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MS-53 Production/Operations Management

Q1. Discuss how time horizon of forecast is related to level of decision. Give examples.

Ans1. Realization of the fact that "Time is Money" in business activities, the dynamic decision technologies
presented here, have been a necessary tool for applying to a wide range of managerial decisions successfully where
time and money are directly related. In making strategic decisions under uncertainty, we all make forecasts. We
may not think that we are forecasting, but our choices will be directed by our anticipation of results of our actions or

Time-Critical Decision Modeling and Analysis

The ability to model and perform decision modeling and analysis is an essential feature of many real-world
applications ranging from emergency medical treatment in intensive care units to military command and control
systems. Existing formalisms and methods of inference have not been effective in real-time applications where
tradeoffs between decision quality and computational tractability are essential. In practice, an effective approach
to time-critical dynamic decision modeling should provide explicit support for the modeling of temporal processes
and for dealing with time-critical situations.

One of the most essential elements of being a high-performing manager is the ability to lead effectively one's own
life, then to model those leadership skills for employees in the organization. This site comprehensively covers
theory and practice of most topics in forecasting and economics. I believe such a comprehensive approach is
necessary to fully understand the subject. A central objective of the site is to unify the various forms of business
topics to link them closely to each other and to the supporting fields of statistics and economics. Nevertheless, the
topics and coverage do reflect choices about what is important to understand for business decision making.

Almost all managerial decisions are based on forecasts. Every decision becomes operational at some point in the
future, so it should be based on forecasts of future conditions.

Forecasts are needed throughout an organization -- and they should certainly not be produced by an isolated group
of forecasters. Neither is forecasting ever "finished". Forecasts are needed continually, and as time moves on, the
impact of the forecasts on actual performance is measured; original forecasts are updated; and decisions are
modified, and so on.

For example, many inventory systems cater for uncertain demand. The inventory parameters in these systems
require estimates of the demand and forecast error distributions. The two stages of these systems, forecasting and
inventory control, are often examined independently. Most studies tend to look at demand forecasting as if this were
an end in itself, or at stock control models as if there were no preceding stages of computation. Nevertheless, it is
important to understand the interaction between demand forecasting and inventory control since this influences
the performance of the inventory system. This integrated process is shown in the following figure:


The Decisions
Decision 3 Interaction Performance
Maker 5 1


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ForeCasting Within an Organization:

Forecasting and Managerial Decision Making

The decision-maker uses forecasting models to assist him or her in decision-making process. The decision-making
often uses the modeling process to investigate the impact of different courses of action retrospectively; that is, "as
if" the decision has already been made under a course of action. That is why the sequence of steps in the modeling
process, in the above figure must be considered in reverse order. For example, the output (which is the result of the
action) must be considered first.

Forecasting is the art and science of predictin future events. Forecasts are required throughout an
organization and at all levels of decision making in order to plan for the future and make effective decisions. The
principal use of forecasts in operations management is in predicting the demand for manufactured products
and services for time horizons ranging from several years down to 1 day. Depending on the planning
horizon, forecasting can be classified in three ways:

• Short - range forecasting

(up to 1 year)

• Medium - range forecasting

(up to 3 years)

• Long - range forecasting

(more than 3 years)

Types of forecasts
In general, a contemporary business organization employs three distinct types of forecasts. These are given under:
1. Economic forecasts
2. Technological forecasts
3. Demand forecasts

Economic forecasts address the business cycle by predicting inflation rates, money supplies, housing starts, and
other planning indicators. Technological forecasts are concerned with rates of technological progress, which can
result in the birth of exciting new products, requiring new plants and equipment. Demand forecasts are projections
of demand for a company’s products or services. These forecasts, also called sales forecasts, drive a company’s
production, capacity, and scheduling systems and serve as inputs to financial, marketing, and personnel planning.
What is
the strategic importance of forecasting? Forecasting plays a very important role in the following areas:

Human resource management

(- hiring, training and laying-off workers all depend on anticipated demand.)

Capacity planning
(- when capacity is inadequate, the resulting shortages can mean undependable delivery, loss of customers, and loss
of market share.)

Supply - chain management

(- good supplier relations and the ensuing price advantages for materials and parts depend on accurate forecasts.)

Q2. Explain the relationship between lay out decisions, capacity decision and scheduling.

