MASTER OF BUSINESS ADMINISTRATION
(INDUSTRY INTEGRATED)
TWO YEAR FULL TIME INDUSTRY INTEGRATED
M.B.A PROGRAMME
SELF LEARNING MATERIAL
PRODUCTION AND MATERIALS MANAGEMENT
Detailed Curriculum
ANNAMALAI UNIVERSITY COURSES
LESSON – 1
PRODUCTION AND MATERIALS MANAGEMENT
1.1 INTRODUCTION
The Historical development of production and materials management is discussed in this lesson. The important role of production and materials management in the operation of goods and services is highlighted. The corporate strategy and environment in which it has to be achieved are narrated.
Objective
The objective of this lesson is to understand the important role of production and materials management in the operation of goods and services and the corporate strategy and environment in which it has to be achieved.
Content
1.1 Introduction
1.2 Historical perspective of production and materials management
1.3 Significance of production management
1.4 Significance of materials management
1.5 Corporate Strategy
1.6 The mission
1.7 The environment
1.8 Distinctive competencies
1.9 Summary
1.10 Assignment Questions
1.11 Review Questions
1.12 Reference books
1.2 HISTORICAL PERSPECTIVE OF PRODUCTION AND MATERIALS MANAGEMENT
Humans have been producing foods and services since the beginning of time. However the formal study of how people can more efficiently and effectively produce goods and services has been investigated only in the last century. When the dramatic progress of the last several years in computers with that made in the previous hundred years, it can be relied about how fast today’s society is changing. Changes in technology and life-style have profound effect on the types and number of products and services available. Investigation of historical development that relate to the production and goods and services will lead to insights into the future.
The first recognised attention to production economics was given by the Scottish economist Adam smith. In 1776 he wrote the book. ‘The wealth of the Nations’ in which he observed three basic economic advantages resulting from the division of labour. These were
(i) Development of skill when single task was performed repetitively.
(ii) A saving of time normally lost in changing from one activity to the next.
(iii) Invention of machines or tools normally follows when people specialized their efforts on tasks of restricted scope.
Smith did not deduce these ideas in theoretical way. Instead, under the factory system, division of labor was developing as a common sense method of production when relatively large group of workers were brought together to produce a large quantity. Smith observed this practice, noted the three advantages and wrote about them in his book.
After Adam smith, an English man, Charles Babbage, enlarged Smith’s observations and raised a number of provocative questions about production organisations and Economics. His thought, were summarized in the book ‘On the economy of Machinery and Manufacturers’ in the year 1832.
After the observations of the Adam Smith and Charles Babbage, the division of labor continued and then accelerated during the first half of the 20th century. Production lines carried out the division of labor to its greatest extreme.
Frederick W.Taylor was undoubtedly the outstanding historical figure in the development of production management field. Smith and Babbage were observers and writers, but Taylor was both a thinker and a doer. Taylor was an innovator in a managerial environment where strong traditions existed. Taylor’s new philosophy stated that the scientific method could be applied to all managerial problems and that the methods by which the work was accomplished should be determined by management through scientific investigation. He had listed four new duties of Scientific Management for managing which may be summarized as follows.
(i) Development of science for each element of a man’s work to replace old rule-of-thumb methods.
(ii) Scientific selection, training and development of workers, instead of the old practice of following workman to choose his tasks and to train himself as best as he could.
(iii) Development of spirit of co-operation between the workman and management to ensure that the work would be carried out in accordance with the scientifically devised procedures.
(iv) Division of work between the workers and the management in almost equal shares, each group taking over the work for which it was best fitted.
These four ideas led to new thinking about the managerial organization. Taylor’s work under the heading of number-1, developed into the field of methods organising and work measurement. This field is also termed as human engineering which has a general application in producing management. From the ideas of number 2 and 3, the field of personnel has developed with its techniques of personnel selection and placement. From the idea of number-4, the first line foreman and the workman were left free from the functions of planning and they concentrated on the execution of carefully laid plans. The basic managerial functions of planning were carried out by the managerial level.
There were many followers to Taylor. Carl Bosh, Henry L. Gantt, Harrington Emerson, Frank and Lillian Gilbreth worked within Taylor’s general framework and philosophy.
The development of the science of production management was slow when it was looked in the sprit Taylor envisioned it. There were many reasons for this slow development. Appropriate knowledge and tools were not available. Another great difficulty that was faced by the serious investigators in the period after Taylor was the complexity of the large scale problem that appeared. Mathematical techniques were needed to solve such large scale problem but none was available to give the kinds of solutions required. Even if they had been available, the time required to develop solutions manually would be very large. High speed computers were needed, but these were not available until 1950’s.
An attempt of mathematical analysis was made in 1915 by F.W. Haris and he developed the first economic lot size model for a simple situation. This was further developed by Wilson and F.E. Raymond. The present activities in the general field of production management were preceded by two developments in the year 1930. This helped to lay the ground work and pointed the way for the future. These were the development and introduction to industry of statistical quality control by Walter Shewart in 1931 and the development of work sampling in 1934 by L.H.C. Tippett. The acceptance of the basic concepts of sampling and control charts by workman, foreman and management was an important preliminary development. Tippett’s work-sampling procedure was put to work in the 1950’s. Now it is used extensively and likely to continue to grow in practical usefulness.
The current rate of developments of production management concept, theory and technique began after World War II. Research in war operations by the armed forces produced new mathematical and computational techniques. War operations problem seemed to parallel with the problems of production operations and so the approaches to war problems began to be applied into industrial use. One significant development was the introduction of linear programming. It was a solution methodology capable of handling many of the large scale complex problems of scheduling and allocating the limited resources of a production system.
Other quantitative and qualitative approaches were evolved in the analysis of production system. Waiting line theory had been used for some time in telephone industry to analyze telephone systems. This technique found applications in production lines, tool booths, machine maintenance, etc., Then more realistifc materials management models developed which included variability and uncertainty of demand and other conditions. Models of replacement, maintenance and competitive bidding have been developed for tackling the production problems. With the development of high speed computers, production systems could be simulated, modeled after fairly realistic conditions. If a complex systems were simulated the effect of alternative proposals could be determined quickly without the cost and time of actually trying the proposals in practice.
1.3 SIGNIFICANCE OF PRODUCTION MANAGEMENT
Production management deals with the products, the goods and services that are purchased and used everyday. Its aim is to acquire and distribute resources efficiently to achieve an organization’s goal. Production management is one of the most challenging areas of business involving most of the human and financial assets of an organization.
Production management is the systematic direction and control of processes that transform inputs into finished goods or services. Production management comprise a system as shown figure 1.1 Inputs can be human resources (workers and managers), capital (equipment and facilities), materials, land, energy and information. The circles in figure 1.1 represent operations where resources are utilized and transformations take place. Often a product passes through several operations before being finished. An operation can be a machining centre in a manufacturing plant, a teller counter in a bank, a hospital ward or a department in an office. These types of transformations vary widely and include physical or chemical as in a factory, locational as in an airline, educational in a school, informational as in a computer center and storage as in a distribution center.
Two other inputs are shown as dotted lines in figure 1.1. The first is the customer, who may come in first contact with the product’s system and sometimes is an active participant in the transformation. Examples are the shopper in a store or the student at an university. The second is the information feedback. It can come from external sources such as reports on economic trends, a telephone call from a vendor on past-due shipments or new customer ordeRs.It can also come from internal sources, such as reports on cost variances, customer service or inventors levels. Information from both of these sources will be helpful in managing the production system.
Outputs in a production management system include finished product or service. Outputs from manufacturing operations are goods produced either for consumers or for other industrial firms. Outputs from service operation range from delivered mail for a post office to a recovered patient for a hospital. Even though the inputs and outputs vary between industries, the undergoing process of transforming inputs into outputs holds true for all product in systems.
1.4. SIGNIFICANCE OF MATERIAL MANAGEMENT
Production management decisions deals with longer-term decisions which includes the design of production facilities. Production design, process design, capacity, location and layout are all part of the production management decisions. Materials management deals with the shorter-range decisions. Material management is concerned with the operation of facilities after they have been designed and built. Managing supply of materials, staffing patterns, inventory and schedules come under material management function. Decision in these areas affects the management of materials either directly or indirectly.
Since materials management decisions have shorter time decisions, they are by definition more tactical than strategic. However, they have a major cumulative effect and at least considerable managerial attention.
There are two reasons why tactical decisions about materials are considered to be so important.
(i) the central role of materials in production and
(ii) the impact of inventories on company success.
Managing materials is common to organisations in every segment, of the economy. Materials are necessary inputs to government, manufacturers, wholesalers and retailers. Manufacturers make products from materials purchased from outside supplier. Service industries also need materials in the form of physical items purchased from suppliers. Materials also are important because of the investment tied up in them. The approximate ratio of final business sales reserve to inventory cost was 3:1.
Having a better appreciation for the pivotal role of materials management, the types of decisions actually involved are now considered. A typical hierarchy for making materials management decisions is shown in figure 1.2 in the form a block diagram.
