OPERATIONS SIRP

PREPARATORY KIT

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Contents
Production Planning ................................................................................................................................ 5
Strategic Business Plan ....................................................................................................................... 5
Production Plan ................................................................................................................................... 5
Master Production Schedule ............................................................................................................... 5
Material Requirements Plan ................................................................................................................ 6
Bills of Material .................................................................................................................................. 6
Purchasing and Production Activity Control ...................................................................................... 7
MRP II – Manufacturing Resource Planning ...................................................................................... 7
Inventory ................................................................................................................................................. 9
Cycle stock .......................................................................................................................................... 9
Pipeline stock ...................................................................................................................................... 9
Safety stock ......................................................................................................................................... 9
Dead stock......................................................................................................................................... 10
Anticipation inventory ...................................................................................................................... 10
Enterprise Resource Planning ........................................................................................................... 10
Process Analysis Terms ........................................................................................................................ 11
Order qualifiers and Order winners .................................................................................................. 11
Process capacity ................................................................................................................................ 11
Capacity utilization ........................................................................................................................... 11
Takt Time .......................................................................................................................................... 11
Cycle Time ........................................................................................................................................ 12
Lead Time ......................................................................................................................................... 12
Throughput time................................................................................................................................ 12
Throughput rate/ Flow rate ............................................................................................................... 12
Idle time ............................................................................................................................................ 13
Changeover time ............................................................................................................................... 13
Buffer ................................................................................................................................................ 13
Manufacturing Strategies ...................................................................................................................... 14
Make to Stock (MTS) ....................................................................................................................... 14
Assemble to Order (ATO) ................................................................................................................ 14
Make to Order (MTO) ...................................................................................................................... 14
Engineer to Order (ETO) .................................................................................................................. 14
Bottleneck ......................................................................................................................................... 15
Job production................................................................................................................................... 16
Batch production ............................................................................................................................... 16
Mass production ................................................................................................................................ 16
Incoterms .......................................................................................................................................... 17
Manufacturing Practices ....................................................................................................................... 19

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 Lean .................................................................................................................................................. 19
Kaizen ............................................................................................................................................... 19
Toyota Production System ................................................................................................................ 19
Jidoka ................................................................................................................................................ 20
Heijunka ............................................................................................................................................ 21
Poka-Yoke......................................................................................................................................... 21
Just-In-Time (JIT) ............................................................................................................................. 22
Kanban .............................................................................................................................................. 22
Gemba Gembutsu Genjitsu ............................................................................................................... 23
Theory of Constraints ....................................................................................................................... 23
Service Operations ................................................................................................................................ 25
Manufacturing and Services – Similarities and Differences ............................................................. 25
Service Blueprint .............................................................................................................................. 25
Moments of truth............................................................................................................................... 26
Queuing ............................................................................................................................................. 26
Forecasting ............................................................................................................................................ 28
Forecasting Techniques .................................................................................................................... 28
Seasonality ........................................................................................................................................ 31
Forecast Error.................................................................................................................................... 32
Quality .................................................................................................................................................. 33
Cost of Quality .................................................................................................................................. 33
Quality control Tools ........................................................................................................................ 33
5S ...................................................................................................................................................... 38
Types of Waste (TIMWOODS) ........................................................................................................ 40
Statistical Process Control ................................................................................................................ 40
PDCA ................................................................................................................................................ 41
Six Sigma .......................................................................................................................................... 41
Quality Function Deployment........................................................................................................... 43
Zero Defects – The theory and implementation................................................................................ 44
International Organisation for Standardisation (ISO) ....................................................................... 44
Supply Chain......................................................................................................................................... 46
Value Chain ...................................................................................................................................... 47
Functional product ............................................................................................................................ 48
Innovative Product ............................................................................................................................ 48
Bullwhip effect.................................................................................................................................. 49
2PL (Second-Party logistics) ............................................................................................................ 49
3PL (Third Party Logistics) .............................................................................................................. 49
4PL (Fourth Party Logistics) ............................................................................................................ 49
Reverse Logistics .............................................................................................................................. 50
Project Management ............................................................................................................................. 51
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 Float/Slack ........................................................................................................................................ 51
Project Management Methodologies .................................................................................................... 53
Waterfall Model of Project Management.......................................................................................... 53
Agile Project Management ............................................................................................................... 54
Critical Chain Project Management .................................................................................................. 56
Triple Constraint ............................................................................................................................... 58
Process Groups.................................................................................................................................. 58
Knowledge Areas .............................................................................................................................. 59
Work Breakdown (WBS) Structure .................................................................................................. 60
Inventory management.......................................................................................................................... 62
E - Commerce ....................................................................................................................................... 63
Distribution Strategies ...................................................................................................................... 64
Milk Run ........................................................................................................................................... 65
Hub & Spoke Model ......................................................................................................................... 66
Delivery Types .................................................................................................................................. 66

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Production Planning
Manufacturing is complex. Some firms make a few different products, whereas others make
many products. A good planning system must answer four questions:
1. What are we going to make?
2. What does it take to make it?
3. What do we have?
4. What do we need?
There are five major levels in the manufacturing planning and control (MPC) system:
1. Strategic business plan.
2. Production plan (sales and operations plan).
3. Master production schedule.
4. Material requirements plan.
5. Purchasing and production activity control.
The above levels differ from each other in the following ways:
1. Purpose of the plan.
2. Planning horizon—the time span from now to sometime in the future for which the plan
is created.
3. Level of detail—the detail about products required for the plan.
4. Planning cycle—the frequency with which the plan is reviewed.

Strategic Business Plan

The strategic business plan is a statement of the major goals and objectives the company
expects to achieve over the next 2 to 10 years or more. It is a statement of the broad direction
of the firm and shows the kind of business—product lines, markets, and so on—the firm wants
to do in the future. It is based on long-range forecasts and includes participation from
marketing, finance, production, and engineering.

Production Plan

Given the objectives set by the strategic business plan, production management is concerned
with the following:
1. The quantities of each product group that must be produced in each period.
2. The desired inventory levels.
3. The resources of equipment, labour, and material needed in each period.
4. The availability of the resources needed.
The level of detail is not high.
For example, if a company manufactures children’s bicycles, tricycles, and scooters in
various models, each with many options, the production plan will show major product groups
or families: bicycles, tricycles, and scooters. The planning horizon is usually 6 to 18 months
and is reviewed perhaps each month or quarter.

Master Production Schedule

The master production schedule (MPS) is a plan for the production of individual end items. It
breaks down the production plan to show, for each period, the quantity of each end item to be
made.

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For example, it might show that 200 Model A23 scooters are to be built each week. Inputs to
the MPS are the production plan, the forecast for individual end items, sales orders,
inventories, and existing capacity.

The level of detail for the MPS is higher than for the production plan. Whereas the production
plan was based upon families of products (tricycles), the master production schedule is
developed for individual end items (each model of tricycle). The planning horizon usually
extends from 3 to 18 months but primarily depends on the purchasing and manufacturing lead
times.

Fig 1: Manufacturing Planning and Control System

Material Requirements Plan

The material requirements plan (MRP) is a plan for the production and purchase of the
components used in making the items in the master production schedule. It shows the
quantities needed and at what stage of manufacturing are they intended to be made or used.
The level of detail is high. As with the master production schedule, it usually extends from 3
to 18 months.

Bills of Material

The Association for Operations Management defines a Bill of Material (BOM) as “a list of all
the sub-assemblies, intermediates, parts, and raw materials that go into making the parent
assembly showing the quantities of each required to make the assembly.”

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 Table 1: A simplified BOM

Purchasing and Production Activity Control

The time comes when plans must be put into action. Production activity control (PAC) is a
business function that is responsible for executing the master production schedule and the
material requirements plan. This function is responsible for simultaneously making good use
of labour and machines, minimizing work-in-process inventory and maintaining customer
service. The material requirements plan authorizes the PAC to manage day-to-day activity and
provide the necessary support.

The planning horizon is very short, perhaps from a day to a month. The level of detail is high
since it is concerned with individual components, workstations, and orders. Plans are reviewed
and revised daily.

Fig 2: Overview of production planning

MRP II – Manufacturing Resource Planning

Manufacturing Resource Planning (MRP II) is an integrated information system used by

businesses. Manufacturing Resource Planning (MRP II) evolved from early Materials
Requirement Planning (MRP) systems by including the integration of additional data, financial
planning in dollars and labour requirement. MRP II provides coordination between marketing
and production. Marketing, finance, and production agree on a total workable plan expressed
in the production plan. Marketing and production must work together on a weekly and daily

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basis to adjust the plan as changes occur. Order sizes may need to be changed, orders cancelled,
and delivery dates adjusted.

It is made up of a variety of processes, each linked together: business planning, production

planning (sales and operations planning), master production scheduling, material requirements
planning and capacity requirements planning. The system is designed to centralize, integrate
and process information for effective decision making in scheduling, design
engineering, inventory management and cost control in manufacturing.

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Inventory
Cycle stock

Organisations usually produce/buy and transport in batches to meet economies of scale. The
inventory resulting from this is called cycle inventory. This is the inventory that is used to
replenish the stock at the different warehouses/depots.

Fig 3: Calculating order cycle

Average Cycle Inventory in the system = (opening inventory + closing inventory)/2

= (0+Q)/2 = Q/2

Pipeline stock

It is of 2 types
• Work-in-progress inventory – Since it takes a finite amount of time for conversion
from raw material to finished goods there is always some inventory that is currently
being worked upon. This is called Work-in-progress inventory.
• In-transit inventory – Since it takes finite time for the movement of goods, there is
always some inventory that is currently in movement from one point to another. This
is in-transit inventory.

Safety stock

Safety stock is the stock that is held at hand at all times and is generally used to safeguard
against uncertainties of supply and demand.
Demand uncertainty can be due to bullwhip effects, sudden unanticipated demand, etc.
Supply uncertainty can be due to
• Production variability (may be some machine is down for maintenance, delay or
unavailability of raw material)
• Lead time variability.

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Dead stock

It is the non-moving inventory that is of no use in the supply chain or markets. It includes those
items that have become obsolete.