Ans2. Countless operations decisions that have both long-term and short-term impacts on the organization’s ability
to produce goods and services that provide added value to customers must be made. If the organization has made
mostly good operations decisions in designing and executing its transformation system to meet the needs of
customers, its prospects for long-term survival are greatly enhanced. Major operations decisions areas include
inventory, capacity, quality, scheduling, process type, technology, location, layout, and supply chain management.
Each of these nine decision areas will be discussed in this section.


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The Need for Layout Decisions

An operations manager should be aware of the fact that the need for a proper and effective layout facility is always
there, it is often said that if there is no facilities layout problem being faced by an organization then it is probably
unaware of its true potential. The need for layout planning arises both in the process of designing new facilities and
in Redesigning existing facilities. Some of the common reasons faced by the organization include:-

1. In-efficient Operations (High Cost/Bottlenecks that hamper true potential).

2. Accidents or Safety Hazards.
3. Changes in design of products or services.
4. Introduction of new products or services.
5. Changes in volume of output or mix of outputs.
6. Changes in Methods or equipment.
7. Changes in Environmental and Legal requirements.
8. Morale Problems ( e.g. lack of face to face contact between supervisor and worker or even senior management
and junior management.)
Capacity decisions

The question managers must answer for the capacity decision area is the same as the question for inventory: “How
much?” Determining the organization’s capacity to produce goods and services involves both long-term and short-
term decisions. Long-term capacity decisions involve facilities and major equipment investments. In 2007, Airbus
introduced its Super Jumbo Jet that carries up to 850 passengers and costs USD 3 billion. The Super Jumbo
provides huge amounts of passenger carrying capacity, but before an airline purchases this jet, it needs to decide if
it has
enough passengers to generate the revenue to pay for the plane and earn profits for the airline. A large single
airplane like the Super Jumbo may not be the right capacity decision for an airline that serves numerous medium
sized cities. On the other hand, an airline that serves passengers traveling between New York City, USA and
Shanghai, China might find the Super Jumbo to be a perfect choice for meeting demand because of the large
populations in each city. Capacity decisions also involve short-term situations. In a grocery store, the number of
customers that need to pay for their groceries at any one point during the day will vary significantly. To provide
good customer service, managers must make sure that sufficient cash registers and employees are on hand to meet
check-out demand. Similarly, hotels must make sure
that they have enough employees to register arriving guests, to clean hotel rooms, and to provide food and
beverages to customers. These decisions must be made carefully to avoid excessive labor costs from having too
many employees for the number of customers being served.

Capacity decision is taken according to the demand of product and services. Layout decision is taken according to
the capacity of the system to utilize maximum capacity of the system. Scheduling is done for the product or service.
Thus all these decisions are interrelated and combined for the utilization of the maximum capacity of the system as
per the demand of the product or services. The result is to get maximum output in less investment of the system.

Planning the system describes how management expects to use the existing resource base that was created during
the original design of the production system. One of the outcomes of this planning process may be to change the
system design to cope with changes in the environment. For example, management may decide to increase or
decrease capacity to cope with changing demand, or rearrange layout to enhance efficiency.

Decisions made by production planners depend on the time horizon. Long-range decisions could include the
number of facilities required to meet customer needs, how facilities could be altered to produce new products, or
how technological change might affect the methods used to produce services and goods. The time horizon for long-
term planning varies with the industry and depends on how long it would take an organization to build new
facilities or make major technological changes. For example, in the aircraft industry it may take five to ten years to
design a new aircraft and build a facility to produce it. So management must plan at least that far into the future. A


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car rental agency, on the other hand, would need a much shorter time horizon for production planning because it
can make changes more quickly.

In medium-range production planning, which is normally about one year, organizations find it difficult to make
major changes in facilities. At most, modest expansion may be achieved or some new equipment installed. Here,
production planning may involve determining workforce size, developing training programs, working with
suppliers to improve product quality and improve delivery, and determining how much material to order on an
aggregate basis.