The functions associated with materials management are located in the enclosed box at the bottom of the figure 1.2. The figure 1.2 also shows materials management functions are related to production management functions. Beginning at the top of the hierarchy, Corporate strategy sets the general directions of the organizations for the years ahead. Decisions are made about the goal and acquisition and distributions of resources to meet it. Goals are established for growth, market share and profit margin. Product plans are selected which decide.
(i) Plans made by manager of other functions, such as marketing, finance and engineering,
(ii) the way that production manager select production design strategy and
(iii) design decisions made by production manager about the work force, processes, capacity, location and layout.
At this point, Top management needs a financial assessment of the organization’s near future for one or two years ahead. This assessment is called a business plan or financial plan or budget. A business plan is a projected statement of income, costs, and profits. It is usually accomplished by budgets, a projected balance sheet, and a projected cash flow statement showings the source and application of funds.
Fig 1.2 shows that level in the hierarchy below the business plan is the domain of materials management. Preparation of production plan launches the operational planning process. Production plan sets the monthly output rate for major groups of items for the next year ahead. Staffing levels, inventory projections and demand forecasts are all part of the plan. Production plan is not specific as to the weekly output for each item. To achieve this level of detail, master production schedule, which is given one step lower in the hierarchy of fig.1.2 has to be developed. Master production schedule makes the production plan specific and states the weekly output quantity for each item, projected weeks or months into the future
Fig.1.2 shows that the final level of operations planning consists of three areas.
(i) inventory control
(ii) operations and project scheduling
(iii) purchasing and distributing
The best system for inventory control depends on the type of demand involved. Inventory control is closely related to scheduling issues. After a shop order is released (an inventory control decision), someone must decide when the item is to be processed at each of the work centers in its routing (a scheduling decision), Operations scheduling and project scheduling both deal with establishing starting and completions of purchasing and distribution, which deal with the flow of materials into and out of the production system.
1.5 CORPORATE STRATEGY
An organization can be a major corporation, federal agency or banks. It can even be a business segment organized around a particular set of customers who share common resources. What ever the type of organization may be, its top management should deliberately relate the efforts of the whole organization to its future. Corporate strategy is sometimes called as long-range planning or organizational strategy. It is the process of determining the organization’s central purpose, deciding how best to acquire and allocate resources to carry out the mission and establishing objectives against which to evaluate how well the mission, is being achieved. This process involves designing organisation’s environment and identifying the organization’s distinctive competencies.
1.6 THE MISSION
Determining an organization’s mission require answers to fundamental questions such as:
(i) What business are we in? What should it be ten years from now?
(ii) Who are our customers or clients?
(iii) What are our basic beliefs and philosophy?
(iv) What are our greatest strength? How can we use these to maximum advantage?
(v) What are our key performance objectives, such as growth or profits, by which to monitor success?
1.7 THE ENVIRONMENT
An organization needs to continually adapt to its changing external environment. Adaption begins with environmental scanning, whereby managers monitors the environment for opportunities or threat that need a response. One key environmental element is competition. Competitors may gain advantage by broadening product lines, improving quality or lowering costs. New entrants in the market or product substitutes may pose a threat to continued profitability. The bargaining power of suppliers or customers can become a threat or opportunity. In addition to competition, environmental elements include economic trends, technological changes, political conditions, social changes and the availability of key resources.
The impact of these changes on current strategies can revel shortcoming in planning and product development that need attention. Markets mature and decline, technology changes and competitors find ways to achieve lower costs. These all requires adjustments in corporate strategy.
1.8 DISTINCTIVE COMPETENCIES
Environmental impacts cannot be controlled away. Corporate strategies must change to meet them and the organization’s unique resources and strength must be taken into account. It is usually better to go after a settlement in the market because it gives an advantage of what the firm can do particularly well. There distinctive competencies might include the following.
(i) The size and ability of the work force. An available and competent work force is a strength.
(ii) Well located facilities such as offices, stores or plants. The availability of such facilities is a major advantage because of long lead time required to build new facilities.
(iii) The ability to easily change out levels, attract capital from stock sales, market and distribute the product or differentiate the product from those by competitors.
1.9 SUMMARY
The historical development of production and material management is the important role of production and materials management in the operation of goods and services is highlighted. The corporate strategy and the environment in which it has to be achieved are narrated. Production management decision deals with longer term decisions. Whereas materials management deals with shorter-range decisions. Corporate strategy is a process which evolves designing organization mission. Monitoring and adjusting to changes in the organizations environment and identifying the organizations distinctive competencies.
1.10 ASSIGNMENT QUESTIONS
Discuss the material management decision for manufacturing organization.
1.11 REVIEW QUESTIONS
• Discuss the historical development of production and materials management
1. Explain the different contributions made by scientists in the field of production and materials management
2. State the significant importance of production and materials management.
3. What do you mean by corporate strategy- How it is achieved-
4. What is mission? Explain the environment under which the mission have to be achieved.
1.12 REFERENCE BOOKS
• Buffa, “Modern production management”, John Whiely.
5. Krajewski and Ritzman, “Operations management” Addison-Wesley.
LESSON–2
PRODUCT PLANNING
2.1 INTRODUCTION
The coverage of product planning in this lesson begins with a discussion of product life cycles. Then the entrance-exit strategies are discussed. The four steps involved in product planning stage are explained.
Objective
This chapter helps us to understand the product life cycle, entrance-exit strategies and the product planning stages.
Contents
2.1 Introduction
2.2 Product planning
2.3 Product life cycles
2.4 Entrance-Exit strategies
2.5 Product planning stage
2.6 Summary
2.7 Assignment Questions
2.8 Review Questions
2.9 Reference books
2.2 PRODUCT PLANNING
Corporate strategy defines the firm’s mission, company’s business and its customers.It also defines the products to be offered. The products may be goods or services. Product planning is the whole spectrum of activities involving up to the introduction, revision or dropping of products. After knowing the product characteristics, the production system can be effectively designed and operated.
Greater interest in product planning has been given recently by intense competition and the rapid pace of technological innovation. Product planning is an ongoing process a job that is never finished. Many small companies start with a limited number of products, often based on a process or product innovation of the founding entrepreneur. As time passes, the firm must add new products either to replace those being phased out or to expand its market penetration. Larger firms, which have many more products face the same challenge. A considerable amount of budget is spent each year to create new products or improve old ones.
2.3 PRODUCT LIFE CYCLES
The concept of a product life cycle best illustrates the need for introducing new products. If a firm does not introduce new products periodically, it will eventually decline. Since sales and profits from any given product eventually decrease, new products should be introduced before existing products hit their peak. A typical product life cycle is given in Fig. 2.1. The five stages of the product life cycle are product planning, introduction, growth, maturity and decline.
During the product planning stage, ideas for new goods or services are generated, screened and translated into final designs. Profits to a product are negative at this point, because sales have not begun and no revenues are generated. Only development costs are being incurred at this stage. During the introductory stage, sales begins and profits are generated. Production efforts are still being refined and they are fluid and evolving. Since sales volumes have not reached their high point, annual profits are relatively small. Successful products next enter a rapid growth stage. Sales and profits rise as in the introductory stage, but the jump in sales is particularly dramatic. The order for production during this stage is to keep up with demand and the efficiency is of less concern. Sales level-off and profits begin to decline during the maturity stage. New competitors enter the market and create pressures to cut costs. Because of this profit margin is squeezed. Although the intensified marketing efforts to differentiate the product can give pressure, the production operations must now be stressed for efficiency. Ultimately, the product enters the decline stage and product becomes obsolete, Sales and profits decrease to the point where the product is dropped by the firm. Either the demand for the product disappears or a better and/ or less expensive product is now available to satisfy the demand.
The length of product life cycle varies widely from product to product. The demand for a product may last for 30 years whereas the demand for an another product may last only for three years.
Product life cycle have been particularly short in the high-tech computer and microchip industry. The effect of short product life cycles requires special management skills. Quick, independent action is more highly required in this type of situation than it is at companies enjoying longer product life cycles.
2.4 ENTRANCES-EXIT STRATEGIES
The life cycle of a product can be quite different for a company that for a whole industry. A company may move out of the market of a particular product, even though these products may be produced by other firms for years to come. Table 2.1 shows the three basic strategies for entering and exiting the market. The choice of the entrance-exit strategy has important implication for the production operations function.
Strategy Stage to enter Stage to exit Implications for production
operations
I Enter early and
Exit late Introduction Decline Transition from low-volume flexible producer to high-volume, low cost producer
II Enter early and
exit early Introduction Maturity Low-volume, flexible producer
III Enter late and
exit late Growth Decline Hight- volume, low-cost producer
Table 2.1 ENTRANCE-EXIT STRATEGIES
STRATEGY A
The most natural strategy is for a firm to enter the market when the product is first introduced and stay with it until the end of its life cycle. This strategy requires operations to evolve from a low-volume, flexible production system into a high volume, low-cost system. Such a shift is always a challenge because it requires changing over to a whole new way of doing things, But this strategy can have a big advantage. By entering the market early, the firm gets a first start. This early learning and added experience may allow the early entrant to produce a better product at a lower cost than late entrants can produce initially.