Anticipation inventory

It consists of stock that is accumulated in advance anticipating a surge in demand due to some
promotional activities etc. It may also include stock built in advance due to some anticipated
labour strikes, price or supply shocks, etc.

Enterprise Resource Planning

An Enterprise resource planning (ERP) system is a fully integrated business management
system covering functional areas of an enterprise like Logistics, Production, Finance,
Accounting and Human Resources. It organises and integrates operation processes and
information flows to make optimum use of resources such as men, material, money and
machine.

Enterprise resource planning promises one database, one application, one user interface for
the entire enterprise, where once disparate systems ruled manufacturing, distribution, finance
and sales.

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Process Analysis Terms

Order qualifiers and Order winners

Order qualifiers are the competitive advantages that a company must demonstrate in order to
be a viable competitor in the business arena.
Order winning attributes are other attributes that sufficiently motivate the customer to buy
their product or service. Order winners are the competitive advantages such as quality, delivery
speed, reliability, product design, flexibility, and image that cause a company’s customers to
select their products or services. It is the main reason why customers purchase the company's
product.
The difference between order winners and qualifiers is that order qualifiers are the competitive
standards that make a firm's products viewed as fit for purchase by consumers, while order
winners are the standards that separate the products or services of one firm from another.
Example:
For Automotive industry, major order qualifiers could be defined as price, quality and variety.
Toyota, Ford and GM are leading companies within that sector, which manufacture
correspondent cars with these order qualifying factors mostly.

Order winners for Toyota are continuous innovation of Toyota and standardised quality. People
who choose Toyota cars are mostly satisfied with innovative internal and external features of
Toyota’s cars.

Process capacity

The capacity of the process is its maximum output rate, measured in units produced per unit
time. The capacity of a series of tasks is determined by the lowest capacity in the string.
Whereas the capacity of the parallel strings of tasks is the sum of the capacities of the two
strings, except for the cases in which the two strings have different outputs that are combined.
In such cases, the capacity of two parallel strings of tasks is that of the lowest capacity parallel
string.

Capacity utilization

The percentage of the process capacity that is actually being used

𝐴𝑐𝑡𝑢𝑎𝑙 𝑙𝑒𝑣𝑒𝑙 𝑜𝑓𝑜𝑢𝑡𝑝𝑢𝑡
∗ 100
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑜𝑢𝑡𝑝𝑢𝑡

Takt Time

Takt time is the rate at which you need to complete the production process in order to meet the
customer demand.
𝑁𝑒𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑇𝑖𝑚𝑒
𝑻𝒂𝒌𝒕 𝑻𝒊𝒎𝒆 =
𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝐷𝑒𝑚𝑎𝑛𝑑
Net production time = Time available for production (till the delivery to the customer)

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Customer Demand = Order placed by the customer
Note: Takt time is customer demand based and cannot be measured by a stop watch.

Cycle Time

The time between the completion of two discrete units of production.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑇𝑖𝑚𝑒
𝑪𝒚𝒄𝒍𝒆 𝑻𝒊𝒎𝒆 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑

Note: Cycle time is work process based and can be measured using a stop watch.
It is the total time from the beginning to the end of your process, as defined by you and your
customer. It is also the time between completion of two successive units in a process. In other
words, cycle time of the process is equal to the longest task cycle time.

Lead Time
Lead time is the time it takes for one unit to make its way through your operation from front to
end (i.e. from taking order to receiving payment). In other words, time taken between product
to be ordered by customer and customer receiving the product.

Throughput time

Throughput Time is a measure of the time required for a material, part or sub-assembly to pass
through a manufacturing process following the release of an order to dispatch of the product.
In simple terms, it is the amount of time required for a product to pass through a manufacturing
process, thereby being converted from raw materials into finished goods.

Throughput Time includes the following time intervals:

• Processing time: This is the time spent transforming raw materials into finished goods.
• Inspection time: This is the time spent inspecting raw materials, work-in-process and
finished goods, possibly at multiple stages of the production process.
• Move time: This is the time required to move items into and out of the manufacturing
area, as well as between workstations within the production area.
• Queue time: This is the time spent waiting prior to the processing, inspection and move
activities.
Throughput time: Raw Materials (RM)- Receipt to Dispatch

Throughput rate/ Flow rate

The average rate at which units flow past a specific point in the process. The maximum
throughput rate is the process capacity.

1
𝑻𝒉𝒓𝒐𝒖𝒈𝒉𝒑𝒖𝒕 𝒓𝒂𝒕𝒆 =
𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒

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E.g.

Throughput time = 3+3+3 = 9 minutes Throughput time= 2+3+1= 6 minutes

Cycle time= 3 minutes cycle time= 3 minutes
Throughput rate= 1/3 units/min Throughput rate= 160 units/day
=20 units/hour
=160 units/day

Idle time

Time when no activity is being performed. For example, when an activity is waiting for a work
to arrive from the previous activity. The term can be used to describe both machine idle time
and worker idle time.

Changeover time

It is the time taken to modify the production line for different products or new batches of the
same product. Setup and changeover are sometimes used interchangeably. Setup is viewed as
a component of changeover that is focused on configuring a machine for a different product
type. Both setup and changeover are non-value added operations and so should be minimised
as much as possible. It is recommended to use the term ‘changeover’ when talking about
switching between products, and ‘setup’ when focusing on what is going on with the machine
or process.

Buffer
In manufacturing, the concept of buffering is defined as maintaining enough supplies to keep
operations running smoothly. These supplies often include the raw materials needed for
production, and also the inventories of finished products waiting for shipment. For example, a
manufacturer will want to keep enough raw materials inventory to tide it over in case its
supplier is unable to deliver its shipments on time.

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Manufacturing Strategies
Make to Stock (MTS)

A traditional production strategy used by businesses to match production with consumer

demand forecasts. The Make-To-Stock (MTS) method forecasts demand to determine how
much stock should be produced. If demand for the product can be accurately forecasted, the
MTS strategy can be an efficient choice.
The main drawback to the Make-To-Stock (MTS) method is that it relies heavily on the
accuracy of demand forecasts. Inaccurate forecasts will lead to losses stemming from excessive
inventory or stock outs.

E.g. FMCG goods

Assemble to Order (ATO)

A business production strategy where products ordered by customers are produced quickly and
are customisable to a certain extent. The Assemble-To-Order (ATO) strategy requires that the
basic parts for the product are already manufactured but not yet assembled. Once an order is
received, the parts are assembled quickly and sent to the customer. The ATO strategy attempts
to combine the benefits of both strategies - getting products into customers' hands quickly while
allowing for the product to be customisable. Customer involvement in the design of the product
is limited to selecting the component part options needed.

E.g. Dell computers, Subway

Make to Order (MTO)

A business production strategy that typically allows consumers to purchase products that are
customised to their specifications. The make to order (MTO) strategy only manufactures the
end product once the customer places the order. This creates additional wait time for the
consumer to receive the product but allows for more flexible customisation compared to
purchasing from retailers' shelves. It is also called Build-To-Order (BTO).

Make-to-Order is ideal for companies that want to focus on low volume and highly customized
products. It is also ideal for businesses that sell expensive goods. If an item is expensive, it is
also costly to hold in storage.

E.g. BMW
BMW lets customers design the interior and exterior, the engine, as well as other features.

Engineer to Order (ETO)

A business production strategy where customer specifications require unique engineering

design, significant customization, or new purchased material. Usually the customer is highly
involved in the product design. Each customer order results in a unique set of part numbers, bills
of material, and routings. ETO strategies theoretically are the slowest to fulfil: time is required

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not only to build the product, but to custom design it to meet the customer’s unique
requirements.

E.g. Power plant boilers, electrical switchgear, commercial HVAC equipment, industrial
cranes, specialty vehicles like fire trucks etc.

Table 2: Manufacturing strategies

Bottleneck

It refers to a phenomenon where the performance or capacity of an entire system is limited by

a single or small number of components or resources. In production and project management,
a bottleneck is one process in a chain of processes which, due to its limited capacity, reduces
the capacity of the whole chain. Bottlenecks not only slow or limit the capacity of a process
but also cause other problems in a process like:
• Process Blocking: This occurs when there is no more room to store WIP or buffer stock
before the bottleneck process. This will cause the production line to bank up and stop
until the WIP is cleared or processed. For example, a process can become blocked when
the WIP area cannot take any more material until the next process processes some.
• Process Starvation: This occurs when the steps after the bottleneck step are forced to
stop or are idle because they can’t process any units until the bottleneck process can
supply materials to this next step. For example, a process can become starved because
its cycle time is less than the previous step and will be forced to remain idle while it
waits for materials or WIP.

E.g.

Process Step 1: Process Step 2: Process Step 3:

Cycle time: 20s WIP Cycle time: 30s Cycle time: 15s

Process Blocking Bottleneck Process Starving

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Job production

Under Job production, special or non-standardised products are produced in accordance with
the orders received from the customers. As each product is non-standardised, varying in size
and nature, it requires separate job for production. The machines and equipment’s are adjusted
in such a manner so as to suit the requirements of a particular job.
Example: ship building, dam construction

Batch production

Batch production pertains to repetitive production. It refers to the production of goods, the
quantity of which is known in advance. It is that form of production where identical products
are produced in batches on the basis of demand of customers’ or of expected demand for
products.
Example: Generally adopted in case of manufacturing biscuits, motor, medicines

Mass production
It is a continuous production of standardised products on a large scale. Under this method,
production remains continuous in anticipation of future demand. Standardisation is the basis of
mass production. Standardised products are produced under this method by using standardised
materials and equipment. There is a continuous or uninterrupted flow of production obtained
by arranging the machines in a proper sequence of operations.
Example: Plastic goods, hardware, electric fans.
Ford Model T is the most famous mass-produced automobile.

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Incoterms

The INCOTERMS (International Commercial Terms) is a universally recognized set of

definitions of international trade terms, defining the respective roles of the buyer and seller in
the arrangement of transportation and other responsibilities and clarify when the ownership of
the merchandise takes place. They are used in conjunction with a sales agreement or other
method of transacting the sale. Following are the few widely used Incoterms:

EXW (EX Works) is an international trade term that describes an agreement in which the
seller is required to make goods ready for pickup at his or her own place of business. All other
transportation costs and risks are assumed by the buyers.