Scheduling decisions

Scheduling is an operations decision that strives to provide the right mix of labor and machines to produce goods
and services at the right time to achieve both efficiency and customer service goals. For example, a hotel must
anticipate the peaks and valleys in demand that may occur during a day, during the week, and at different times of
the year. Labor (front desk clerks, room service personnel, housekeepers, bellhops, etc.) must be scheduled
carefully to meet customer demand at any given time, without scheduling excess employees that would impose
unnecessary costs on the hotel. In a hospital setting, scheduling surgeries is a very important activity.
Surgeons, nurses, support staff, equipment, supplies, and operating rooms must be scheduled carefully so patient
surgeries can be conducted effectively and efficiently. At colleges and universities, scheduling the right courses
with the right number of classroom seats at the right times is critical to allowing students to graduate on
time.Scheduling has the shortest planning horizon. As production planning proceeds from long range to short range,
the decisions become more detailed. In scheduling, management decides what products will be made, who will do
the work, what equipment will be used, which materials will be consumed, when the work will
begin, and what will happen to the product when it is complete. All aspects of production come together to make
the product a reality. Think of the many factors that must be coordinated to prepare a schedule of classes at a
college or university: faculty availability and knowledge, student demands based on graduation requirements,
availability of appropriate classrooms, and other resources such as audiovisual equipment.

Location decisions

There are many factors that can determine where an organization will locate its facilities. For any given situation,
some factors become more important than others in how facility location affects an organization’s efficiency and

• Proximity to sources of supply: Firms that process bulk raw materials usually locate close to the source
of supply to reduce transportation costs. Paper mills locate close to forests, canneries are built close to
farming areas, and fish processing plants are located close to the harbors where the fishing vessels dock.

• Proximity to customers: There are several reasons why an organization would locate close to end
customers. Service firms need to be close to customers to be convenient, as is the case for grocery
stores, gas stations, fast food restaurants, and hospitals. Transportation costs can also require proximity
to customers, as in the case of concrete manufacturing. Perishable products often require that they be
produced close to the final market, as is the case for bakeries and fresh flowers.

• Community factors: Communities may offer a number of incentives to entice companies, including
waiving or reducing taxes, and providing access roads, water and sewer connections, and utilities.
Community attitudes can also play a role in an organization’s location decision. Some communities may
actively discourage companies that might bring more pollution, noise, and traffic to the area. Some
communities may not want a prison to be located in their community. Other communities may welcome
such firms because of the jobs, tax revenues, and economic diversity they promise.

• Labor factors: Research shows that the majority of location decisions are largely based on labor factors,
since labor is a critical variable for many firms. Labor factors include the prevailing wage rate in a
community for similar jobs, the supply of qualified workers, and the average education level of the local


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population (percentage of high school graduates, etc.). Other labor factors can include the degree of union
organizing and the general work ethic of a community, as well as other measures of absenteeism and
worker longevity in a job can play strong roles when a firm makes a location decision.

• Other factors: Many other factors can play a role in the location decision, including quality of life (crime
rates, good schools, climate, and recreation options), access to major transportation arteries, construction
costs, proximity of the competition, and opportunities for future expansion. As mentioned earlier, the
importance of any location factor can vary greatly, depending on the circumstances of the decision.

Q3. Evaluate the need of information system for planning, organizing and controlling in operations

Ans3. An information system is "a set of procedures that collects (or retrieves), processes, stores, and disseminates
information to support decision making and control." In most cases, information systems are formal,
computerbased systems that play an integral role in organizations. Although information systems are
computerbased, it is important to note that any old computer or software program is not necessarily an information
system. "Electronic computers and related software programs are the technical foundation, the tools and materials,
of modern information systems, "

Though it is sometimes applied to all types of information systems used in businesses, the term "management
information systems, or MIS, actually describes specific systems that "provide managers with reports and, in
some cases, on-line access to the organization's current performance and historical records."MIS primarily serve
the functions of planning, controlling, and decision making at the management level." MIS are one of a number of
different types of information systems that can serve the needs of different levels in an organization. For example,
information systems might be developed to support upper management in planning the company's strategic
direction or to help manufacturing in controlling a plant's operations. Some of the other types of information
systems include: transaction processing systems, which simply record the routine transactions needed to conduct
business, like payroll, shipping, or sales orders; and office automation systems, which are intended to increase the
productivity of office workers and include such systems as word processing, electronic mail, and digital filing.
Ideally, the various types of information systems in an organization are interconnected to allow for information

The system provides information on the past, present and project future and on relevant events inside and outside
the organization . It may be defined as a planned and integrated system for gathering relevant data, converting it in
to right information and supplying the same to the concerned executives. The main purpose of MIS is to provide the
right information to the right people at the right time.