STRATEGY B
Small, product-innovative firms often choose to stay in the low-volume, customized business. The strategy requires no painful transition. When the product reaches the maturity stage and profit margin begins to be squeezed, the firm drops the product and introduces new ones. Throughout the product life cycle, production management maintains a smaller, flexible production system that is adaptable to changing products.
STRATEGY C
A firm waits until other innovative firms introduce a new product. After it is clear that the product has significant market appeal and will achieve high sales volumes, there firm enters the market with an automated, efficient production facility. Some companies even accompany their entry by setting prices considerably lower than those of their competitoRs.This ensures the high volumes necessary for low unit costs. This strategy also avoids transition and is likely to be selected by large firms. Large firms can exploit their mass marketing capabilities, established distribution channels and easier access to capital markets to finance the massive investment needed for top efficiency in capital-intensive productive operations.
2.5 PRODUCT PLANNING STAGE
Product planning is a four-step process. The process is most active during the first stage of the product life cycle. Steps in product planning is shown in Fig 2.2
STEP 1: IDEA GENERATION
New product ideas can come from within the firm-from managers, employees or research and development (R&D) laboratories. They can also come from the outside-from company distributors and inventoRs.New ideas may be either market-oriented or technology-oriented. The most obvious source of new ideas is marketing, which must be in tune with the needs of customeRs.Market studies may reveal better ways of serving established markets. Technological innovations can affect either the product or the processes. Inventories can also improve processes within the production system, which in turn may create new products.
STEP 2: SCREENING
There may be a number of new product ideas but it has to be decided about which one will be the worthwhile. Some ideas do not fit the company’s mission. Others’ are dismissed for failing to meet
(i) market criteria
(ii) production operations criteria or
(iii) financial criteria
Marketing criteria include competitors, effects on current products, marketability to present customers, promotional requirements and changes in distribution channels. Operations criteria include technical feasibility and compatibility with current processes, work force, equipment and facility locations. Financial criteria include investment requirements, risk, expected annual sales, profit margin per unit and anticipated length of product’s life cycle.
STEP 3: DEVELOPMENT AND TESTING
Next, the ideas technical feasibility is thoroughly pretested, which often involves considerable engineering work. Prototypes may be built for testing and analysis of the products features. Beyond engineering, production operations gets involved in assessing process, facility and material needs. Finally, marketing tests are needed to obtain customer response. Trial tests in limited markets may help to gauge customer reactions to the specific features of the product and packaging choices. Result of these tests may lead to changes in the product and the way it is presented before it is actually marketed. The end result may give an assurance that the product is technically feasible, can be economically produced in quantity and has customer appeal.
STEP 4: FINAL PRODUCT DESIGN
During final product design, product characteristics are designed in detail. This detail may include the specifications, process formulae and drawings, Substantial investments in financial and human resources are committed at this stage. Production begins and marketing starts its promotional program with sales meeting and preview presentations at trade exhibits.
2.6 SUMMARY
This lesson coverage of product planning with a discussed of product life cycles. Product planning is the whole spectrum of activities involving up to the introduction, revision or dropping of products. The production system can be effectively designed and operated. This lesson discussed with product life cycle and include with product planning stage.
2.8 ASSIGNMENT QUESTION
Discuss the product planning stage.
2.9 REVIEW QUESTIONS
• How does the concept of product life cycles illustrate the ongoing need for product planning?
6. How does the decision on when to enter and exit a product’s life cycle affect the operation function?
7. With which entrance-exit strategy would a product focus make most sense?
8. Discuss the four-step procedure in product planning stage.
9. Explain the entrance-exit strategies.
10.
2.10 REFERENCE BOOKS
• Buffa, “Modern production management”, John Whiely.
11. Krajewski and Ritzman, “Operations management” Addison-Wesley.
LESSON-3
PRODUCTION DESIGN AND PROCESS PLANNING
3.1 INTRODUCTION
Production design and process planning are closely allied to the preliminary stages production planning. When a new product is projected the designer has to bear in mind the available resources of the plant and the possible implications of the plant having to acquire, modify or substitute existing machines and equipment or sub-contract various components to other suppliers. This is why production design and process planning are some of the fundamental elements of management policy.
Objectives
To understand the need for production design and process plan and the preliminary stages of production planning.
Contents
3.1 Introduction
3.2 Production design
3.3 Processes
3.4 Processes involving transformation
3.4.1 Chemical processes
3.4.2 Processes to change shape or form
3.4.3 Assembly processes
3.4.4 Transport processes
3.4.5 Clerical processes and information systems
3.5 Process planning
3.6 Product analysis
3.7 Assembly charts
3.8 Operation process chart
3.9 Analysis of existing operations
3.10 Product flow process chart
3.11 Route sheets and operation sheets
3.12 Process planning for continuous industries
3.13 Summary
3.14 Assignment Questions
3.15 Review Questions
3.16 Reference books
3.2 PRODUCTION DESIGN
The minimum possible cost of producing a product is established originally by the designer. The production engineer cannot change this situation, because he can only minimize the production cost within the limitations of the design. Therefore the obvious time to start thinking about basic modes of production for product is while they are still in the design stage. This conscious effort to design for low manufacturing cost is referred to as production design which is different from functional design. The designer’s first responsibility is to create something that functionally meets requirements. There may be a number of alternative designs which meet these functional requirements. Then a design which minimizes the production cost has to be chosen.
Given the design, process planning for manufacturer must be carried out to specify the processes required and their sequence. Production design first sets the minimum possible cost that can be achieved through the specification of materials, tolerances, basic configurations, methods of joining parts, etc. Final process planning then attempts to achieve that minimum through the specification of processes and their sequence which meet the exacting requirements of the design specification. Here, the process planner may work under the limitations of available equipment in small lot manufacture. If the volume is high or the design is stable, special purpose machine may be considered and in this case the layout will be of special type. In performing such functions, the process planning stage will decide basic design of the productive system.
There is a relation exist between the product design and the production cost. In general, design engineers are trained in the technical aspects of their specialties such as mechanical design and electronics. They are not trained in manufacturing methods and costs. On the other hand, production may often ignore the functional requirement of a part and meet the exact specification.
To overcome this problem, some companies have tried to train their designer in the basic manufacturing processes and costs. In some other companies, production engineer consult with design engineer at the time of critical decisions. Functional design is entrusted to an entirely different group in some companies. The responsibility of this group is production design.
3.3 PROCESSES
The scope of production processes covers the entire spectrum of the manual task, man-machine systems and automated processes. Manual task is combination with mechanical aids account for a large share of productive activity. Manual operations or man-machine operations have a strong manual component and they are typical of assembly work, offices, super markets and son on. The metal working industries, wood working industries, plastics and chemicals are representative of production processes which have a considerable technological base.
3.4 PROCESSES INVOLVING TRANSFORMATION
The basic nature of processing is one of transformation that is something happening which in some way transform the thing being worked on. In general these transformation processes may be of following types.
(i) Chemical processes
(ii) Process to change shape or form and side or dimension
(iii) Assembly processes
(iv) Transport processes
(v) Clerical processes and Information systems
3.4.1 CHEMICAL PROCESSES
Chemical processes are common in industry such as petroleum, plastics, steel making and aluminium. Industrially, these processes occur both as batch processes and continuous processes. Illustration of batch processes is the operation of a blast furnace in the steel industry. An example of continuous chemical process may be processing of petroleum industry.
3.4.2 PROCESSES TO CHANGE SHAPE OF FORM
The most common processes of this general type are found in the metal-forming, metal-machining industries, the wood-working industry and in plastic molding. In metal-forming industries forming operations may take place such as rolling of basic shapes in steel, aluminium or other metals. The result of these forming operations are bars, sheets, billets, I-beams and other shapes. Metal-machining is accomplished through basic machine tool processes which involve the generation of cylindrical surfaces, flat surfaces, complex curves and holes. These metal-machining processes are performed in machines like lathe, shaper, planner, mill and grinder. For high volume products, automatic machines and numerically controlled processes are employed.
3.4.3 ASSEMBLY PROCESSES
The processes used to assemble parts and materials are welding, soldering, riveting, screw fastening and adhesive joining. Assembly processes are common in automotive industry, electronics industry and many otheRs.They are common in all mechanical-electrical industries. In general for assembly operations, a considerable amount of manual work will be involved supplemented by mechanical aids. The automation is involved only in high volume electronics assembly. With the development of printed circuitry, automatic equipment are used for assembling the part. Most of the analysis in the assembly types of operations depends on the analysis of hand motions and the relationship between the operator and his tools.
3.4.4 TRANSPORT PROCESSES
The transformation taking place in a transport process is the transformation of place. Transform processes are of extreme importance in most production systems. In distribution management transport operations is of central interest. In manufacturing, internal material handling represents kind of transport operations performed.
3.4.5 CLERICAL PROCESSES AND INFORMATION SYSTEMS
The mechanical kinds of processes tend to change the shape or form whereas the clerical processes transform informations. The volume of clerical activity has grown to a large extent. The techniques involved is clerical activity that extends from purely manual to automated data processing system.
3.5 PROCESS PLANNING
The basic process planning must begin during the production stages where selection of materials and initial forms such as castings, forgings takes place. The accepted points for the production design is cleared by the drawing release, which summarizes the exact specifications of what is to be made. Process planning takes over from this point and develops the broad plan of manufacture for the product.