FCA (Free Carrier) means that the seller delivers the goods, cleared for export, to the carrier
nominated by the buyer at the place named by the buyer. If no precise point is indicated by
buyer, the seller may choose, within the place or range, where the carrier shall take the goods
into his charge. Regardless of the number of transportation modes involved in the shipment,
the transportation point must be a location within the seller’s home nation.

FAS (Free alongside ship) means that the seller fulfils his obligation to deliver goods to a
named port alongside a vessel designated by the buyer. “Alongside” means that the goods are
within reach of ship’s lifting tackle.

FOB (free on board) means that the seller fulfils his obligations to deliver when the goods are
loaded over the ship at the port of origin. It indicates whether buyer or seller has the liability
for the goods damaged during shipment as follows:
FOB shipping point (origin) means that the buyer is at the risk during shipment and FOB
(destination) states that seller retains the risk until the goods are delivered to the buyer.

CIF (cost, insurance and freight) means the seller is required to arrange for the carriage of
goods by sea to a port of destination and provide the buyer with the documents necessary to
obtain the goods from the carrier. Here, the seller pays for the cost and insurance cover against
the buyer’s risk and all the risks are transferred to the buyer as soon as goods are on board the
vessel.

CIP (carriage and insurance paid to) indicates that the seller delivers the goods to a carrier
or to another person nominated by the seller, at a place mutually agreed upon by the buyer and
seller, and that the seller pays the freight and insurance charges to transport the goods to the
specified destination. The risk of damage or loss to the goods is transferred from seller to buyer
as soon as the goods have been delivered to the carrier.

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Fig 4: Incoterms

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Manufacturing Practices

Lean
Doing more with less by employing 'lean thinking'. Lean manufacturing involves never ending
efforts to eliminate or reduce 'muda' (Japanese for waste or any activity that consumes
resources without adding value) in design, manufacturing, distribution, and customer service
processes. It was developed by Toyota Executive Taiichi Ohno during post- World War II
reconstruction period in Japan.
The primary elements of Lean are:
• to have only the required inventory when needed;
• to improve quality to zero defects;
• to reduce lead times by reducing setup times, queue lengths, and lot sizes;
• to incrementally revise the operations themselves;
• to accomplish these things at minimum cost.

Kaizen

• Kaizen is a lean manufacturing tool that encourages continuous improvement in quality,

technology, processes, productivity, safety, and workplace culture. Kaizen focuses on
applying small, daily changes that result in major improvements over time.
• Kaizen provides one simple principle: look at how things can be improved, improve
them, and then improve them again and again. Some of the tools used to achieve kaizen
are:
• Automation: Look for processes that can be automated to improve efficiency and make
work easier.
• Kanban: Reduce waste by getting the inventory you need, when you need it.
• 5S: Adopt 5S as a system for continuous improvement by achieving facility-wide
organisation and cleanliness.
• TPM: Eliminate downtime and boost overall production through Total Productive
Maintenance.

Toyota Production System

The production system was developed by Toyota Motor Corporation to provide best quality,
lowest cost, and shortest lead time through the elimination of waste.
TPS is comprised of two pillars, Just-in-Time and Jidoka (autonomation)
TPS is maintained and improved through iterations of standardised work and kaizen
(continuous improvement), following Plan–Do-Check-Act.

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 Fig 5: Toyota Production System “House”

Jidoka

The term Jidoka used in the TPS (Toyota Production System) is called autonomation which
means "automation with a human touch" or “automation with human intelligence”. Providing
machines and operators the ability to detect an abnormal condition and immediately stop work.
This enables operations to build in quality at each process and to separate men and machines
for more efficient work.
It is called autonomation because it gives equipment the ability to distinguish good parts from
bad autonomously, without being monitored by an operator. This eliminates the need for
operators to continuously watch machines and leads, in-turn, to large productivity gains
because one operator can handle several machines, often termed as multi-process handling.

Since equipment stops when a problem arises, a single operator can visually monitor and
efficiently control many machines. As an important tool for this "visual control" or "problem
visualization," Toyota plants use a problem display board system called "Andon" that allows
operators to identify problems in the production line with only a glance.

Fig 6: Concept of Jidoka

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Heijunka

A technique to facilitate Just-In-Time (JIT) production, levelling the type and quantity of
production over a fixed period of time. This enables production to efficiently meet customer
demands while avoiding batching and results in minimum inventories, capital costs, manpower,
and production lead time through the whole value stream.
Say a hat producer receives orders for 500 of the same hat per week: 200 orders on Monday,
100 on Tuesday, 50 on Wednesday, 100 on Thursday, and 50 on Friday. Instead of trying to
meet demand in sequence of the orders, the hat producer would use Heijunka to level demand
by producing an inventory of 100 hats near shipping to fulfil Monday’s orders. Every Monday,
100 hats will be in inventory. The rest of the week, production will make 100 hats per day – a
level amount. The inventory might look a little suspicious to Lean purists, but it has its fans –
it is the method the Toyota Production System uses today.
Relationship among Predictability, Flexibility and Stability is Heijunka – When implemented
correctly, it provides predictability by levelling demand, flexibility by decreasing changeover
time and stability by averaging production volume and type over the long term.

Fig 7: Heijunka

Poka-Yoke

The term means “mistake proofing” and refers to a device or mechanism that prevents defects
from occurring.
A poka-yoke is any mechanism in a lean manufacturing process that helps an equipment
operator avoid (yokeru) mistakes (poka). Its purpose is to eliminate product defects by
preventing, correcting, or drawing attention to human errors as they occur. The concept was
formalised, and the term adopted, by Shigeo Shingo as part of the Toyota Production System.

Examples:
• Electric plugs have an earth pin that is longer than the other pins and is the first to make
contact with the socket. The protective shield of the neutral and earth sockets are then
opened safely.
• Electric sockets are shaped in a manner that only one way of plugging-in is possible.
This prevents the possibility of a short-circuit.
• Micro-wave oven does not work until the door is shut.
• A lid that can be turned in only one direction.
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 • In McDonald’s, the French fry scoop and standard size bag used to measure the correct
quantity are poka-yokes.
• Checklists are another type of poka-yoke.

Just-In-Time (JIT)

Just-in-time is an inventory strategy that companies employ to increase efficiency and decrease
waste by receiving goods only as they are needed in the production process, thereby reducing
inventory costs. This method requires producers to forecast demand accurately.
This inventory supply system represents a shift away from the older Just-In-Case strategy, in
which producers carried large inventories in case higher demand had to be met.
• The main objective of JIT manufacturing is to reduce manufacturing lead times.
• This is primarily achieved by drastic reductions in Work-In-Progress (WIP).
• 100% capacity utilization is not the predominant objective.
• The result is a smooth, uninterrupted flow of small lots of products throughout
production.
Example: Dell has leveraged JIT principles to make its manufacturing process a success.
Dell’s approach to JIT is different in that they leverage their suppliers to achieve the JIT goal.
They are also unique in that Dell is able to provide exceptionally short lead times to their
customers, by forcing their suppliers to carry inventory instead of carrying it themselves and
then demanding (and receiving) short lead times on components so that products can be simply
assembled by Dell quickly and then shipped to the customer.

Kanban

Kanban is a visual signal that’s used to trigger an action. A token system/ inventory control
system- may be a card, flag, verbal signal etc.
The approach was inspired by a management team's visit to a Piggly Wiggly supermarket in
the United States, where Engineer Taiichi Ohno observed that store shelves were stocked with
just enough product to meet consumer demand and inventory would only be restocked when
there was a visual signal -- in this case, an empty space on the shelf.

In manufacturing, Kanban starts with the customer’s order and follows production
downstream. At its simplest, Kanban is a card with an inventory number that’s attached to a
part. Right before the part is installed, the Kanban card is detached and sent up the supply chain
as a request for another part.
Kanban containers are empty containers which are used as signalling devices in the JIT
production system. The empty container is sent to the factory floor, which indicates the need
to fill it. The amount by which it has to be filled up is indicated by the number of containers
that are sent to the production line.
The number of Kanbans and, therefore, the number of containers in the system is a very
important decision. The formula to compute the number of Kanbans needed to control the
production of a particular product is as follows:

22
 𝐷𝑇 + 𝑆
𝑁=
𝐶
where
N: total number of Kanbans or containers (one card per container)
D: Average demand per hour
T: the time it takes to receive an order from the previous workstation (also called the lead time)
in hours
C: size of container (container quantity)
S: safety stock to protect against variability or uncertainty in the system (usually given as a
percentage of demand during lead time)

Note: The demand (D) and lead time (T) have to be in the same time units

Gemba Gembutsu Genjitsu

These are the 3 G’s (three principles) of Kaizen. They are:

• Gemba: The actual place of work, shop floor
• Gembutsu: The actual product

• Genjitsu: The real facts and data

Theory of Constraints

The core concept of the Theory of Constraints is that every process has a most important
constraint and that total process throughput can only be improved when the constraint is
improved. A very important corollary to this is that spending time optimising non-constraints
will not provide significant benefits; only improvements to the constraint will further the goal
of achieving more profit. The five Steps of the Theory of Constraints:

• Identify the system constraint: Identify the current constraint which is most important
(the single part of the process that limits the rate at which the goal is achieved).
• Decide how to exploit the constraint: Make quick improvements to the throughput of
the constraint using existing resources (i.e. make the most of what you have).
• Subordinate everything else: The non-constraint components of the system must be
adjusted to a "setting" that will enable the constraint to operate at maximum
effectiveness. Once this has been done, the overall system is evaluated to determine if
the constraint has shifted to another component. If the constraint has been eliminated,
the change agent jumps to step five.
• Elevate the constraint: If the constraint still exists (i.e. it has not moved), consider
what further actions can be taken to eliminate it from being the constraint. Normally,
actions are continued at this step until the constraint has been “broken” (until it has
moved somewhere else). In some cases, capital investment may be required. This step
is only considered if steps two and three have not been successful. Major changes to
the existing system are considered at this step.
• Return to step one but do not let inertia set in

23
What are Constraints?
Constraints are anything that prevent the organisation from making progress towards its goal.
In manufacturing processes, constraints are often referred to as bottlenecks. They restrict an
entity, project, or system (such as a manufacturing or decision-making process) from achieving
its potential (or higher level of output) with reference to its goal. Interestingly, constraints can
take many forms other than equipment.