The Concept of management information systems originated in the 1960s and become the byword of almost all
attempts to relate computer technology and systems to data processing in business . During the early 1960s , it
became evident that the computer was being applied to the solution of business problem in a piecemeal fashion,
focusing almost entirely on the computerization of clerical and record - keeping tasks. The concepts of
management information systems was developed to counteract such in efficient development and in effective use of
the computer. The MIS concepts is vital to efficient and effective computer use in business of two major reasons:


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It serves as a systems framework for organizing business computer applications. Business applications of computers
should be viewed as interrelated and integrated computer - based information systems and not as independent
data processing job.

In emphasizes the management orientation of electronics information processing in business . The primary goal of
computer based information systems should be the processing of data generated by business operations.

A management information system is an integrated man - machine systems that provides information to support the
planning and control function of manager in an organization .

The output of an MIS is information that sub serves managerial functions. When a system provides information to
persons who are not managers, then it will not be considered as part of an MIS. For example , an organization often
process a lot of data which it is required by law to furnish to various government regulatory agencies. Such a
system, while it may have interfaces with an MIS, would not be a part of it,Instances of such systems are salary
disclosures and excise duty statements. By the same token to sophisticated computer - aided design system for
engineering purposes would also not be a part of an MIS.

Generally, MIS deals with information that is systematically and routinely collected in accordance with a well-
defined set of rules. Thus, and MIS is a part of the formal information network in an organization. Information that
has major managerial planning significance is sometimes collected at golf courses. Such information is not part of
MIS, however, one- shot market research data collected to gauge the potential of a new product does not come
within the scope of an MIS by our definition because although such information may be very systematically
collected it is not collected on a regular basis.

Normally, the information provided by an MIS helps the managers to make planning and control decisions. Now,
we will see, what is planning and control. Every organization in order to function must perform, certain operations.
For Example, a car manufacturer has to perform certain manufacturing activities, a wholesaler has o provide water
to its area of jurisdiction. All these are operations that need to be done. Besides, these operations, an organization
must make plans for them. In other words it must decide on how many and what type of cars to make next month or
what commissions to offer retailers or what pumping stations to install in the next five years.

Also an organization must control the operations in the light of the plans and targets developed in the planning
process. The car manufacturer must know if manufacturing operations are in line with the targets and if not, he must
make decisions to correct the deviation or revise his plans. Similarly the wholesaler will want to know the impacts
that his commissions have had on sales and make decisions to correct adverse trends. The municipal corporation
will need to control the tendering process and contractors who will execute the pumping station plans.

Generally, MIS is concerned with planning and control. Often there are elaborate systems for information that
assists operations. For example, the car manufacturer will have a system for providing information to the workers
on the shop floor about the job that needs to be done on a particular batch of material. There may be route sheets,
which accompany the rate materials and components in their movement through various machines. This system per
se provides only information to support operation. It has no managerial decision-making significance. It I not part
of an MIS. If, however, the system does provided information on productivity, machine utilization or rejection
rates, then we would say that the system is part of an MIS.

Generally MIS has all the ingredients that are employed in providing information support to
manager to making planning and control decisions. Managers often use historical data on an organization’s
activities as well as current status data make planning and control decisions. Such data comes from a data base
which is contained in files maintained by the organization . This data base is an essential component of an MIS.
Manual procedures that are used to collect and process information and computer hardware are obvious ingredients
of an MIS . These also form part of the MIS. In summary , when we say that “ an MIS is an integrated man -
machine systems that provided information to supports the planning and control function of managers in an
origination . It does the following function .

• sub serves managerial function


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• collects stores, evaluates information systematically and routinely

• supports planning and control decisions

• Includes files , hardware , software , software and operations research models.

Effective management information systems are needed by all business organization because of the increased
complexity and rate of change of today’s business environment. For Example, Marketing manager need
information about sales performance and trends, financial manger returns, production managers needs
information analyzing resources requirement and worker productivity and personnel manager require information
concerning employee compensation and professional development. Thus, effective management information
systems must be developed to provide modern managers with the specific marketing, financial, production and
personnel information products they required to support their decision making responsibilities.

An MIS provides the following advantages.