Another distinction that must be drawn is the relation of process planning to layout and facilities planning. Process planning necessarily mixed together with the layout of physical facilities. Some process planning takes place during the layout phases of the design of a production system. To accommodate the physical and sequential limitations to take advantage of available space or to improve methods or sequence modification of the original process plans may be made. The division between process planning and layout is cleared by documents such as route sheets and operation sheets. These sheets summarized the operations required, the preferred sequence of operations, auxiliary tolls required, estimated operation times etc., Process plans may be regarded as input to the development of the layout. The drawings or other specifications which indicate what is to be made are taken as input to the process planning. Also the forecast, orders or contracts which indicate how many are to be made, are also taken as inputs. The drawings are then analysed to determine the overall scope of the project. If it is a complex assembled product, considerable effort may be made in exploding the product into its components and sub-assemblies. This overall planning may take the form of special drawing that show the relationship of the parts, cutaway models and assembly diagrams. Preliminary decisions about sub-assembly groupings to determine which part to make and which to buy may be made at this point. The general level of tooling expenditure may also be determined. Then for each part a detailed routing would be developed. For this technical knowledge of processes, machining and their capabilities would be required. Since there are a range of processing alternatives would be considered, the selection should be influenced by the overall volume and the projected stability of the design.
Fig. 3.1 shows the overall conceptual frame work of process planning in diagrammatic form.
3.6 PRODUCT ANALYSIS
Consider the problem of the initial setting up to manufacture the switch assembly shown in Fig. 3.2.
3.7 ASSEMBLY CHART
When the product is a complex one, assembly charts can help to visualize the flow of material and the relationship of the part. The details like where the parts flow into the assembly process, which parts make up sub-assemblies and where the purchased parts are used in the assembly sequence, are given in the assembly chart.
With the help of the switch assembly show in fig. 3.3 an assembly chart world be prepared, as a first step. This chart is some times called as ‘Gozinto’ chart (means ‘goes into’) fig.3.3 is an assembly chart for the switch assembly. The chart clearly shows the relationship of the parts, the sequence of assembly and which group of parts makes up the sub- assemblies. The assembly chart is a schematic model of the entire manufacturing process at one level of information and detail. The switch assembly would be simple enough so that assembly chart could be eliminated in this case. However, for a complex product such as an aeroplane or a missile, it would be difficult to understand the plan of manufacture without an assembly chart. The assembly chart can be useful in making preliminary plans regarding probable sub-assemblies and appropriate genera methods of manufacture. For making preliminary decisions with respect to design of product line, type of layout (process or product),the assembly chart would be helpful.
3.8 OPERATION PROCESS CHART
Assume that the product is already engineered, complete drawing and specifications of part and their dimensions, tolerance and materials to be used have been finalized. From the specification a plan of manufacturing can be developed. Decision with respect to which parts to purchase and which to manufacture in the plant have to be made. The engineering drawings specify the locations, sizes and tolerances for holes to be drilled, surfaces to be finished etc., for each part. With this informations and the knowledge of the quantity to be produced and about the manufacturing process, the most economical equipment, process and sequence of processes could be specified. The result of this work is a partial specification of “how to manufacture”. This is usually summarised on ‘route sheet’ or ‘operation sheet’. This sheet specifies for each manufactured part the operations required in the preferred sequence, equipment to be used, special tools, fixtures and gauges. Estimates of the required setup time and processing time are often added. All these informations can be summarised in the form of an operation process chart. Such a chart for the switch assembly is shown in Fig. 3.4.
Operation process chart is a summary of all the required operations and inspection for switch assembly. A circle (O) for an operation and a square () for an inspection have been adopted in the construction of the chart. The operation process chart have been constructed with the basic framework of the assembly chart. This chart is of great value in the development of a layout plan. It shows clearly the operations to be performed, their sequence and the equipment required.
3.9 ANALYSIS OF EXISTING OPERATIONS
The operation process chart have been discussed in terms of the development of the plan for manufacturing a new product and developing new facilities, but it is equally applicable to the analysis of existing operations. As time passes, changes may occur in the manufacturing plans because of re-design, the addition or elimination of products and advances in manufacturing technology.
Some time operations would be added to meet a temporary emergency. Then they would become permanent because no one would take action to delete them when the need has gone. Reviews of existing operations would be often give good results for elimination, duplication and illogical flow. The break down of over all manufacturing process into its operations and eliminating of logical structure of the operation process chart, form the basis for questioning the existence of every activity as well as the relationship of the activities.
3.10 PRODUCT FLOW PROCESS CHART
The flow process chart is similar in concept to the operations process chart, except that it adds more detail and has a slightly different field of application. The flow process chart adds transportation and storage activity to the information already recorded on an operation process chart. Thus, operation process chart focuses only on the productive activity. The flow process chart focuses on both productive activity as well as well as non- productive activity.
The non-productive activities of the material from place to place and strong it, while it waits for men and equipment, represent major amount of the total time spent in the manufacturing cycle in industry. These non-productive activities require labour and equipment transportation, loading and unload in, capital investment for plant storage space and carrying charge on inventory.
Naturally, production manager would be strongly motivated to focus attention on these activities so that these expenditure could be minimised. In general, the operation process that would be used at a broadest level dealing with complex products and the flow process chart would be used with a smaller segment of the product.
The flow process chart requires additional symbols in order to include non-productive activities. An arrow mark {} denotes transportation and inverted triangle (] denotes storage and a letter ‘D’ denotes delay.
As an example, machining of a casting would be taken. The completed flow process chart would be constructed by actually following the progress of the parts through the machine and gathering the required information. Constructing flow process chart without going through the actual process in shops would not give accurate results, as shown in Fig. 3.5.
It is often helpful to supplement the flow process chart with a flow diagram. The flow diagram would be obtained by drawing the flow lines on a floor plan of the work area. The process chart symbols would be inserted in-between the flow lines. The spatial relationship would be better visualized by this type of flow diagram. The flow diagram to the above example is shown in Fig. 3.6.
3.11 ROUTE SHEETS AND OPERATION SHEETS
At each stage of its processing, every part is analysed in order to determine the operations required and to select and specify the process that perform the functions required. This information would be summarised on route sheets. The route sheet.
(i) shows the operation required and the preferred sequence of these operations
(ii) specifies the machine or equipment to be used.
(iii) Gives the estimated setting time and run time per piece.
When a part is standard part, which is run and re-run periodically to fill the need, the standard routing sheets would be maintained as the accepted manufacturing methods. More precise specification of manufacturing methods would be often developed in the form of operation sheets. These operation sheets give greater detail about the operations to be accomplished and in the words they give a standard method.
The route sheet together with operation sheet specifies the methods of manufacturing the products. These documents are basic to the manufacturing organisations. Route sheet and operation sheet take the same relative positions to the design of a production system as the blueprint or drawing does to the design of a part or product. The drawing specifies what is to be made, where as the route sheet and operation sheet specify how to make it.
3.12 PROCESS PLANNING FOR CONTINUOUS INDUSTRIES
The situation that has been discussed is generally applicable to industrial process planning. However in high-volume, continuous types of industries these would have been a comment on the lack of route sheets. This lack would be a common one. But, originally the task of process planning and routing would have been performed by some one. Once the process planning is done and system is installed, route sheets would serve no purpose because routes are either standardized or follow mechanical paths and so operation sequence is not a problem.
Similarly although operation sheets exist, they would be maintained as records of job conditions and methods. They would be refused to only when it would be necessary to train new personnel in the standard required only periodically to incorporate product design changes or to take advantage of some advance in production technology.
3.13 SUMMARY
Production design and process planning are closely allied to the preliminary stages production planning. The lesson discussed the production design. The minimum possible cost of producing a product is established originally by the designer. This lesson included with process involving transformation. The product designer establishes the constraints within which the production system designer must function. These processes involve all types of transformation including physical, chemical, plays, information content, etc.
3.14 ASSIGNMENT QUESTIONS
Discuss the operation process chart.
3.15 REVIEW QUESTIONS
• Discuss the relationship of functional design and production design in determining a product design that meets functional requirements, cost considerations and the limitations of available resources.
12. Discuss about the various transformation processes.
13. What is process planning? Relate it to product design, and production design.
14. What are route sheets and operation sheets? What are information do they contain?
15. Does process planning in continuous industries follow the same general pattern as in intermittent industries.
3.16 REFERANCE BOOKS
• Buffa, “Modern production management”, John Whiely.
16. Krajewski and Ritzman, “Operations management” Addison- Wesley.
17. Menipaz, Ehed, “Essentials of production and operations management”, Prentice Hall.
LESSON – 4
BREAK-EVEN ANALYSIS – AN INTRODUCTION
4.1 INTRODUCTION
The break-even point is the minimum volume of sales in units of output or in rupees that must be produced and sold inorder for the firm to break-even after paying all expences. This volume is called break-even point. Obviously the firm is interested in producing and selling more than the break-even point inorder to make profit. Profit-volume chart is a similar chart as that of break-even chart. Contribution ratios are sometimes helpful for deciding the product which gives the maximum profit.
Objective
This chapter let one understand the concept of Break Even Analysis.