PhysicalTypically, equipment but can also be other tangible items such as material
shortages, lack of people, or lack of space.
Policy Required or recommended ways of working. May be informal (e.g. described
to new employees as “how things are done here”). Examples include company
procedures (e.g. how lot sizes are calculated, bonus plans, overtime policy),
union contracts (e.g. a contract that prohibits cross-training), or government
regulations (e.g. mandated breaks).
Paradigm Deeply engrained beliefs or habits. For example, the belief that “we must
always keep our equipment running to lower the manufacturing cost per piece”.
A close relative of the policy constraint.
Market Occurs when production capacity exceeds sales (the external marketplace is
constraining throughput). If there is an effective ongoing application of the
Theory of Constraints, eventually the constraint is likely to move to the
marketplace.

Example:
There’s a floral store called “Akito’s Flowers” and they make bouquets to sell to customers.

Step 1- Identify the system’s bottleneck(s): At Akito’s Flowers, the floral arrangers were
identified as the bottleneck.
Step 2- Exploit the bottleneck(s): For the floral shop, take orders ahead of time to make sure
there is always a buffer of orders for the arrangers to work on. This prevents idle time at the
bottleneck resource.
Step 3- Subordinate all other decisions to Step 2: Schedule non-bottleneck resources to
support the maximum use of the bottleneck. For Akito’s Flowers, have the clerk transfer orders
to the arrangers every ten minutes at the start of the day to make sure the bottleneck is fully
used. You may have to arrive early or stay late to be sure the orders are processed and waiting
for the arrangers to work on first thing each day.
Step 4- Elevate the bottleneck(s): If after Steps 1 through 3 the bottleneck is still a constraint,
then consider increasing the capacity of the bottleneck, i.e. add another floral arranger.
Step 5- Do not let inertia set in: Although the floral arrangers may improve their throughput,
check to see whether new constraints have developed. If so, work on those constraints and to
further increase throughput.

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Service Operations

Manufacturing and Services – Similarities and Differences

Manufacturing Organisation Service Organisation

Physical, durable product Intangible, perishable product
Output can be inventoried Output cannot be inventoried
Low customer contact High customer contact
Long response time Short response time
Large facility Small facility
Capital intensive Labour intensive
Quality easily measured Quality not easily measured

Service Blueprint

A service blueprint is an operational planning tool that provides guidance on how a service will
be provided, specifying the physical evidence, staff actions, and support systems /
infrastructure needed to deliver the service across its different channels.

Fig 8: Service Blueprint

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Moments of truth

First Moment of Truth (FMOT) - It's what people think when they see your product, and the
impressions they form when they read the words describing your product.

Second Moment of Truth (SMOT) - It's what people feel, think, see, hear, touch, smell and
(sometimes) taste as they experience your product over time. It's also how your company
supports them in their efforts throughout the relationship. This can occur before purchasing the
product, such as experiencing a hands-on demonstration of a new phone, but may also happen
after a purchase, which occurs frequently in the modern age of online shopping where a
customer does not truly experience the product until after it arrives.

Ultimate Moment of Truth (UMOT). Also known as the Third Moment of Truth, the UMOT
is centred on feedback from customers concerning the product. During the UMOT, a customer
may choose to share their opinions on the service with the company that provided it, write a
review online and give their opinions to family, friends and colleagues. These takeaways will
influence whether they become a return customer and is known as the Ultimate Moment
because it may become the Zero Moment of Truth for other people in the future.

Zero Moment of Truth (ZMOT). Introduced by Google, it's what people search for and find
after encountering the stimulus that directs their next steps. At this time, a customer will
encounter reviews and more information about the product before moving forward in the
journey.

Queuing

The principal actors in a queuing situation are the customer and the server. Typically,
queues are customers waiting for service. Customers are generated from a source. On
arrival at a service facility, they can start service immediately or wait in a queue if the
facility is busy. To analyse this sub-system, we need information relating to:
Arrival process
• how customers arrive e.g. singly or in groups (batch or bulk arrivals)
• how the arrivals are distributed in time (e.g. what is the probability distribution of
time between successive arrivals (the interarrival time distribution)
• whether there is a finite population of customers or (effectively) an infinite number

Service mechanism
• a description of the resources needed for service to begin
• how long the service will take (the service time distribution)
• the number of servers available
• whether the servers are in series (each server has a separate queue) or in parallel (one
queue for all servers)
• whether pre-emption is allowed (a server can stop processing a customer to deal with
another "emergency" customer)

26
Queue characteristics
• how, from the set of customers waiting for service, do we choose the one to be served
next (e.g. FIFO (first-in first-out) - also known as FCFS (first-come first served); LIFO
(last-in first-out); randomly) (this is often called the queue discipline)
• Do we have:
o Balking (customers deciding not to join the queue if it is too long)
o Reneging (customers leave the queue if they have waited too long for service)
o Jockeying (customers switch between queues if they think they will get served
faster by so doing)
o a queue of finite capacity or (effectively) of infinite capacity

Single queues

Multiple queues

27
Forecasting

There are many types of forecasting models. They differ in their degree of complexity, the
amount of data they use, and the way they generate the forecast. However, some features are
common to all forecasting models. They include the following:
• Forecasts are rarely perfect: Forecasting the future involves uncertainty. Therefore, it
is almost impossible to make a perfect prediction. The goal of forecasting is to generate
good forecasts on the average over time and to keep forecast errors as low as possible.
• Every forecast should include an estimate of error: Since forecasts are expected to be
wrong, the real question is “By how much?” Every forecast should include an estimate
of error often expressed as a percentage (plus and minus) of the forecast or as a range
between maximum and minimum values.
• Forecasts are more accurate for groups or families of items rather than for individual
items: When items are grouped together, their individual high and low values can cancel
each other out. The data for a group of items can be stable even when individual items
in the group are very unstable. Consequently, one can obtain a higher degree of
accuracy when forecasting for a group of items rather than for individual items. For
example, you cannot expect the same degree of accuracy if you are forecasting sales of
long-sleeved hunter green polo shirts that you can expect when forecasting sales of all
polo shirts.
• Forecasts are more accurate for shorter than longer time horizons: The shorter the
time horizon of the forecast, the lower the degree of uncertainty. Data do not change
very much in the short run. As the time horizon increases, however, there is a much
greater likelihood that changes in established patterns and relationships will occur. For
example, it is much harder to predict sales of a product two years from now than to
predict sales two weeks from now.

Forecasting Techniques

There are many forecasting methods, but they can usually be classified into:
Qualitative Techniques
Qualitative forecasting methods, often called judgmental methods, are methods in which the
forecast is made subjectively by the forecaster. They are educated guesses by forecasters or
experts based on intuition, knowledge, and experience. When you decide, based on your
intuition, that a particular team is going to win a cricket game, you are making a qualitative
forecast. Because qualitative methods are made by people, they are often biased.
Quantitative Techniques
Quantitative forecasting methods, on the other hand, are based on mathematical modelling.
Because they are mathematical, these methods are consistent. The same model will generate
the exact same forecast from the same set of data every time. These methods are also objective.
They do not suffer from the biases found in qualitative forecasting. Finally, these methods can
consider a lot of information at one time. Because people have limited information-processing
abilities and can easily experience information overload, they cannot compete with
mathematically generated forecasts in this area.

28
 Table 3: Forecasting techniques

Types of Qualitative Techniques

Table 4: Types of qualitative techniques

29
Types of Qualitative Techniques

Moving Average

Procedure is to calculate the average company sales for previous years. An “n-month” Moving
Average forecasts the sales for the next month by calculating the average of the sales of
previous ‘n’ months.
Example:

Year Actual Sales 3 year MA 6 year MA

1997 840
1998 880
1999 864
2000 832 861
2001 862 859
2002 948 853
2003 956 881 871
2004 (Forecasted) 922 890
Table 5: Moving Average method

Weighted Moving Average

The weighted moving average is calculated by multiplying each datum in your series by a
different ratio and then taking the sum of those products. Weighted averages assign a heavier
weighting to current data points since they are more relevant than data points in the distant
past. The sum of the weighting should add up to 1 (or 100%).
Example:
Date Closing Price of AAPL Weighting
Jun-26 90.9 5/15
Jun-25 90.36 4/15
Jun-24 90.28 3/15
Jun-23 90.83 2/15
Jun-20 90.91 1/15
Table 6: Weighted Moving Average method

The weighted average is calculated by multiplying the given price by its associated weighting
and then summing the values. In the example above, the weighted 5-day moving average would
be $90.62.
Calculation
((90.9*(5/15)) + (90.36*(4/15)) + (90.28*(3/15)) + (90.83*(2/15)) + (90.91*(1/15)))

30
Exponential smoothing
It is not necessary to keep months of history to get a moving average because the previously
calculated forecast has already allowed for this history. Therefore, the forecast can be based on
the old calculated forecast and the new data.

New forecast = (alpha) (latest demand) + (1 – alpha) (previous forecast)

Alpha is known as smoothing constant. When more weight is to be assigned to latest demand,
alpha is more than 0.5 and vice versa.
Exponential smoothing provides a routine method for regularly updating item forecasts. It
works quite well when dealing with stable items. Generally, it has been found satisfactory for
short-range forecasting. It is not satisfactory where the demand is low or intermittent.
Exponential smoothing will detect trends, although the forecast will lag actual demand if a
definite trend exists.
If a trend exists, it is possible to use a slightly more complex formula called double
exponential smoothing. This technique uses the same principles but notes whether each
successive value of the forecast is moving up or down on a trend line.

Seasonality

Periodic, repetitive, and generally regular and predictable pattern in the levels of business
activity where most or all sales originate in a particular season, quarter, or month.