1. It Facilitates planning: MIS improves the quality of plants by providing relevant information for sound decision -
making. Due to increase in the size and complexity of organizations, managers have lost personal contact with the
scene of operations.

2. In Minimizes information overload: MIS change the larger amount of data in to summarize form and there by
avoids the confusion which may arise when managers are flooded with detailed facts.

3. MIS Encourages Decentralization: Decentralization of authority is possibly when there is a system for monitoring
operations at lower levels. MIS is successfully used for measuring performance and making necessary change in the
organizational plans and procedures.

4. It brings Co ordination: MIS facilities integration of specialized activities by keeping each department aware of
the problem and requirements of other departments. It connects all decision centers in the organization.

5. It makes control easier: MIS serves as a link between managerial planning and control. It improves the ability of
management to evaluate and improve performance. The used computers has increased the data processing and
storage capabilities and reduced the cost.

6. MIS assembles, process, stores, Retrieves, evaluates and Disseminates the information .

Q4. What is aggregate planning and its methods? Explain the assumptions for LDR model.

Ans4. Aggregate planning is the process of developing, analyzing, and maintaining a preliminary, approximate
schedule of the overall operations of an organization. The aggregate plan generally contains targeted sales forecasts,
production levels, inventory levels, and customer backlogs. This schedule is intended to satisfy the demand forecast
at a minimum cost. Properly done, aggregate planning should minimize the effects of shortsighted, day-to-day
scheduling, in which small amounts of material may be ordered one week, with an accompanying layoff of workers,
followed by ordering larger amounts and rehiring workers the next week. This longer-term perspective on resource
use can help minimize short-term requirements changes with a resulting cost savings.


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In simple terms, aggregate planning is an attempt to balance capacity and demand in such a way that costs are
minimized. The term "aggregate" is used because planning at this level includes all resources "in the aggregate;" for
example, as a product line or family. Aggregate resources could be total number of workers, hours of machine time,
or tons of raw materials. Aggregate units of output could include gallons, feet, pounds of output, as well as
aggregate units appearing in service industries such as hours of service delivered, number of patients seen, etc.

Aggregate planning does not distinguish among sizes, colors, features, and so forth. For example, with automobile
manufacturing, aggregate planning would consider the total number of cars planned for not the individual models,
colors, or options. When units of aggregation are difficult to determine (for example, when the variation in output is
extreme) equivalent units are usually determined. These equivalent units could be based on value, cost, worker
hours, or some similar measure.

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

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

Here are several APP techniques available to the operations manager.

Chase Planning

The "chasing" strategy adjusts production to meet demand. Also called just-in-time management, the chase strategy
maintains minimal levels of inventory, if any. While this feature is positive for many industries, such as a bakery,
employment of this strategy decreases the ability to the company to meet unexpected demand increases and
increases the risk of back orders.

Level Planning

The level aggregate plan essentially smooths over fluctuations, holding inventory or placing back orders as needed.
This plan supports regular scheduling and minimal overtime. The level plan approach has more holding cost that the
hybrid aggregate plan, but does not require the use of as much overtime.

Hybrid Aggregate Planning


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A hybrid aggregate plan will take advantage of a combination of "chasing" and "leveling." Basically, the current
workforce will be used with demand fluctuations being handled by overtime. Should the levels of demand
overreach the maximum labor output, back orders will be used. In this system, there is a greater probability of
layoffs and large amounts of overtime. Hybrid planning is the most popular form of aggregate production planning.


Methods of aggregate production range from the simplistic (i.e., trial and error) to the use of quadratic calculus
methods. However, aggregate production planning can have a mathematical basis while still being easy to
implement and understand. Chase planning requires continual monitoring of demand and adjustment to meet that
demand (i.e., overtime, temporary labor, subcontracting). Level aggregate planning involves taking the average
annual demand and dividing that by the hours needed to meet that demand and scheduling thus.

Hybrid planning uses a combination of the chase strategy and the level planning techniques. Hybrid planning looks
at the cost of back orders compared to the cost of holding inventory and develops the optimal levels of each. While
this can be accomplished through trial and error, it is also possible to use the "solver" feature in spreadsheet
software to simplify the process.