Content
4.1 Introduction
4.2 Break-Even analysis
4.3 Methods for lowering break-even point
4.4 Profit-volume chart
4.5 Contribution ratios
4.6 Summary
4.7 Assignment Questions
4.8 Review Questions
4.9 Reference books
4.2 BREAK – EVEN ANALYSIS
Break even analysis is a helpful tool used in analyzing managerial economic problems. It shows how much sales volume in units or rupees, a company needs to have in order to break-even financially. Break-even analysis also shows how much profit the company would earn or the loss it would suffer at various volumes above and below the break even point. The break even point is the minimum volume of sales, in units of output or in rupees that must be produced and sold in order for the firm to break-even after paying all expenses. This volume is called the break even volume.
In order to calculate break-even point, it is necessary to determine fixed and variable cost for various sales volumes. Fixed costs are the expenses that remain constant regardless of the volume of products or services. Examples of fixed costs are rent, property taxes, depreciation, insurance and salaries to the staff. Variable costs are the expenses that fluctuate directly with changes in the output volume of products or services. Examples of variable costs are labour and material.
Let Q = break-even quantity
F = fixed cost
P = price per unit
V = Variable costs per unit
As per the definition given above, the total sales revenue equals the total cost at BEP.
(ie) total revenue = total cost ( fixed cost + variable cost)
PQ = F + (V Q)
Therefore BEP, Q =
The Fig. 4.1 shows how the BEP is determined graphically.
In Fig. 4.1 the total cost are given by the summation of fixed and variable costs. The point of intersection of this line with that of sales income is the break even point corresponding to a sales volume Q. Activity below ‘Q’ results in a loss and the activity above ‘Q’ gives profit.
Example 1: A company is considering the products of the new energy saving light bulb. The selling price is Rs.10.00 and the variable cost is about Rs.2.00 per light bulb. If the fixed costs are Rs.2,00,00,000, what is the BEP in units of light bulb?
Fixed cost, F =Rs.2,00,00,000
Variable cost per unit, V= Rs.2.00.
Price per unit, P = Rs.10.00
=
= 2500000
Thus in this example when the company produces 2500000 light bulbs total costs equal total revenue. This result can be checked as follows.
Total revenue = P Q
= 10 2500000
= 25000000
Total cost = F + (V Q)
= 20000000 + (2 2500000)
= Rs.25000000
In the above example, if the company set the price of the light bulb as Rs.12.00 then obviously the break-even point will be lower.
(ie) BEP =
= 2000000 light bulbs
Margin of Safety:
If a plant is operating at point Q1 (Q1 > Q) it can be said that the plant is working with a margin of safety m, which can be defined as follows
m = = = 1
It can be shown that,
m = Where Z is the profit of the plant F
The desirable level of the plant activity can be expressed in terms of the safety margin or the profit as
Q1 = Q(1 +m)
= Q (1+Z/F)
The margin of safety is a measure of healthiness at the point of operation. When the margin is too small (ie) when the product is manufactured near the break even point, the plant is subject to market fluctuations.
Example 2: The selling price for a new solar heating panel is Rs.100.00. per unit and the direct materials and labour costs are Rs.80 per unit. If the fixed cost are Rs.20000, how many units have to be sold in order to break even? What is the volume of sales to get a profit of Rs.5,000? Determine the margin of safety of the plant at this point.
Fixed cost, F = Rs.20,000
Selling price per unit, P = Rs.100
Variable cost per unit, V = Rs.80
Therefore Break-even point,
Q = F/ (P-V)
= = 1000 units
In the BEP formula, the term (P-V) is called the contribution. It is the amount by which the selling price per unit exceeds the variable cost per unit.
In the above example the sale of one solar heating panel contributed Rs.20 towards offsetting the fixed cost under the break even point of 1000 units was reached. Above 1000 unit this Rs.20 would be a profit.
These relationship can be used by production managers in their planning. For example, they can determine the effects on profits or losses of changes in sales quantities.
Extending the above discussion for the above problem, to find out the volume of sales for selling a profit of Rs.5000. it has to be done is to divide Rs.5000 by Rs.20. In doing so it can be found that 250 more units or 1250 in total would have to be sold to get a profit of Rs.5000.
Putting this in formula to get the total number of sales needed for getting a profit of RS.5000 is,
Q =
=
= 1250 units
Margin of safety at this point can be calculated as,
m =
=
= 0.25 = 25%
It can be said that at a volume of sales of 1250 the plant is operating at a margin of safety of 25 percent.
To be realistic, the company’s manager should allow for income taxes, because all profits generated by sales above the break-even point are taxed.
In the above example, if the tax rate is taken as 40 percent, then each Rs.20 of profit will shrink to Rs.12. Therefore, in order to earn Rs.5000 after taxes, 417 units (Rs.5000/ Rs.12) above the break even point or 1417 in total will have to be sold instead of 1250 units.
The formula for total number of sales needed when tax rate is given is
Q =
=
= 1417 units.
By manipulating the variable in the equation many questions can be answered. For example, if the direct material cost were to increase by 12 percent what will happen to the break even point? Or if the competition is forced to cut the selling price from Rs.100 to Rs.90 what will be change in the BEP? Answeres to such questions can be calculated.
4.3 METHODS FOR LOWERING BREAK EVEN POINT
A low BEP is highly desirable because it increases the safety margin of the product. From the equation for BEP (ie)
Q =
It is obvious that the BEP can be lowered by three methods.
(i) By reducing Fixed costs from F to F’
Fig. 4.1 Method of Lowering BEP by reducing Fixed Cost
This situation is shown in Fig. 4.2. In this case the BEP is lowered by reducing fixed cost from F to F’
Q'1 = Q1 F'/F
(ii) By reducing the unit variable costs from V to V'
Fig. 4.2 Method of Lowering BEP by reducing Variable Cost
This situation is shown in Fig. 4.3 In this case, the BEP is lowered by reducing variable cost from V to V'
Therefore, Q1 = Q1
(iii) By increasing the unit selling price from P to P’
Fig. 4.3 Method of Lowering BEP by increasing Sales Income
This situation is shown in Fig 4.4 Here the BEP can be lowered by increasing sales income from P to P’
Therefore,
Q1 = Q1
4.4 PROFIT VOLUME CHART
A similar diagram to the break-even chart is called the profit volume chart which is shown in Fig. 4.5.
In this chart the fixed costs are marked as a negative quantity on the Y-axis. The BEP is given by the intercept of the income line with the X-axis. Operating below the X-axis incurs a loss and operating above is a profit.
The probability of the profit is indicated by the slope of the income line called the profit-volume ratio or P/V ratio and is given by .
=
= = P-V
The profit, Z = Sales revenue – Total cost
= PQ-(F+VQ)
= Q(P-V)-F
= Q-F
The profit-volume rate at a point above BEP is,
=
=
Therefore, the profit Z= Q1-F
4.5 CONTRIBUTION RATIOS
It is sometimes useful to know the contribution ratio or as it is sometimes called the profit variation for individual products. This ratio measures the products contribution as a percentage of its price per unit.
The formula for its calculation is,
Contribution ratio = X100
For the example –2,
Contribution ratio, CR = X100
= 20%
Low contribution ratios come from labour and materials costs making up most of the cost and thus using the most of the income. Changes in total volume do not affect profit very much because the variable costs are so high relative in selling price. Conversely if fixed costs are a bigger part of total costs, than the contribution ratios of individual products are higher and volume changes cause greater swings in profits.
The above discussion can be explained with the same example 2.
In that example F = Rs.20000
V = Rs.80
P = Rs.100
For the sales volume of 1250,
Profit = Total sales income – Total cost
= (1250X100) – [20000 + (1250X80)]
= 125000 - [20000+100000]
= Rs.5000
If the sales volume is increased from 1250 to 1500.
Profit = (1500X100) - [20000 + (1500X80)]
= 150000 - [20000+120000]
= Rs.10000
In this above calculation, variable cost forms a major part in the total cost. When compared to fixed cost, the contribution ratio for this situation is.
[(P-V) / P] * 100 = [(100-80) / 100] X100 =20%
Now consider another situation where fixed cost forms a major part in the total cost.
Let F = Rs.95000
V = Rs.20
P = Rs.100
For the sales volume of 1250,
Profit = (1250 x100) –(95000+(1250x20))
= 125000-(95000+25000)
= Rs.5000
If the sales volume is increased from 1250 to 1500.
Profit = (1500x100)-(95000+(1500x20))
= 150000-(95000+30000)
= Rs.25000
The contribution ratio for this situation is,
X100 = X100 = 80%
From the above illustration it can be seen that there is a greater swings in profits for volume changes when fixed costs forms a greater part of total costs, because the contribution ratio will be higher in such situations.
These relationships are important since, once a manager knows the contribution ratio of his products, the products which contribute the profit can be pushed through and the products which have low contribution ratio can be removed from the product line. These contribution ratios can also help the production manager to make decision whether to take on jobs at prices which cover variable costs but only part of fixed costs.