Table 7: Forecasting methods

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Forecast Error

In statistics, a forecast error is the difference between the actual or real and the predicted or
forecast value of a time series or any other phenomenon of interest. Since the forecast error is
derived from the same scale of data, comparisons between the forecast errors of different series
can only be made when the series are on the same scale.
Forecast error is the difference between actual demand and forecast demand. Various
techniques to map the efficiency of model or find accuracy of model:
Mean Absolute Deviation (MAD)
It takes the absolute value of forecast errors and averages them over the entirety of the forecast
time periods. Taking an absolute value of a number disregards whether the number is negative
or positive and, in this case, avoids the positives and negatives cancelling each other out.

MAD =
 | Actual - Forecast | =  | Error |
n n
Where, n = number of forecast time periods

Mean Absolute Percentage Error (MAPE)

It is the most common measure of forecast error. MAPE functions best when there are no
extremes to the data (including zeros). MAPE is the average absolute percent error for each
time period or forecast minus actuals divided by actuals.

| Actual - Forecast |
 Actual
*100%
MAPE =
n
Where, n = number of forecast time periods
Mean Square Error (MSE):
Another method of calculating error rates, the Mean Squared Error (MSE), magnifies the errors
by squaring each one before adding them up and dividing by the number of forecast periods.

MSE =
 (Actual - Forecast) 2

=
 (Error) 2

n n

32
Quality

Quality means user satisfaction: that goods or services satisfy the needs and expectations of
the user. To achieve quality according to this definition, we must consider
1. Quality and product policy
2. Product design
3. Manufacturing
4. Final use of the product.

Dimensions of Quality
1. Performance
2. Features
3. Conformance
4. Warranty
5. Service
6. Aesthetics
7. Perceived Quality
8. Price

Cost of Quality

• Costs of Controlling Quality

Prevention costs: The costs of avoiding trouble by doing the job right in the first place. They
include training, statistical process control, machine maintenance, design improvements, and
quality planning costs.
Appraisal costs: The costs associated with checking and auditing quality in the organisation.
They include product inspection, quality audits, testing, and calibration.

• Costs of Failure
The costs of failing to control quality are the costs of producing material that does not meet
specification.
Internal failure costs: The costs of correcting problems that occur while the goods are still in
the production facility. Such costs are scrap, rework, and spoilage. These costs would disappear
if no defects existed in the product before shipment.
External failure costs: The costs of correcting problems after goods or services have been
delivered to the customer. They include warranty costs, field servicing of customer goods and
all the other costs associated with trying to satisfy customer complaints.

Quality control Tools

The Seven basic tools of Quality are a designation given to a fixed set of graphical techniques
identified as being most helpful in troubleshooting issues related to quality.
A. Tools for generating the data
1. Check sheet
2. Scatter Diagram
33
 3. Cause-and-effect diagram (also known as the "fishbone" or Ishikawa diagram)
B. Tools for organising the data
1. Pareto Chart
2. Flowchart (Process Diagram)
C. Tools for identifying problems
1. Histogram
2. Statistical Process Control Chart

Check Sheets
These represent a very simple method to collect data. Once an issue of interest has been
determined (for example, customer complaints about some product or service), the sources of
the complaints are listed as they occur. Whenever a complaint reason is repeated, a check is
put beside the reason.
Below is shown a check sheet for telephone interruptions and its causes.

Fig 9: Check Sheet

Scatter Diagram
A scatter plot is a type of mathematical diagram using cartesian coordinates to display values
for two variables for a set of data.
The data is displayed as a collection of points, each having the value of one variable
determining the position on the horizontal axis and the value of the other variable determining
the position on the vertical axis.

Fig 10: Scatter Plot of Temperature vs Month

34
Cause-and-effect diagram
Ishikawa diagrams are causal diagrams created by Kaoru Ishikawa (1968) that show the causes
of a specific event. These diagrams are used to plot out all the potential causes for an identified
problem (effect). Causes are grouped into 6 major groups to make it easier to understand.
• Manpower: People associated with the process
• Methods: Method of performing a process and requirement arrangement
• Machines: Various tools, equipment or processors involved in process
• Materials: Feed/Raw material, intermediate materials required to produce end product
Measurements: Quality deciding factors in form of various data generated using various
parameters
• Mother Nature: Environmental, cultural or engineering factors affecting process
As specific problems are branched out from the major effect area, the result appears to look
something like a fishbone. Common uses of the Ishikawa diagram are product design and
quality defect prevention, to identify potential factors causing an overall effect.

Fig 11: Fish-bone diagram

Pareto Chart
A Pareto chart is a type of chart that contains both bars and a line graph, where individual
values are represented in descending order by bars, and the line represents the cumulative total.
It is technique of arranging data according to priority or importance and using it into a problem-
solving frame work. It helps to focus on those few vital problems, for identifying the root
causes of problems and Useful in checking the effectiveness of the remedy on its
implementation.
Below mentioned Pareto chart shows that three major causes for customer complaints are
waiting for reservations, room cleanliness and waiting time for getting room services.

35
 Fig 12: Pareto Chart

Flow Chart
A flow chart shows flow of a process. It consists of various symbols which are used to describe
various stages in a process and it can easily determine the scope of a particular action upon on-
going process.

Fig 13: Shapes used in flow charts

36
Histogram
Histogram is a graphical representation of a frequency distribution which is a summary of
variation in a product or process

Fig 14: Histogram of results of an exam

Control Charts
It is a graphical representation of various parameters deciding Quality of a product. It consists
of a graph with a central line denoting the target value or standard and two limit lines on either
side of the central line called “Upper Control Limit” and “Lower Control Limit”. Quality
measured periodically is plotted on the chart and status of control assessed.

Fig 15: Control chart

37
 5S

"A place for everything, and everything in its place"

Pillar What does it mean? Why is it important? What problems are avoided?
Sort Remove all items not Space, time, money, The factory becomes
needed for current energy, and other increasingly crowded and hard
production operations. resources can be managed to work in. Storage of unneeded
and used most effectively. items gets in the way of
Leave only the bare communication.
essentials: When in Reduces problems and
doubt, throw it out annoyances in the work Time wasted searching for
flow. parts/tools.

Improves communication Unneeded inventory and

between workers. machinery are costly to
maintain.
Increases product quality.
Enhances productivity Excess stock hides production
problems.

Unneeded items and equipment

make it harder to improve the
process flow.
Set in order Arrange needed items Eliminates many kinds of Motion waste, searching waste.
so that they are easy to waste, including:
use. Waste of human energy.
• Searching waste.
Label items so that • Waste due to difficulty Waste of excess inventory.
anyone can find them or in using items.
put them away. • Waste due to difficulty Waste of defective products.
in returning items
Waste of unsafe conditions.

38
 Shine Keep everything, every Turn the workplace into a
day, swept and clean. clean, bright place where
everyone will enjoy
working.
Keep things in a condition
so it is ready to be used
when needed
Standardise Integrates Sort, Set in By ensuring conditions do
Order, and Shine into a not deteriorate to former
unified whole state, facilitates
implementation of the first
three pillars.
Sustain Making a habit of Consequences of not
properly maintaining keeping to the course of
correct procedures. action greater than
consequences of keeping
Instil discipline to it.
necessary to avoid
backsliding.
Lack of sunlight can lead to
poor morale and inefficient
work.
Defects are less obvious.
Puddles of oil and water cause
slipping and injuries.
Machines that do not receive
sufficient maintenance tend to
break down and cause defects.
Conditions go back to their old
undesirable levels.
Work areas are dirty and
cluttered.
Tool storage sites become
disorganised and time gets
wasted searching for tools.
Clutter starts to accumulate
over time.
Backsliding occurs
Unneeded items begin piling
up.
Tools and jigs do not get
returned to their designated
places.
No matter how dirty equipment
becomes, nothing is done to
clean it.
Items are left in a hazardous
orientation.
Dark, dirty, disorganised
workplace results in lower
morale
39
Types of Waste (TIMWOODS)

T – Transport – Moving people, products and information

I – Inventory – Storing parts, pieces, documentation ahead of requirements
M – Motion – Bending, turning, reaching, lifting
W – Waiting – For parts, information, instructions, equipment
O – Over production – Making more than is “immediately” required
O – Over processing – Tighter tolerances or higher-grade materials than are necessary
D – Defects – Rework, scrap, incorrect documentation
S – Skills – Under-utilizing capabilities, delegating tasks with inadequate training

Fig 16: Types of waste

Statistical Process Control

Statistical Process Control (SPC) is an industry-standard methodology for measuring and

controlling quality during the manufacturing process. Quality data in the form of Product or
Process measurements are obtained in real-time during manufacturing. This data is then plotted
on a graph with pre-determined control limits. Control limits are determined by the capability
of the process, whereas specification limits are determined by the client's needs.
Data that falls within the control limits indicates that everything is operating as expected. Any
variation within the control limits is likely due to a common cause—the natural variation that
is expected as part of the process. If data falls outside of the control limits, this indicates that

40
an assignable cause is likely the source of the product variation, and something within the
process should be changed to fix the issue before defects occur.

PDCA

Plan

Act Do

Check

PDCA is an iterative four-step management method used in business for the control and
continuous improvement of processes and products. It is also known as the Deming
circle/cycle/wheel, Shewhart cycle, control circle/cycle, or Plan–Do–Study– Act (PDSA).
The steps in each successive PDCA cycle are:

PLAN
Establish the objectives and processes necessary to deliver results in accordance with the
expected output (the target or goals).
DO
Implement the plan, execute the process, and make the product. Collect data for charting and
analysis in the following "CHECK" and "ACT" steps.
CHECK
Study the actual results (measured and collected in "DO" above) and compare against the
expected results (targets or goals from the "PLAN") to ascertain any differences.
ACT
Request corrective actions on significant differences between actual and planned results.
Analyse the differences to determine their root causes. Determine where to apply changes that
will include improvement of the process or product.

Six Sigma
Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects. To
achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities.

A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma
opportunity is then the total quantity of chances for a defect.