Linear decision rule is another optimizing technique. It seeks to minimize total production costs (labor, overtime,
hiring/lay off, inventory carrying cost) using a set of cost-approximating functions (three of which are quadratic) to
obtain a single quadratic equation. Then, by using calculus, two linear equations can be derived from the quadratic
equation, one to be used to plan the output for each period and the other for planning the workforce for each
period. Mathematical models attempt to refine or improve upon the trial-and-error approaches. Table identifies four
mathematical approaches. The value from some of these models is more theoretical than practical. The LDR is not
easily understood, nor are the outputs always realistic.
The management coefficients model is non-optimal and not easily transferable, whereas the computer search
models do not necessarily yield a “global” minimum cost summary of some mathematical aggregate planning

Approach Linear Linear Management Computer search

Programming Decision rule coefficients model
Application Minimizes cost of Use quadratic cost Develops Computer routine
employment, over functions to regression model searchers
time, and derive rules for that incorporate numerous
inventories workforce size managers past combinations of
subject to meeting and number of decision to predict capacity and
demand. units. capacity needs Select one of the


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least cost.

The Linear Decision Rules (LDR) proposed by Holt, Modigliani, Muth and Simon for the production planning
problem determine an optimum plan in terms of an aggregate production rate and work force level. The criteria of
the LDR assume we wish to make decisions so as to minimize costs over a specified time horizon, given estimates
of future aggregate demand. The LDR is designed to make decisions on aggregate production rate and employment
level for the upcoming period. Because of the aggregate nature of this formulation, it is not possible to solve
directly for the optimum production rates for individual products. Therefore in situations where
no reasonable dimension for aggregation exists, the breakdown of an aggregate production plan into individual item
plans may result in a schedule which is far from optimum. As an extreme example of this, consider the situation
where a facility's two products are lawn mowers and snow blowers. In this case specification of an aggregate
production plan neglects the most interesting question; namely, the correct production plan for each individual item.
Another problem arises when we consider, for example, that one measure of aggregation may be quite adequate for
representing work force related costs while at the same time it is a very poor measure of inventory associated costs.
One of the goals of this paper is to extend the LDR model to enable determination of the optimum plan for each
individual item to be produced in a facility. A much more fundamental assumption of the LDR model is that
production planning decisions for a multi-product firm may be made in terms of aggregate production rates and
aggregate inventory levels. This necessarily implies that a common unit is available for adding quantities of
different products, for example, "a unit of weight, volume, work required, or value might serve as a suitable
common denominator". A primary objective in construction of the MDR model Is the elimination of this necessity
of expressing all production rates in terms of a single common unit. Individual production rates will instead by
explicitly incorporated in the formulation so they may be solved for on a product-by-product basis. Returning to the
inventory cost expression in this spirit, it follows that any consideration of multiple products in the model must also
include a separate inventory cost expression for each.

One of the expressed objectives of this model is elimination of the aggregate production rate assumption of the
LDR formulation. Therefore, an expression for (VC) as a function of P , P , ,.,, P^^. and W^ is desired, where P. is
the production rate of product 1 in period t. Because of differences between items, the standard direct labor time
required to produce individual products may often vary substantially. Within the relevant ranges the expected
standard labor time required to meet any given production plan .

Q5. Distinguish between independent and dependent demand. Explain Pull and Push system.

Ans5. An independent demand is a demand that is not based on the demand for another item while a dependent
demand is based on the demand for another item. For example, the demand for chairs of a table and the table
itself is based on the demand for the table. The table in this example is the item with independent demand. Knowing


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this, one can forecast an independent demand while dependent demands are calculated based on the
independent demand item.Business to business independent demands tend to be demands for such items as capital
goods, office supplies, MRO (maintenance, repair, and operating) items, and anything else for which the
dependency is unknown. Independent demands are usually handled with standalone purchase orders, although some
items might be covered by contractual relationships such as volume, price and other agreements. The only
difference between something that is dependent and independent is that dependent demand items will change as a
result of change in something else. (ex gas and hurricane Katrina)

Independent do not need any thing to cause a change in demand. Independent demand is externally imposed by
market fluctuations, which are performed outside the control of internal processes. Retail and wholesale inventories
finished goods, spare parts in manufacturing companies, service industry inventory are generally independent of
operations. Depending on the demand, the demand from other items, which does not independently determined by
the market are related. The products are built up from parts and assemblies, the demand for these components is
dependent on the demand for the finished product. For example, the demand for tires of a particular doctrine, the
demand for vehicles needed in particular in connection with pressure gauge. Â Independent demand reacts to
random factors such as price, price of substitutes, customers, income and taste, and so on, which takes an irregular
shape of the demand over time. On the other hand, a dependent demand shows a lumpy pattern, because the planned
production is usually in batches at a given time. Different patterns of demand require different approaches to
inventory management. A population approach is useful to decide on the resources and the timetable for products
with independent demand. Since the stock is used, it is re-filled to have materials on hand for the customer. As
inventory starts to run out, is an order for additional materials, so that the stock made refilled.