An example will illustrate, how the different contribution ratios are important in determining the overall results. Suppose a company makes three models of typewriters each of which has a different contribution ratios as follows:
Total sales in rupees Contribution ratio in % Contribution in rupees Fixed cost in rupees Profit in rupees
Portable Manual 10,00,000 25 2,50,000 2,00,000 50,000
Portable Electric 10,00,000 35 3,50,00 2,00,000 1,50,000
Regular Electric 10,00,000 45 4,50,000 2,00,000 2,50,000
If a sales increase of 1000000 units comes from selling more portable manual typewriters, this would increase profits by 250000. But the same 1000000 units of sales comes from selling more regular electric models, it would add Rs.450000 to profits. Obviously in this case the greater sales effort should go into selling regular electric typewriters.
Often it is more meaningful to express contribution values on as per labor-hour basis. This can be explained from the following illustrations
In the above example, the following additional data are considered.
Selling price per Labor required per
Unit in rupees unit in hours
Portable manual 100 10
Portable electric 200 15
Regular electric 300 25
With the addition of these data, the number of sales in each of type of typewriter is,
Portable manual: = 10000 units
Portable electric: = 5000 units
Regular electric: = 3333 units
The contribution (P-V) per unit for the models can be calculated as follows:
Portable manual: Contribution ratio = 100
25 = 100
Therefore contribution, (P-V) = Rs.25
Portable electric: Contribution ratio = 100
35 = 100
Therefore contribution, (P-V) = Rs.70.
Regular electric: Contribution ratio = 100
45 = 100
Therefore contribution, (P-V) = Rs.135
The contribution per labor-hour for the three models is,
Portable manual: = Rs.2.50
Portable electric: = Rs.4.67
Regular electric: = Rs.5.40
The above calculation also shows that the regular electric typewriters should be pushed because the contribution per labor hour is higher for regular electric typewriter model when compared to other models.
But it would not come out like this always. For example in the above illustration if the labor required per unit for regular electric typewriters is 35 hours instead of 25 hours then the contribution per labor hour for regular electric model is,
= Rs.3.86
In such a case, it would be profitable to push the portable electric model, since it gives a higher contribution per labor-hour when compared to other model.
Hence, it would be more meaningful to express contribution values on labor-hour basis.
4.6 SUMMARY
Break even analysis is a helpful tool used in analyzing managerial economic problems. It shows how much sales volume in units or rupees a company needs to have in order to break even financially.
The break-even point is the minimum volume of sales, in units of output or in rupees that must be produced and sold in order for the firm to break-even after paying all expenses. Break-even point is determined by taking into consideration of fixed cost, unit variable cost and sales revenue per unit.
4.7 ASSIGNMENT QUESTIONS
Discuss the methods for lowering break even point
4.8 REVIEW QUESTIONS
• Describe the break-even analysis.
18. What are the ways for lowering the break-even point?
19. A new word processing machine is contemplated by company to accommodate insurance policy typing and printing. The fixed cost of energy, depreciation, labor, printing paper and disc supply amount to Rs.19,700 and the variable costs are Rs.3 per policy. The average revenue from an insurance policy drafted is Rs.200
(a) How many policies should be drafted in order to break-even?
(b) What is each policy’s contribution to fixed cost and profit?
20. A product involves Rs.6000 per annum as fixed cost and yields Rs.3500 profit. The sales income is Rs.16000. Draw a profit-volume chart and find the P/V ratio.
21. The following table presents a major decision that has to be made. The company could develop either as an integrated resource company that includes exploration, drilling, production, refining and distribution function (Alternative A), or could specialize in exploration and drilling only (Alternative B). The impact on fixed and variable costs as well as selling price per barrel is provided.
Alternative A Alternative B
Fixed cost
Variable cost
Selling price Rs.5,00,00,000
Rs.25/barrel
Rs.35/barrel Rs.2,00,00,000
Rs.18/barrel
Rs.25/barrel
If the company is interests in realizing a profit with a smaller break-even volume, which alternative should be chosen?
22. The break-even point of a product occurs at a sales income of Rs.1,20,000 but normally the sales income is Rs.1,80,000, the fixed cost being Rs.1,00,000. A new product involved additional cost of Rs.20,000 but the P/V ratio was improved by 20% and sales income increase to Rs.2,40,000. What net profit did the new design yield?
4.9 REFERENCE BOOKS
• Buffa, “Modern production management “, John Whiely.
23. Krajewski and Ritzman, “Operations management “ Adison- Wesley.
24. Menipaz, Ehed, “Essentials of production and operations management”, Prentice Hall
25. Eilon, Samuel, “Elements of production planning and control”, Macmillan company.
LESSON-5
BREAK – EVEN ANALYSIS AND DECISION MAKING
5.1 INTRODUCTION
Break-even concepts can be applied as an aid to managerial decision making in number of areas. Mechanisation decisions, choosing among process alternatives and make-buy decisions are some of the areas where this break-even analysis can be applied effectively.
Objective
The objective of this chapter is to understand how Break-even concepts can be applied in managerial decision making with a few areas highlighted for understanding purpose.
Contents
5.1 Introduction
5.2 Mechanization decisions
5.3 Choices among process alternatives
5.4 Make–buy decision
5.5 Economic analysis
5.6 Non-economic and intangible factors
5.7 Make-buy polices
5.8 Cautions in the use of break-even analysis
5.9 Summary
5.10 Assignment Questions
5.11 Review Questions
5.12 Reference books
5.2 MECHANISATION DECISIONS
Suppose a new glass cutting machine would decrease the amount of glass breakage and the labor required in the manufacture of a solar heating panel which was discussed in example-2 of lesson-4. A decision has to be taken whether to go for the new machine or not. The decision will be based on the new cost estimates. For the new machine there will be an additional fixed cost of Rs.3000 would have to be invested in addition to the fixed cost of Rs.20000 but the variable cost would reduce to Rs.75 per unit from Rs.80 per unit.
With this new information on cost data, the break-even point,
Q =
= 23000/100-75
= 920 units.
The installation of this new machine would reduce the break-even volume to 920 units from the previous BEP of 1000 units. This would be an important and the decision would be taken to buy the new machine.
5.3 CHOICES AMONG PROCESS ALTERNATIVES
Break – even analysis can also be used to aid in making choices from among the alternative processes by comparing relative advantages of each. In a manufacturing situation processing requires simple machines which are easy to setup, are usually slow and costly to operate. On the other hand, larger volumes of output may allow the use of faster machines which are costly to setup but once setup they are less costly to operate. Often there are several alternative methods, each of which may be the most economical for certain ranges of output. The method which must be used depends upon the expected volume of output.
Deciding the choices among processing alternatives can be best explained with an illustration .A decision has to be taken about the processing methods among the alternatives for making a small bush. This bush can be made on a ordinary general purpose lathe which is easy to setup but not very efficient in production. The bush can also be made on a turret lathe which is more costly to setup but it can produce at lower unit cost, once it is setup. However, when the volume of requirement of bush increases, automatic screw machines would be preferable. Setup costs are much higher for such automatic machines but the operating costs are much lower.
The following cost data may be taken for the three processing alternatives:
Setup cost Operating cost
In rupees per unit in rupees
Lathe 250 5.0
Turret lathe 500 2.5
Automatic screw machine 1450 1.0
If ‘X’ is the quantity to be made each time the machine is setup, the cost formula for the three alternatives becomes,
Lathe : 250 + 5x
Turret lathe : 500 + 2.5x
Automatic screw machine : 1450 + 1.0x
Fig.5.1 shows graphically the comparison of costs for making the bush on these three machines. Lathes are the least costly for very small quantities, then turret lathes and then automatic screw machines for large quantities. The chart shown in fig.5.1 would be needed for deciding the method to be used for a given volume of production. The exact cross over points A,B and C can be calculated from the cost formula of different alternatives. The equations for the two methods being compared are set equal to each other and solved for x.
The comparison of lathes to turret lathes is,
250 + 5x = 500 + 2.5x
2.5x = 250
x = 100
Thus, point ‘A’ on the chart of Fig. 5.1 the point of indifference between these two methods is at a volume of 100 units.
The comparison of lathes to automatic screw machines is,
250 + 5x = 14500 + 1.0x
4x = 1200
x= 100
Thus the point ‘B’ on the chart of Fig. 5.1 is at a volume of 300. The comparison of turret lathes to automatic screw machines is,
500 + 2.5x = 1450 + 1.0x
1.5x = 950
x = 633
Thus the point ‘C’ on the chart of Fig.5.1 is at a volume of 633.
From the above calculation for orders under 100 units. A lathe should be used, for 100 to 633 turret lathes and above 633 an automatic screw machines. If all the turret lathes are tied up on other work and not available, then a lathe should be used upto 300 units and automatic screw machines for orders of more than 300 units.
Crossover charts can also be used in new equipment purchase choices. The lines on the charts would compare the costs of doing the work in the present way against what they would be if a machine were bought.
5.4 MAKE – BUY DECISIONS
The break- even concepts can also be used in make-buy decisions. Make-buy decisions are those where a company’s manager choose between making a part inside already made from the outside.
Make-buy questions can come up at any time. When such a question comes up and if the company has idle capacity then the decision to make is almost automatic since the cost of machine does not need to be considered. The real make-buy questions come up when making would involve the purchase of more equipment. Break-even analysis can help in this situation.