There are two Six Sigma sub-methodologies: DMAIC and DMADV. The Six Sigma DMAIC
process (define, measure, analyse, improve, control) is an improvement system for existing

41
processes falling below specification and looking for incremental improvement. DMADV
process (define, measure, analyse, design and verify) is a Six Sigma framework that focuses
primarily on the development of a new service, product or process as opposed to improving a
previously existing one.

How are DMAIC and DMADV different?

Despite the shared first three letters of their names, there are some notable differences between
them. The main difference exists in the way the final two steps of the process are handled. With
DMADV, the Design and Verify steps deal with redesigning a process to match customer
needs, as opposed to the Improve and Control steps that focus on determining ways to readjust
and control the process. DMAIC typically defines a business process and how applicable it is;
DMADV defines the needs of the customer as they relate to a service or product.
With regards to measurement, DMAIC measures current performance of a process while
DMADV measures customer specifications and needs. Control systems are established with
DMAIC in order to keep check on the business’ future performance, while with DMADV, a
suggested business model must undergo simulation tests to verify efficacy.

DMAIC concentrates on making improvements to a business process in order to reduce or

eliminate defects; DMADV develops an appropriate business model destined to meet the
customers’ requirements.

The Six Sigma DMADV process (define, measure, analyse, design, verify) is an improvement
system used to develop new processes or products at Six Sigma quality levels.

42
Quality Function Deployment

QFD is a structured method that uses the seven management and planning tools to identify and
prioritise customers’ expectations quickly and effectively.
Quality Function Deployment (QFD) is a structured approach to defining customer needs or
requirements and translating them into specific plans to produce products to meet those needs.
The “voice of the customer” is the term to describe these stated and unstated customer needs
or requirements. This understanding of the customer needs is then summarized in a product
planning matrix or “house of quality”. These matrices are used to translate higher level
“what’s” or needs into lower level “how’s” – product requirements or technical characteristics
to satisfy these needs.
The QFD methodology focuses on the most important product or service attributes or qualities.
Once you have prioritized the attributes and qualities, QFD deploys them to the appropriate
organisational function for action. Thus, QFD is the deployment of customer-driven qualities
to the responsible functions of an organisation.

Fig 17: House of Quality

43
Zero Defects – The theory and implementation

Zero defects theory ensures that there is no waste existing in a project. Waste here refers to all
unproductive processes, tools, employees etc. There is no help in including host of processes,
tools and employees if the production is not as such. So, anything that is unproductive and does
not add value to a project should be eliminated from the project. This is the process of
elimination of waste. By doing this, you reduce waste and thus cut down the cost involved in
the waste. Besides eliminating waste, there should be a process of improvement. Any scope of
improvement that is possible in a project should be experimented. This ensures the movement
towards perfection. Zero defects theory also closely connects with “right first time” phrase.
This means that every project should be perfect at the very first time itself. Here, again perfect
refers to zero defects. Zero defects theory is based on four elements for implementation in real
projects.
• Quality is a state of assurance to requirements. Therefore, zero defects in a project
means fulfilling requirements at that point in time.
• Right the first time. Quality should be integrated into the process from the beginning,
rather than solving problems at a later stage.
• Quality is measured in financial terms. One needs to judge waste, production and
revenue in terms of budgetary impact.
• Performance should be judged by the accepted standards, as close to perfection as
possible.

Pros and Cons

Zero defects ensure that all wastes existing in a project are eliminated in the very first go itself
which will lead to cost reduction. Thus, zero defects lead to waste reduction along with cost
cutting. All these processes improve services and therefore, there is improvement in quality
leading to happy customers. However, there are certain disadvantages of this theory as well.
As there is a quest for perfection and zero defects, more people and process might be involved
to find out the defects which will lead to extra cost. Also, over-strictness might hamper the
work culture and production in projects. To overcome the cons, along with following zero
defects theory, one needs to ensure continual service improvement as well.

International Organisation for Standardisation (ISO)

ISO 9000 is a set of international standards on quality management and quality assurance
developed to help companies effectively document the quality system elements to be
implemented to maintain an efficient quality system. They are not specific to any one industry
and can be applied to organisations of any size.

ISO 9000 can help a company satisfy its customers, meet regulatory requirements, and achieve
continual improvement. However, it should be considered a first step, the base level of a quality
system, not a complete guarantee of quality.

ISO 9000 vs. 9001

ISO 9000 is a series, or family, of standards. ISO 9001 is a standard within the family. The ISO
9000 family of standards also contains an individual standard named ISO 9000. This standard
lays out the fundamentals and vocabulary of quality management systems (QMS).
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ISO 9000 series standards

The ISO 9000 family contains these standards:

ISO 9001:2015: Quality management systems - Requirements

ISO 9000:2015: Quality management systems - Fundamentals and vocabulary (definitions)

ISO 9004:2009: Quality management systems – Managing for the sustained success of an
organisation (continuous improvement)

ISO 19011:2011: Guidelines for auditing management systems

The ISO 9001:2008 standard consists of eight sections, with the last five being specific to the
establishment of a quality management system that is sustainable and auditable.

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Supply Chain
There are three phases to the flow of materials. Raw materials flow into a manufacturing
company from a physical supply system, they are processed by manufacturing, and finally
finished goods are distributed to end consumers through a physical distribution system.
Companies currently adopting the supply chain concept view the entire set of activities from
raw material production to final customer purchase to final disposal as a linked chain of
activities. To result in optimal performance for customer service and cost, it is felt that the
supply chain of activities should be managed as an extension of the partnership. This implies
many issues, but three critical ones include:
• Flow of materials.
• Flow of information and sharing of information,
• Fund transfers.

Supplier Producer Customer

Fig 18: Supply chain for Beer

Ex. A car manufacturer has a supply chain which begins from mining of the metals, the mined
metals are processed by the same or different company. Then the conversion of the metal to
usable form (sheet, rods) may be done by a third party. Later the sheet metal is consumed by

46
Car Company to build cars and purchased by common man. If we evaluate each step it will be
evident that there is a supplier, some sort of processing and a consumer, hence the definition.

Value Chain

A value chain is a set of activities that a firm operating in a specific industry performs in order
to deliver a valuable product or service for the market. The activity of a diamond cutter can
illustrate the difference between cost and the value chain. The cutting activity may have a low
cost, but the activity adds much of the value to the end product, since a rough diamond is
significantly less valuable than a cut diamond.

Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on
systems, and how inputs are changed into the outputs purchased by consumers. Using this
viewpoint, Porter described a chain of activities common to all businesses, and he divided them
into primary and support activities, as shown below.

Fig 19: Porter’s generic value chain

Primary activities

• Inbound Logistics: arranging the inbound movement of materials, parts, and/or finished
inventory from suppliers to manufacturing or assembly plants, warehouses, or retail stores
• Operations: concerned with managing the process that converts inputs (in the forms of
raw materials, labour, and energy) into outputs (in the form of goods and/or services).
• Outbound Logistics: is the process related to the storage and movement of the final
product and the related information flows from the end of the production line to the end
user
• Marketing and Sales: selling a product or service and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers,
clients, partners, and society at large.
• Service: includes all the activities required to keep the product/service working effectively
for the buyer after it is sold and delivered.

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Support/Secondary activities

• Infrastructure: consists of activities such as accounting, legal, finance, control, public

relations, quality assurance and general (strategic) management.
• Technological Development: pertains to the equipment, hardware, software, procedures
and technical knowledge brought to bear in the firm's transformation of inputs into outputs.
• Human Resources Management: consists of all activities involved in recruiting, hiring,
training, developing, compensating and (if necessary) dismissing or laying off personnel.
• Procurement: the acquisition of goods, services or works from an outside external source

Functional product

This type of product is very stable and does not have variety or undergoes changes with high
frequency. So, it has stable demand and thus does not undergo rapid changes.
The supply chain used for such products is an efficient supply chain, where demand
uncertainty is less and hence the corresponding supply uncertainty is also low.

Innovative Product

This type of product undergoes frequent changes, and this leads to variation in demand
• High level of customization
• Demand in not stable
• Product undergoes rapid changes
For an innovative product, responsive supply chain is the fit, where we maintain a large
inventory to tone down the sudden surge in the demand.

For a functional product an efficient supply chain is the fit, where demand and supply
uncertainties are minimum. In an efficient supply chain, we maintain less or no inventory.

Fig 20: Physically efficient vs Market responsive supply chains

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Bullwhip effect

The bullwhip effect on the supply chain occurs when changes in consumer demand causes the
companies in a supply chain to order more goods to meet the new demand. It refers to
increasing swings in inventory in response to shifts in customer demand as one moves further
up the supply chain.
The bullwhip effect is a supply chain phenomenon describing how small fluctuations in
demand at the retail level can cause progressively larger fluctuations in demand at the
wholesale, distributor, manufacturer and raw material supplier levels.

Fig 21: Bullwhip effect

2PL (Second-Party logistics)

A 2PL company is a carrier company that owns and operates its transportations fleet, so it can
be sub-contracted, or its transportation services can be used by other companies to transport
goods from one place to another. It performs one of the three functions of the logistics, namely
transportation and warehousing.
Example: Safe Express

3PL (Third Party Logistics)

A 3PL company is a provider of outsourced logistics services. It takes over one or all the
functions of the outsourcing company and performs them itself. It may also provide added
supply chain expertise.
Example: DHL

4PL (Fourth Party Logistics)

A 4PL company is a logistics specialist that takes over the entire logistics operation and sub-
contracts some or all specific functions. It plays more of a logistics consultant role, to increase
the efficiency of the outsourcing company’s logistics and help them to solve their logistics
issues.
Example: Accenture in collaboration with Shell, DHL

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Reverse Logistics

A complete supply chain dedicated to the reverse flow of products and materials- for the
purpose of return, repair, remanufacture and/or recycle. It is moving the items from the
consumer back to the producer for repair or disposal.
There are two main categories of reverse logistics: asset recovery, which is the return of
actual products, and green reverse logistics, which represents the responsibility of the
supplier to dispose of packaging materials or environmentally sensitive materials such as
heavy metals and other restricted materials.
Goods are returned for many reasons that can include:
• Quality demands by final customers (both real and perceived).
• Damaged or defective products.
• Inventories that result from over-forecast demand.
• Seasonal inventories.
• Out-of-date inventories.
• Remanufacturing and refurbishment of products.
Returned goods can be:
• Returned to inventory.
• Refurbished for resale.
• Sold into alternate markets.
• Broken down into reusable components.
• Sorted to recover valuable materials (further reducing disposal costs).
Example: recycling of used soft drink glass bottles, refurbishment of used Apple iPhone,
returnable packaging in automotive industry

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Project Management
A project is a temporary endeavour undertaken to create a unique product, service or result.
Temporary indicates that it has a definite beginning and end. Projects involve doing
something that has not been done before and is therefore unique. Outcome of the project can
be tangible or intangible.