Push System: In a push system, releases are scheduled. So, throughput is determined by a exogenously set release
rate (given by the Master Production Schedule). Since the releases are linked to orders (or forecasts), a push system
is controlled by upstream information and is inherently make-to-order. In terms of our nomenclature, open lines are
push systems because they have no endogenous restriction on releases to the line.

Pull System: In a pull system, releases are authorized. That is, there is an endogenous signal based on system status
that determines whether a release is allowed or not. In particular, the system status that triggers releases is based on
stock voids, which means that a pull system is controlled by downstream information and is inherently make-to-
stock. In our nomenclature, closed lines are pull systems, because buffer spaces act as stock voids to trigger

Push strategy

Another meaning of the push strategy in marketing can be found in the communication between seller and buyer. In
dependence of the used medium, the communication can be either interactive or non-interactive. For example, if the


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seller makes his promotion by television or radio, it's not possible for the buyer to interact with. On the other hand,
if the communication is made by phone or internet, the buyer has possibilities to interact with the seller. In the first
case information is just "pushed" toward the buyer, while in the second case it is possible for the buyer to demand
the needed information according to his requirements.

• Applied to that portion of the supply chain where demand uncertainty is relatively small Production &
distribution decisions are based on long term forecasts
• Based on past orders received from retailer’s warehouse (may lead to Bullwhip effect) Inability to meet
changing demand patterns
• Large and variable production batches
• Unacceptable service levels
• Excessive inventories due to the need for large safety stocks
• less expenditure on advertising than pull strategy Pull strategy

In a "pull" system the consumer requests the product and "pulls" it through the delivery channel. An example of this
is the car manufacturing company Ford Australia. Ford Australia only produces cars when they have been ordered
by the customers.

• Applied to that portion of the supply chain where demand uncertainty is high
• Production and distribution are demand driven
• No inventory, response to specific orders
• Point of sale (POS) data comes in handy when shared with supply chain partners
• Decrease in lead time
• Difficult to implement

Q6. What are the objectives of total productive maintenance? What are the six big losses and how these can
be eliminated?

Ans6. TPM is a manufacturing led initiative that emphasizes the importance of people, a 'can do' and 'continuous
improvement' philosophy and the importance of production and maintenance staff working together. It is presented
as a key part of an overall manufacturing philosophy. In essence, TPM seeks to reshape the organization to liberate
its own potential.

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The modern business world is a rapidly changing environment, so the last thing a company needs if it is to compete
in the global marketplace is to get in its own way because of the way in which it approaches the business of looking
after its income generating physical assets. So, TPM is concerned with the fundamental rethink of business
processes to achieve improvements in cost, quality, speed etc. It encourages radical changes, such as;

• flatter organizational structures - fewer managers, empowered teams,

• multi-skilled workforce,
• Rigorous reappraisal of the way things are done - often with the goal of simplification.
Many TPM sites have made excellent progress in a number of areas. These include:
• better understanding of the performance of their equipment (what they are achieving in OEE terms and
what the reasons are for non-achievement),
• better understanding of equipment criticality and where it is worth deploying improvement effort
and potential benefits,
• improved teamwork and a less adversarial approach between Production and Maintenance,
• improved procedures for changeovers and set-ups, carrying out frequent maintenance tasks, better training
of operators and maintainers, which all lead to reduced costs and better service,
• general increased enthusiasm from involvement of the workforce.

However the central paradox of the whole TPM Process is that, given that TPM is supposed to be about doing better
maintenance, why do proponents end up with (largely) the same discredited schedules that they had already (albeit
now being done by different people)? This is the central paradox - yes, the organisation is more empowered, and re-
shaped to allow us to carry out maintenance in the modern arena, but we're still left with the problem of what
maintenance should be done.