Factors affecting Make-buy decision
Every manufacturing concern must decide whether to use its product skill and effort to make each of multiple items or whether to buy them. The possibilities are tremendous when all of the materials, supplies and finished products with which a manufacturing concern deals are considered. Fortunately manufacturing a large share of these items need not be considered. For supply items as paper clips, pencils and eraser specialization makes their manufacture uneconomical to all concerns except those in that particular field. As a matter of fact real opportunities are sometimes overlooked because of this pattern of buying items.
The product has been designed and its specifications are summarized on blueprints or drawings. Analysis of the product may reveal that, the product may have 1,10,100,1000 or 10000 parts for making it. A large transport aircraft is made up of over 50000 parts. Out of these parts, it has to be decided which are to be made and which are to be bought? Also it has to be decided about the valid criteria for making these decisions.
5.5 ECONOMIC ANALYSIS
Most businessmen would agree that major criterion for decision making in the make-buy area is cost. If a part could be bought cheaper than it could be made, buy it. When it comes to the kind of needed cost comparison there is often much confusion because no standard cost comparison fits each case. Every situations must be analysed in terms of the incremental cost involved and the nature of these costs varies tremendously.
If the parts are purchased instead of making, what costs would actually be reduced and are these reduction in costs are greater than the costs that are assumed for buying the item. If so, then a decision would be taken to buy. This could be illustrated with an example. Suppose a part is made in the plant at a cost of Rs.100 per piece. This cost of Rs.100 per piece would include Rs.50 for overhead expenses and the remaining Rs.50 for direct costs. If this part is purchased then there would be a reduction of Rs.50 per piece. When the buying cost is Rs.40 per piece, then the reduction in making cost (Rs.50) if the part is bought, is greater than the cost of buying (Rs.40) the component. If so, decision would be taken to buy. When the buying cost is Rs.60 per piece then the reduction in making cost (Rs.50) if the part is bought, is less than the cost of buying (Rs.60) the component. If so decision would be taken not to go for buying and continue with making the components.
Conversely the part is purchased presently instead of making, the actual added costs that would be involved in making have to be calculated. If these costs are less than the reductions that would experience by stopping the purchase of them items. This could be illustrated with an example. Suppose the part is purchased presently at a cost of Rs.50 per piece. If the part is made then there would be an additional cost of Rs.40 per piece. Since this additional cost is less than the reduction of cost (Rs.50) expressed in leaving the purchase of the item, decision would be taken to make the part in another case, if the part is made then the additional cost incurred in making the part is Rs.60 per piece. Since this additional cost is greater than the reduction of cost (Rs.50) expressed in stopping the purchase of the part, decision would be taken not to make the part and continue with the purchase of part.
The above discussion would look simple but the difficulties come in the interpretation of them. For example, if there is idle capacity in the necessary equipment, the cost of making would be more attractive because the allocation of overhead cost for equipment for apace, supervision etc. to new product could not be justified. On the, other hand, if it is necessary to acquire equipment, floor space and supervision would have to be reflected on these facts. y if the item is considered for buying, then overhead items in the manufacturing cost would have to be looked closely. It is likely that very of these overhead cost items would actually be reduced by purchasing the part. The supervision, floor space and general factory overhead would remain as continuing cost items. If the equipment involved is general purpose, then it would have to be retained. The sunk costs of equipment and building and the realistic facts of idle capacity would be strong economic pressures for making the part instead of buying.
The types of cost factors that could enter into a make-buy decision are often surprising. For example, once company found that they had not included extra material-handling costs for the buy situation. Since this part was a heavy and bulky, the material-handling cost turned out to be important. The simple price per unit of purchased parts does not necessarily reflect the incremental cost for comparison of alternative plans of make or buy. Another company failed to consider that there were incremental paperwork costs for its make program. Previously the part was bought as a single assembled item and placed it in storage to await assembly into their final product. Now for making, several component parts would have to be purchased plus the raw material for the parts. Shop orders have to be written, inventories have to be controlled for several parts and assembly orders have to be written. Some of these costs would be measurable and greater than the cost of buying the part. The important thing is that the cost analysis must fit the particular case and each case would be different.
5.6 NON-ECONOMIC AND INTANGIBLE FACTORS
There would be some other factors other than economic that influence a company to follow a given make-buy policy. These other factors could be: quality, reliability, availability of supply, control of trade secrets, patents, research and development facilities, flexibility. These are some of the factors entering into a make or buy decision.
5.7 MAKE-BUY POLICIES
Most concerns wish to follow a basic policy that gives the economic criterion. They would vary from this policy only when a limiting condition such as quality consideration, supply, patent etc. seen to dictate a course of action. The decision rules for make-buy situations used by process planners would be based on a variety of reasons and logic. Any one of the following combinations of several may be the basis for these decision rules: economic advantage, quality consideration, reliability of supply, control of trade secrets, research and development facilities of a supply, retention of goodwill, desire to specialize activities and imposed sub-contracting. The decision rules may also depending on the company, its policies and the nature of the specific items under consideration. The break even analysis may be helpful in taking quantitative decisions for make-buy policies.
To illustrate this an example is considered. A panel manufacturer is making a decision about whether to make or buy a part. If Rs.3500 is invested in a new die, the company will be able to make this part in the plant itself for an added cost of Rs.1.00 per unit in variable cost. However, if the part is bought the vendor has quoted two prices, Rs.1.55 each for quantities up to 10,000 units and Rs.1.30 each for all orders over 10,000.
Because of two quoted price, two break-even points, one comparing each purchase price with inside manufacturing cost have to be calculated. These two break-even points are calculated as follows.
The comparison of buying quantity up to 10,000 making cost is,
1.55 x = 3500 + 1.0 x, Where x = quantity to be bought
0.55 x = 3500
x = 6367 units
This quantity of 6367 units is shown at part A in Fig.5.2.
The comparison of buying quantities over 10,000 units to making cost is,
1.30x = 3500 + 1.0x
.30x = 3500
x = 11.673 units
This quantity of 11.673 units is shown at part-B in Fig. 5.2.
Because there is no start-up cost involved and no machine to buy, buying the part would always less costly for all small quantities. But although buying would be less costly, up to 6367 units, making is less costly thereafter.
The quoted purchase price reduction for over 10,000 units forces to change the decision. For quantities just over 10,000 units, again buying is cheaper but only up to 11,673 units. After this quantity of 11,673 units again it is profitable to make. All these relationships are shown in Fig.5.2.
5.8 CAUTIONS IN THE USE OF BREAK-EVEN ANALYSIS
Break-even analysis should be used with proper judgment because of the many assumptions made in carrying out the analysis.
First it is difficult to separate fixed cost from variable cost in many operation. Often the estimate of fixed and variable cost are made roughly.
Secondly variable costs per unit are not always constant for any volume of sale or production. But the variable cost line is assumed ed as straight line on break-even chart. Sometimes economies of scale cause variable costs to be less per unit as the volume increases. At other times, diseconomies of scale work the other way and cause variable costs per unit to increase as volume increases.
Thirdly, fixed costs also may not be always constant over the full range of volume under consideration.
And finally greater volume may be profitable only at reduced prices. These interacting relationship are shown in Fig.5.3.
Fixed costs may rise as volume increase because of the need to add to capacity in a lumpy sort of way. This may be due to the purchase of more machines to produce the added volume.
The variable cost may not be a straight line. Because of the economies of scale the increase in the total cost would not be linear to that of the volume and hence the total cost curve take the non-linear shape.
And also the sales income line would not be a nice straight line as it was depicted in the previous break-even chart. As the firm tries to increase the sales volume, it may have to cut the prices on some items in order to sell more. This has the effect of flattening out the income line on the right side of the chart.
When the Fig.5.3 is analyzed, it would be seen that the volume which would produce the greatest profit would be just below point A. That is the point where there is a great spread between sales income and total cost. However, a manager looking at this chart shown in, Fig.5.3 and knowing the inexact nature of the figures that were used in the construction of the chart, would probably conclude that it would be most profitable to produce at a volume somewhat above point B but somewhat less than point C’s volume but now necessarily just below the point A.
5.9 SUMMARY
Break even concepts can be applied as an aid to managerial decision making in number of areas. Mechanisation, decisions, choosing among process alternatives and make-buy decisions are some of the areas where this break- even analysis can be applied effectively. Break-even analysis should be used with discretion because of the many assumptions which are made.
5.10 ASSIGNMENT QUESTIONS
Discuss the make-buy decisions.
5.11 REVIEW QUESTIONS
• Is a break-even chart reliable enough as a managerial tool for a manager to rely on it in making a major business decision- Discuss.
26. What is the nature of the economic analysis for a make versus buy decision?
27. Discuss the nature of non-economic and intangible factors that may bear on the make-buy decision.
28. How does the break-even concept apply in process selection?
29. Discuss the limitations and cautions which should be taken in using break-even analysis
5.13 REFERENCE BOOKS
• Buffa , ”Modern production management”, John Whiely.