Project Management is the application of knowledge, skills, tools and techniques to project
activities to meet project requirements.

Float/Slack

In project management, float or slack is the amount of time that a task in a project network can
be delayed without causing a delay to:
• Subsequent tasks (free float): Free Float is the amount of time that an activity can be
delayed without delaying the early start date of any successor activity.
• Project completion date (total float): Total Float is the amount of time that an activity
can be delayed from its early start date without delaying the project finish date.
Earliest Start Date:
This is the earliest date that a task can be started in a project.
Earliest Finish Date:
This is the earliest date that a task can be completed in a project.
Latest Start Date:
This is the very last date on which a task can be started before it threatens to upset the project
schedule.
Latest Finish Date:
This is the very last date on which a task can be completed before it threatens to upset the
project schedule.
Critical Path:
The technical definition of the critical path in a sequence of networked work packages is the
path with the least amount of slack. In practical terms, this path is the sequence of events that
if any are delayed, will delay the entire project. And in even simpler terms, the critical path is
the sequence of tasks that will take the longest to complete to deliver the project.
If a project network chart/diagram has 4 non-critical paths, then that project would have 4 total
float values. The total float of a path is the combined free float values of all activities in a path.

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What exactly is a “Successful” Project?
You would think it would be relatively straightforward to describe the attributes of a
successful project. Well, let’s just say this endeavour has kept more than a few “spin doctors,”
“politicians,” and “history revisionists” employed throughout organisations across our great
land.

Why is this the case?

There are several reasons for this:
• There is a lack of universal harmony of what comprises project success metrics. It seems
that every project management educational source and organisational process maturity
standard has a slightly different definition of project success.
• For many projects, the acceptance and success criteria are never established or agreed to by
all key stakeholders
• In many cases, an organisation might define a project as successful even when some of the
textbook criteria for project success (such as schedule, cost, and client expectations) are not
completely met. This is often the case if the project achieved strategic business or
organisational objectives.
• In other cases, a “cancelled” project might be a “successful” project if there was a plan for
one or more “go/no-go” decision points.
From a utopian, academic standpoint, the “ultimate” successful project would be defined as a
project that:
• Delivers as promised: Project produces all the stated deliverables
• Completes on-time: Project completes within the approved schedule
• Completes within budget: Project completes under the approved budget
• Delivers quality: Project deliverables meet all functional, performance, and quality
specifications
• Achieves original purpose: The project achieves its original goals, objectives, and purpose
• Meets all stakeholder expectations: The complete expectations of each key stakeholder
are met, including all client acceptance criteria, and each key stakeholder accepts the project
results without reservations.
• Maintains “win-win” relationships: The needs of the project are met with a “people focus”
and do not require sacrificing the needs of individual team members or vendors. Participants
on successful projects should be enthusiastic when the project is complete and be eager to
repeat a similar experience.

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Project Management Methodologies

Waterfall Model of Project Management

The original Waterfall method was developed by Winston W. Royce. The steps include
requirements determination, design, implementation, verification, and maintenance.
Other models change the requirements phase into the idea phase (or break the requirements
phase out into planning and analysis. Furthermore, some models further break the design phase
out into logical and physical design sub-phases, however, the basic underlying principles
remain the same.

The Waterfall method makes the assumption that all requirements can be gathered up front
during the requirements phase. Communication with the user is front-loaded into this phase,
as the Project Manager does his or her best to get a detailed understanding of the user's
requirements. Once this stage is complete, the process runs "downhill".

Fig 22: Waterfall Model

The design phase is best described by breaking it up into logical design and physical
design sub-phases. During the logical design phase, the system's analysts makes use of the
information collected in the requirements phase to design the system independently of any
hardware or software system. Once the higher-level logical design is complete, the systems
analyst then begins transforming it into a physical design dependent on the specifications of
specific hardware and software technologies.
The implementation phase is when the actual code is written. This phase belongs to the
programmers in the Waterfall method, as they take the project requirements and specifications,
and code the applications.

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The verification phase was originally called for to ensure that the project is meeting customer
expectations. However, under real-world analysis and design, this stage is often ignored. The
project is rolled out to the customer, and the maintenance phase begins.
During the maintenance phase, the customer is using the developed application. As problems
are found due to improper requirements determination or other mistakes in the design process,
or due to changes in the users' requirements, changes are made to the system during this phase.

The Waterfall method does have certain advantages, including:

• Design errors are captured before any software is written saving time during the
implementation phase.
• Excellent technical documentation is part of the deliverables and it is easier for new
programmers to get up to speed during the maintenance phase.
• The approach is very structured, and it is easier to measure progress by reference to
clearly defined milestones.
• The total cost of the project can be accurately estimated after the requirements have
been defined (via the functional and user interface specifications).
• Testing is easier as it can be done by reference to the scenarios defined in the functional
specification.

Unfortunately, the Waterfall method carries with it quite a few disadvantages, such as:
• Clients will often find it difficult to state their requirements at the abstract level of a
functional specification and will only fully appreciate what is needed when the
application is delivered. It then becomes very difficult (and expensive) to re-engineer
the application.
• The model does not cater for the possibility of requirements changing during the
development cycle.
• A project can often take substantially longer to deliver than when developed with an
iterative methodology such as the agile development method. ("The Waterfall
Development Methodology", 2006).

Agile Project Management

Agile Project Management is one of the revolutionary methods introduced for the practice of
project management. This is one of the latest project management strategies that is mainly
applied to project management practice in software development.

From the inception of software development as a business, there have been a number of
processes following, such as the waterfall model. With the advancement of software
development, technologies and business requirements, the traditional models are not robust
enough to cater the demands.

Therefore, more flexible software development models were required in order to address the
agility of the requirements. As a result of this, the information technology community
developed agile software development models.

'Agile' is an umbrella term used for identifying various models used for agile development,
such as Scrum. Since agile development model is different from conventional models, agile
project management is a specialized area in project management.

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The Agile Process
It is required for one to have a good understanding of the agile development process in order
to understand agile project management.

Fig 23: Agile Model

There are many differences in agile development model when compared to traditional models:
• The agile model emphasizes on the fact that entire team should be a tightly integrated
unit. This includes the developers, quality assurance, project management, and the
customer.
• Frequent communication is one of the key factors that makes this integration possible.
Therefore, daily meetings are held in order to determine the day's work and
dependencies.
• Deliveries are short-term. Usually a delivery cycle ranges from one week to four weeks.
These are commonly known as sprints.
• Agile project teams follow open communication techniques and tools which enable the
team members (including the customer) to express their views and feedback openly and
quickly. These comments are then taken into consideration when shaping the
requirements and implementation of the software.

Scope of Agile Project Management

In an agile project, the entire team is responsible in managing the team and it is not just the
project manager's responsibility. When it comes to processes and procedures, the common
sense is used over the written policies.

This makes sure that there is no delay is management decision making and therefore things can
progress faster. In addition to being a manager, the agile project manager should also
demonstrate the leadership skills in motivating others. This helps retaining the spirit among the
team members and gets the team to follow discipline.

Agile project manager is not the 'boss' of the software development team. Rather, this function
facilitates and coordinates the activities and resources required for quality and speedy software
development.
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Responsibilities of an Agile Project Manager

The responsibilities of an agile project management function are given below. From one project
to another, these responsibilities can slightly change and are interpreted differently.
• Responsible for maintaining the agile values and practices in the project team.
• The agile project manager removes impediments as the core function of the role.
• Helps the project team members to turn the requirements backlog into working software
functionality.
• Facilitates and encourages effective and open communication within the team.
• Responsible for holding agile meetings that discusses the short-term plans and plans to
overcome obstacles.
• Enhances the tool and practices used in the development process.
• Agile project manager is the chief motivator of the team and plays the mentor role for
the team members as well.

Critical Chain Project Management

Critical Chain Project Management was developed and publicised by Dr. Eliyahu M. Goldratt
in 1997. Followers of this methodology of Project Management claim it to be an alternative to
the established standard of Project Management as advocated by PMBOK® and other
standards of Project Management.

The Critical Chain Method has its roots in another one of Dr. Goldratt’s inventions,
namely, The Theory of Constraints (TOC). This Project Management Method comes into force
after the initial Project Schedule is prepared, which includes establishment of the task
dependencies. The evolved Critical path is reworked based on the Critical Chain Method. To
do so, the methodology assumes constraints related to each task.

A few of these constraints are listed out below:

• There is a certain amount of uncertainty in each task
• Task durations are often overestimated by the team members or task owners. This is
typically done to add a safety margin to the task so as to be certain of its completion in
the decided duration.
• In most cases, the tasks should not take the time estimated, which includes the safety
margin, and should be completed earlier.
• If the safety margin assumed is not needed, it is actually wasted. If the task is finished
sooner, it may not necessarily mean that the successor task can start earlier as the
resources required for the successor task may not be available until their scheduled
time. Hence, the saved time cannot be passed on to finish the project early. On the other
hand, if there are delays over and above the estimated schedules, these delays will most
definitely get passed on, and, in most cases, will exponentially increase the Project
Schedule.

With the above assumptions, the Critical Path Methodology of Project Management
recommends pooling of the task buffers and adding them at the end of the Critical path.