Total Productive Maintenance (TPM) is a part of the management process used for the proper maintenance and
repair of company machinery, equipment, and infrastructure. One of its primary objectives is to improve employee
morale and job performance. The proper implementation of Total Productive Maintenance improves the output and
reduces downtime of the equipment. This reduces manufacturing costs and eliminates unnecessary waste.

Japanese companies pioneered the practice of Total Productive Maintenance during the 1960s. Car manufacturing
companies in Japan discovered that routine checkups minimized equipment breakdown rates. They spread the
concept of preventive maintenance across the whole factory and observed a marked change in productivity. Other
industries followed, thus increasing the overall output of the Japanese economy. Western companies discovered this
and adopted the process . Auxiliary employees are also expected to contribute to the program. The importance of
employee participation in Total Productive Maintenance is evident by the emphasis on retaining employee morale
and job satisfaction. Many companies believe that a happy worker is a productive worker.

Cost-effectiveness is one of the vital concepts of Total Productive Maintenance. It encompasses two key objectives:
waste management and proper resource use. The factory tries to produce as many finished goods as possible from

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the materials available. It also aims to minimize waste because production waste equals underutilized resources and
additional disposal costs . value flow is one of the most crucial areas of the TOC-Lean approach, and it is where we
focus our attention. In our work with many different types of companies where flow is critical to success we have
come across one very interesting phenomenon - capacity thieves. If organizations wish to win new markets and
retain existing customers, then being able to deliver right first time, every time and on-time is critical. At the same
time there is continuous pressure to reduce the overall lead time without jeopardizing delivery performance, so a
fast flow must be maintained too. Hence our interest in what we have called a capacity thief - defined as ‘that which
robs flow of capacity and thus slows, or even stops, flow in its tracks’. The capacity thieves that we deal with most
often are:

The six big losses addressed through this approach are:

• Breakdowns
• Set-Up and Adjustments
• Idling and minor stoppages
• Reduced Speed Losses
• Start-up Losses
• Quality Defects

Addressing the Six Big Losses

Categorizing data makes addressing the Six Big Losses much easier, and a key goal should be fast and efficient data
collection, with data put to use throughout the day in real-time.


Eliminating unplanned Down Time is critical to improving OEE. Other OEE Factors cannot be addressed if the
process is down. It is not only important to know how much Down Time your process is experiencing (and when)
but also to be able to attribute the lost time to the specific source or reason for the loss (tabulated through Reason
Codes). With Down Time and Reason Code data tabulated, Root Cause Analysis is applied starting with the most
severe loss categories.

Setup and Adjustments

Setup and Adjustment time is generally measured as the time between the last good part produced before Setup to
the first consistent good parts produced after Setup. This often includes substantial adjustment and/or warm-up time
in order to consistently produce parts that meet quality standards.

Tracking Setup Time is critical to reducing this loss, together with an active program to reduce this time (such as
an SMED - Single Minute Exchange of Dies program). Many companies use creative methods of reducing Setup


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Time including assembling changeover carts with all tools and supplies necessary for the changeover in one place,
pinned or marked settings so that coarse adjustments are no longer necessary, and use of prefabricated setup gauges.

Small Stops and Reduced Speed : Small Stops and Reduced Speed are the most difficult of the Six Big Losses to
monitor and record. Cycle Time Analysis should be utilized to pinpoint these loss types. In most processes
recording data for Cycle Time Analysis needs to be automated since cycles are quick and repetitive events that do
not leave adequate time for manual data-logging. By comparing all completed cycles to the Ideal Cycle Time and
filtering the data through a

Small Stop Threshold and Reduced Speed Threshold the errant cycles can be automatically categorized for
analysis. The reason for analyzing Small Stops separately from Reduced Speed is that the root causes are typically
very different, as can be seen from the Event Examples in the previous table.

Startup Rejects and Production Rejects :Startup Rejects and Production Rejects are differentiated, since often the
root causes are different between startup and steady-state production. Parts that require rework of any kind should
be considered rejects. Tracking when rejects occur during a shift and/or job run can help pinpoint potential causes,
and in many cases patterns will be discovered. Often a Six Sigma program, where a common metric is achieving a
defect rate of less than 3.4 defects per million “opportunities”, is used to focus attention on a goal of achieving
”near perfect” quality.