to have most qualified technicians in the business to solve the
problems systematically, to suggest alternate materials, newer processes and more
simplified design.
Value analysis is a methodical approach to each product that uncovers and removes
existing manufacturing expenses by changing the nature of product instead of the
nature of the system.
Example: A baking company formerly used 50 kg bags to store flour. Substitution of
100kg bags made a savings of Rs 2 lakks per annum. It should be noted that a value
analysis programme must becarefully introduced to prevent danger of downgrading
quality and to prevent changes for the sake of changes.
Standardise materials : Standardisation although is a value analysis technique
but it is so important that it is separately listed. The basic idea of standardisation is
to find items that can be substituted for higher cost items: yet still do a good job. By
standardising, purchasing can be done in lumpsum at a discounted rate. By keeping a
large stock of the goods, shortages can be prevented. We can also avoid overstocking
of goods, which are not used very much. When considering standardization get
advice from various sections of the organization, such as engineering, design,
production, purchasing, inventory control etc., so that standardization could be
plant-wide.
Update old Ideas : Good ideas dormant in most companies, pigeonholed in desk
drawers and file cabinets. A manger may be too busy to consider the idea when
presented: the ideas timing may be off : or the financial climate is not in favour.
Shelved ideas add up to lost opportunities, frustrated suggestions and think time
down the drain. Many concerns make a regular practice of reviving old ideas and
making them pay off.
Negotiation : Negotiation is a part of the buyers routine task. Although much of
this belongs to the behavioural sciences, a great deal of the success of negotiation,
hinges, upon a good preparation by the purchasing executive before starting any
negotiation. Whether the negotiation is for cost, quality, or quantity, much
homework needs to have detailed cost data and technical data regarding his
organisation and regarding the supplier companies. He should have information
regarding the economic trends in the region or in the country as also the
technological and other trends. Backed by such detailed data the purchaser in order
to not only argue effectively for the buying company, but also to understand the
supplying companys difficulties and problems so that during the negotiations the
buyer does not rub the vendor the wrong way and thus spoil an established
relationship. Many effective buyers backed by purchasing research, are in a position
to suggest ways of reducing costs, improving quality, delivery or other performance
to the vendor company and this is appreciated by the supplying company.
Learning curve concept : The 'Learning Curve' concept can be of some help in
negotiations. When a task is done more and more number of times, the time to
complete the task also gradually reduces with increased attempt at it. Similarly, when
the number of units produced increases, the direct labour hours required per unit
decrease, for a variety of reasons.
Price forecasting : Cost aspect are useful when dealing with the supplier on one-
to-one basis. However, there are very many situations, particularly regarding raw
materials, where the material is subject to a multitude of economic factors which
influence the price of the material. It becomes necessary on the part of the
purchasing executive to take cognizance of and understand the price movements.
Price forecasting, based upon the time-series methods of computing trends, business
cycles and seasonalities, or based upon the understanding of the influence of various
economic/business parameters should be of some interest to the purchasing
executive who would like to keep the costs low. The objective is to keep the costs of
purchases reasonably low, and if the prices of the materials do run away, then to
ensure the availability of supply of the material of the current and near future
requirements.
Make or Buy : The purchase function would be incomplete if we did not make a
mention of make/buy analysis. To put it briefly, a company should buy a component
instead of making it :
If it costs less to buy rather than to manufacture the component internally.
If the return on the necessary investment to be made to manufacture the
component is not attractive enough.
If the company does not have the requisite skilled manpower to make the
component.
If it feels that manufacturing internally will mean additional labour problem.
If adequate managerial manpower is not available to take charge of this extra
work of manufacture.
If the component to be manufactured shows much seasonal demand or
upswings and downswings of demand resulting in a considerable risk of
maintaining inventories of it; also if the raw material for the component faces
much seasonal fluctuations. Which makes the manufacture of the product
more risky for the buying company.
If there is no difficulty in transporting the component from the supplier to the
buying company.
If the process of making the product is confidential or is patented.
If the same component is not needed year in and year-out and there is much
risk of technological obsolescence discouraging investment in capital
equipment to manufacture the component internally.
Make or Buy is a strategic decision, and therefore, much short - term as well as long -
term thinking about various cost and other aspects needs to be done. Thus, the role
of the purchasing executive is as challenging as it is demanding because it requires
an understanding of various functions within the company, a sensitivity to feel the
market, the rigor to do a detailed analysis of the market forces now and later, the
capacity to be a tough yet humane bargainer and negotiator, and excellent
interpersonal skills to integrate conflicting viewpoints of a number of people with
different objectives.
References
1. Burbidge, J.L : Introduction to Production planning and control 1967.
2. Chary, S.N : Production and operations management : TMH New Delhi, 1988.
3. Corje, D.K : Production control in engineering, Edward Arnold, 19677.
4. Smith, S.B : Company based production and inventory control Prentice Hall,
N.J. 1989.
5. Banga, T.R. & Sharma, S.C : Mechanical estimating and costing, Khanna
Publishers, New Delhi, 1986.
6. Banga, T.R. & Sharma,S.C : Industrial organisation and engineering economics,
Khanna Publishers, New Delhi, 1986.
7. Datta, A.K. : Material management procedures, text and cases, PHI, 1992.
8. Gopalakrishnan, P.: Purchasing and materials management, TMH, New
Delhi, 1990.
Model Questions
1. Discuss the advantages and disadvantages of centralized versus decentralized
purchasing.
2. Explain the concept of value analysis
3. Briefly explain the store systems and procedure.
4. What are the different cost reduction programmes?
- End Of Chapter -

Production and Materials Management

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Production and Materials Management

Încărcat de

Drepturi de autor:

Formate disponibile

LESSON - 1

S-ar putea să vă placă și