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 Fig 24: Pooled Buffer

The Critical Path Project Management defines three types of Buffers -

• Project Buffer - The total pooled buffer shown above, is referred to as the Project
Buffer.
• Feeding Buffer - In a Project Network, there are path/s which feed into the critical
path. The pooled buffer on each such path represents the feeding buffer to the critical
path resulting in providing some slack to the critical path.
• Resource Buffer- This is a virtual task inserted just before critical chain tasks that
require critical resources. This acts as a trigger point for the resource, indicating when
the critical path is about to begin.

Fig 25: Feeding Buffer

As the progress of the Project is reported, the Critical Chain is recalculated. In fact, monitoring
and controlling of the Project primarily focuses on utilization of the buffers. Hence, the Critical
Chain Method considers the basic critical path-based project network and schedule to derive a
completely new schedule.
The Critical Path Project Management methodology is very effective in organisations which
do not have evolved Project Management practices. However, the methodology does not
advocate multi-tasking, and in projects with complex schedule networks, the results of
implementing the Critical path Methodology have proven to be deterrent to the overall project
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schedule. In addition, there is no standard method for calculating and optimising the project
buffers. The Critical Path Project Management methodology has had a fair amount of success
in manufacturing domains though it has not achieved any noteworthy success in the IT Sector.

Triple Constraint

All projects are carried out under certain constraints:

• Cost
• Time
• Scope
These three factors (commonly called 'the triple constraint') are represented as a triangle.

Fig 26: Triple constraint model

Each constraint forms the vertices, with quality as the central theme:

• Projects must be delivered within cost

• Projects must be delivered on time

• Projects must meet the agreed scope – no more, no less

• Projects must also meet customer quality requirements

Process Groups

Project Management Processes can be organised into 5 process groups (IPECC):

Initiating Process Group

The initiating process group involves the processes, activities, and skills needed to effectively
define the beginning of a project. Setting all permits, authorisations, and initial work orders in
place to secure an effective and logical progression of initial project activities sets the stage for
subsequent success throughout all project phases.

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Planning Process Group
The Planning Process Group sets forth the processes needed to define the scope of the project,
set strategic plans in place to maximise workflow, and begin to assemble priority lists and plan
team needs. This process group also addresses a narrower clarification of all project goals and
expectations and puts in place the project infrastructure necessary to achieve those goals
according to the timeline and budgetary constraints.

Executing Process Group

The executing process group involves managing teams effectively while orchestrating
timeline expectations and reaching benchmark goals.

Monitoring and Control Process Group

Processing change orders, addressing on-going budget considerations, and mitigating
unforeseen circumstances that may affect a team’s ability to meet initial project expectations
are all part of the Monitoring Process Group.

Closing Process Group

The Closing Process Group involves closing all aspects of the process and submitting
necessary paperwork on time.

Knowledge Areas

Project Integration Management

Ensures that various elements of the project are properly coordinated and integrated. It
involves making trade-offs among compering objectives and alternatives to meet or exceed
stakeholder needs and expectations. The major processes involved are
• Project Plan Development
• Project Plan Execution, and
• Overall Change Control

Project Scope Management

Ensure that the project includes all the work required, and only work required, to complete
the project successfully. The major processes involved are initiation, scope planning, scope
definition, scope verification, and scope change control.

Project scope – It is the part of project planning that involves outlining and documenting a
list of specific project goals, deliverables, features, functions, tasks, deadlines, and costs. It
is also the work that must be done to deliver a product with the specified features and
functions.

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Work Breakdown (WBS) Structure

A Work Breakdown Structure is a deliverable oriented grouping of project components that

organises and defines the total scope of the project; work not in the WBS is outside the scope
of the project.

Fig 27: Work Breakdown Structure

Project Time Management

Project Time Management includes the processes involved in timely completion of the
project. The major processes involved are activity definition, activity sequencing, activity
duration estimation, schedule development, and schedule control.

Project Cost Management

Project Cost Management includes the processes required to ensure that the project is
complete within the approved budget. The major processes involved are resource planning,
cost estimation, cost budgeting, and cost control.

Project Quality Management

Project Quality Management includes processes that ensures that the project will satisfy the
requirements. The major processes involved are quality planning, quality assurance, and
quality control.

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Project Communication Management

Project Communication Management includes processes that ensures timely and appropriate
generation, collection, storage and ultimate disposition of project information. The major
processes involved are communications planning, information distribution, performance
reporting, and administrative closure.

Project Risk Management

Project Risk Management includes processes that are concerned with identifying, analysing,
and responding to project risk, maximising the results of positive events and minimising the
consequences of negative events. The major processes involved are risk identification, risk
quantification, risk response development, and risk response control.

Project Procurement Management

Project Procurement Management includes processes that involve acquiring goods and
services from outside the performing organisation. The major processes involved are
procurement planning, solicitation planning, solicitation, source selection, contract
administration, and contract close-out.

Project Human Resources Management

Project Human Resource Management includes processes that involve the most effective use
of people involved with the project. The major processes involved are organisational planning,
staff acquisition, and team development.

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Inventory management
SKU
Stock keeping unit, it is a specific size (weight/volume/type) of product introduced to the
final customer.

Lot size
It is a term prevalent in manufacturing and procurement. It refers to the total number of
units of a product, produced or procured at a time.

Inventory review system

Inventory review system is of two types, periodic review and continuous review system, the
terms being self-explanatory. If we follow a periodic review system, we order in lots
containing variable number of units. E.g. In periodic order system the objective is to maintain
a particular level of inventory all the time, say 100 so we order the number of units needed to
maintain 100.

While in continuous review system, as the term explains, the inventory level is continuously
monitored, while ordering lot size is kept constant. This practice is followed in many a
manufacturing firms while procurement. EOQ or economic order quantity is the lot size at
which total cost pertaining to inventory is minimum. In continuous review system the ordering
take place as EOQ.

Lead time
The time between in initiation and completion of a process.
Example: The time between placement of order by the customer for a piece of furniture and
the actual delivery to the customer is the lead time

Reorder point
The reorder point (ROP) is the level of inventory which triggers an action to replenish that
particular inventory stock. It is a minimum amount of an item which a firm holds in stock,
such that, when stock falls to this amount, the item must be reordered.

Safety Stock
Safety stock (also called buffer stock) is a term used by logisticians to describe a level of
extra stock that is maintained to mitigate risk of stock outs (shortfall in raw material or
packaging) due to uncertainties in supply and demand.

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E - Commerce
Market Place Model
Here, the company acts as a meeting ground or a facilitator through an online IT platform for
buyers and sellers without storing goods. But they do offer shipping and payment assistance
by tying up with selected logistics players and financial partners. A pure e-commerce
marketplace follows a zero-inventory model.
eBay and Naaptol are examples of ecommerce players that follow the marketplace model.

Inventory Model
Here, the company sources products directly from brands and sellers and stocks them. There
are no multiple sellers selling one product, unlike marketplaces where buyers get to choose
from several merchants. The seller is the e-commerce company and invoice is issued to the
customers on the company’s name.
Example: Jabong

Hybrid Model
A mix of marketplace and inventory is a hybrid e-commerce model. It is also called a ‘managed
marketplace’ model. It is adopted by most Indian e-commerce players like Flipkart, Amazon
etc.
Under their marketplace fulfilment services like Fulfilment by Amazon (FBA) and Flipkart
Advantage, e-commerce players offer inventory storage, packaging and delivering services but
a seller is free to choose self-fulfilment or marketplace-fulfilment.

Drop shipment model

Drop shipping is both a sourcing and fulfilment business model where the retailer (you) never
actually owns the inventory you are selling. Instead, you are acting as a middle man that is
selling the goods on your own website and when you receive an order, you pass that order onto
the drop shipping company for them to pick, pack and fulfil. Your profit is the difference
between what you charge your customers on your website and what the drop shipping company
charges you.
There are, however, important differences between e-commerce marketplaces and drop
shipping:
Marketplaces take an additional step and produce ratings and reviews of the seller’s
performance. Many marketplaces also provide a seller storefront inside of the broader
ecommerce site so that you can see all of the products that seller has put into the marketplace.

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Drop shipping hides these facts. The consumer sees a brand but cannot identify that someone
other than the retailer is fulfilling this product.
With marketplaces, sellers set the price to the consumer. With drop shipping, however, the
retailers control the prices.
With marketplaces, the seller typically specifies what shipping carriers and methods it will
support. In most cases, drop shipping retailers dictate those methods to their suppliers.
For a marketplace transaction, the customer contacts the seller directly. With drop shipping,
the customer contacts the retailer, who then coordinates with its up-stream suppliers.

Fig 28: Drop Shipping model

Distribution Strategies

Cross Docking

Fig 29: Cross docking

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Cross docking is a logistics procedure where products from a supplier or manufacturing plant
are distributed directly to a customer or retail chain without any inventory management
involved during the process. Once the goods are received, they are just sorted and shipped to
the required destination.

There are 2 types of cross docking:

• Basic Cross Dock – Products or Goods are moved from supplier origin vehicles directly
to customer bound vehicles without the need of a warehouse. A simple transfer point is
enough.
• Flow through Cross Dock – When Goods arrive and are in large packages, they are
opened, sorted and consolidated based on customer locations/ destinations and transferred
to vehicles bound for the same.

Benefits

• Cost of transportation is reduced since customer bound dedicated vehicles are not required
at the source/ supplier
• Inventory cost is reduced since no storage takes place during the process

Constraints

• Requires high level of co-ordination along the supply chain

Milk Run

Fig 30: Milk run model

Milk run distribution involves joint collection and delivery from multiple suppliers to a
common location/ customer location or collection from one supplier to multiple customers
Benefits

• Reduction of transportation cost since few transportation vehicles are required

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Constraints

• Applicable if suppliers/customers are located near to each other

Hub & Spoke Model

H&S distribution involves nodes/central warehouses or storage (Hubs), connected by lines to

customers/suppliers (spokes) that represent viable transportation between them. Unlike cross-
docking, storage of goods might be considered at the node.

Fig 31: Hub and Spoke model

Delivery Types

First Mile
First Mile refers to movement of goods from suppliers to distribution center/central warehouse.

Last Mile
Last Mile refers to final movement of goods from distribution center/central warehouse to
doorstep of the customers.

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Fig 32: Delivery model

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