30. Krajewski and Ritzman. ‘Operations management’, Addison-Wesley.
31. Menipaz, Ehed, “Essentials of production and operations management”, prentice Hall
32. Eilon, Samuel, ‘Elements of production planning and control”, Macmillan company.
33. Moore, F.G. and Hendrick, T E “Production/operations management”, D.B, Taraporval Sons & Co., Bombay.
LESSON – 6
PLANT LOCATION FACTORS
6.1 INTRODUCTION
Very early in the planning phase, the operations manager is faced with a plant location decision. The small entrepreneur, when considering a location for his welding shop, is concerned with easy access to the shop by potential clients and with building costs and rental rates. The major national producer of chain saws considers his markets, the availability of skilled personnel, the supply of raw materials, energy and so on.
The location of a plant is a major decision and is affected by many factors both internal and external to the organizations operations. Internal factors include the technology used, the capacity, the financial position and work force required. External factors include the economic, political and social conditions in the various localities.
Most of the fixed and some of the variable costs of the operations are determined by the location decision. Thus the efficiency, effectiveness, productivity and profitability of the plant are affected by the plant location decision. While some aspects of locational analysis can be dealt with quantitatively, the final decision is based largely on informed qualitative judgement.
Objective
The objective of this chapter is to introduce the various aspects of business which will lead to a smooth setup of a plant for production.
Contents
6.1 Introduction
6.2 Aspects of plant location
6.2.1 Process inputs
6.2.2 Process outputs
6.2.3 Process characteristics
6.2.4 Personal preference
6.2.5 Tax, incentives and legal aspects
6.3 Steps in the plant location study
6.4 Area selection
6.5 Community selection
6.6 Site selection
6.7 Influence of location on plant layout
6.8 Common errors in plant location analysis
6.9 Summary
6.10 Assignment Questions
6.11 Review Questions
6.12 Reference books
6.2 ASPECTS OF PLANT LOCATION
The location of a facility, be if a manufacturing or service is largely affected by the following aspects,
(i) Process inputs
(ii) Process outputs
(iii) Process characteristics
(iv) Personal preferences
(v) Tax incentives and legal aspects
6.2.1 PROCESS INPUTS
Process inputs involve raw material, personal and other inputs. So far as raw materials are concerned transportation costs are importance. These costs are significant when bulky and heavy raw materials are involved in the process.
When there is only one raw material source and many dispersed markets, one considers locating the facility near the raw material source. However, when there are various raw materials that are to be used for the production of one single marketable product, one considers locating the facility near the market.
Inputs other than raw materials are also involved in the operation process. For example work a force availability and wages are of far more importance to an operation than are raw materials. Service organisations and labor intensive industries are very sensitive to the availability, the skill level and the pay rate of the work force. However, to a certain extent increased mechanization has contributed to the reduced importance of the labor aspects of location analysis.
Another consideration in the context of human resources is the availability of man power. Generally the work force consists of skilled, semi-skilled and un-skilled personnel. All of these skill levels are represented in organisations. For example if a plant is to be located in a low skill, low wage area, the degree of mechanization must be increased. The work assistants and habits of locally recruited personnel are also important.
6.2.2 PROCESS OUTPUTS
Process outputs involve distribution costs. The more bulky and heavy the finished product is the more costly becomes the distribution. Also if the operation is more service oriented it is important that the plant to be located near its market. for industries where services are not directly consumed such as automobile repair shoes and headquarters of mortgage and trust companies location is not so crucial. However, services that are directly connected such as those of bank branches, theaters, restaurants, apartment buildings and public parks locations near the consuming public is crucial. As matter of fact proximity to the market is possibly the most important consideration in location services that are directly consumed.
When the process requires a great deal of energy as does the steel industry it should be located next to a major source of power. When the process requires a great deal of water as does the sugar industries it should be located where water is available in sample supply.
6.2.3 PROCESS CHARACTERISTICS
These are concerned with the equipment or conditions. Very noisy or odour or chemical producing plants should be located far away from urban or sub-urban communities. Certain weather conditions are advantageous for varies processes. For example a certain humidity level is favourable for sanitary operations. A certain humidity level is required for the printing industry because of the paper sheet feeding technology which is based on vacuum cups. The facility location is thus affected by the process requirements.
6.2.4 PERSONAL PREFERENCES
Personal preferences of the entrepreneur or top executives of the company also affect the location decision.
6.2.5 TAX INCENTIVES AND LEGAL ASPECTS
These are very important factors corporate tax, personal income taxes and sales tax all affect the location decision. Obviously the corporate tax structure is built into any location feasibility study made by the corporation. Personal taxes determine how attractive the move to the new location is and what the wage structure should be. Various communities, states and government offer incentives for facility location by providing industrial parks, properly zoned land at favorable tax rates and rebates based on capital allowances and per worker outright grants. At times loans and loan guarantees are offered.
Certain industries are banned from certain localities. Certain products might be legally banned from certain localities. These aspects of facility locations should be checked and confirmed.
6.3 STEPS IN PLANT LOCATION STUDY
In most cases a location analysis should begin with a preliminary survey of the aspects indicated above to determine whether or not the use of new plant site might be justified. When it is not justified the study simply ends. If the survey indicates that new sites may be desirable, a detailed analysis that carefully evaluates all possible alternatives should be undertaken.
Usually, the analysis is undertaken in several stages. Three levels of problems must be attacked when considering plant location. They are,
(i) Selection of general territory or area
(ii) Selection of a specific community
(iii) Selection of specific site
Sometimes the second and third levels are confined. Although some location factors may be applicable at the three levels, there are certain unique considerations when selecting a general area, community and site. The selection of factors consider at each stage is to an extent arbitrary. Some factors may be evaluated at different stages and some are evaluated in all the three stages. What is important is that all the factors be considered at same point in the analysis.
Numerous sources of informations are available to assist the firms with the analysis.
Location informatics of a general nature may be obtained from the following sources
(i) Central Government
(ii) State Government
(iii) Chamber of commerce
(iv) Electricity Board
(v) Gas authorities
(vi) Railways
(vii) Transport Corporation
(viii) Engineers and Builders
(ix) Consultants
6.4 AREA SELECTION
Area of territory selection calls for the information of a more general nature. In this initial phase, management is involved in selecting region or general area in which the plant should be located. The following are some of the important factors that influence its selection.
A. MARKET
The market is a location of the buyers, It is a factor to be considered in plant location. Depending on the product, market may be concentrated or widely dispersed. When a market is concentrated, the market factor may tend to influence the investigator to locate close to this concentration.
For a product servicing a dispersed market the influence of the market factor becomes less obvious. It is possible to determine the center of the market which is a statistical device helpful in approximating that point which will provide the lowest cost for distribution. The center of the market can be used only as a guide for plant location. The method used to locate a market center is analogous to locating the center of gravity of a two dimensional object in mechanics.
Locating plant near the markets for this products and services is of primary importance in a plant location decision. Particularly this factor should be considered if the manufacturing increases the bulk or weight of the product, renders if the manufacturing increases the bulk or weight of the product, renders it more fragile or make it capable of being easily spoiled. Besides, adding transportation costs, distance adds to transmit time and slows down delivery thus affecting promptness of service.
If the product is relatively inexpensive and transportation costs (e,g bricks, cement add substantially to the price, a location near the market is desirable. Also if the product is custom- made, close customer contact is essential, In assembly type industries many raw materials are gathered together from diverse locations and assembled into single units. Such industries tend to locate near the market.
B. RAW MATERIALS
The location of raw material is influential in the location problem. Some industries by the nature of their manufacturing process are forced to locate the near raw material sources. The steel industry has traditionally located close to the coal fields since it uses coal in large quantities, However since new processes have been developed for basic steel refining which eliminate the need for coal, this change in the raw material demand could lead to a complete relocation of the steel industry.
The raw material could be treated in three classes.
(i) Pure material which are included in the manufacturing part without loss of weight.
(ii) Weight losing materials, only a part of whose weight is represented in the weight of the finished article.
(iii) Materials found virtually everywhere.
By assuming uniform rates per distance travelled, which is an oversimplification, the following generalization regarding the effect of raw material on plant location may be made.
(i) When a single raw material is used, without loss of weight, locate the plant at the raw material source, at the market or at any point in between them.
(ii) When a weight losing material is demanded for the plant, then locate the plant at the raw material source.
(iii) When a material found everywhere is used, locate close to market area, since the material is available everywhere.
Ease of access to suppliers of raw materials, parts, tools, equipment, etc. may be important. Promptness and regularity of delivery from suppliers and minimization of freight costs are important.
In general this factor is most likely to be important in transportation of materials and parts represents the major portion of unit costs and these inputs are available only in a particular region. If the raw material is bulky and if it is greatly reduced in bulk by transferring into various products and by-products in processing, then location near raw material sources is important. If the raw material is perishable and processing makes it less, then also locating near raw material source is important. If raw material comes from a variety of locations, the plant may be situated so as to minimize total transportation cost.
In calculating transportation costs, the fact that should be considered is that these costs are not simply a function of distance but vary depending upon specific routes and specific product classifications.
C. TRANSPORTATION
The problem of transportation is an important factor in plant location. The movement of material can consume a very high percentage of the final cost to the customer. One plant location analysis for a specific plant done by an analyst showed that locating the plant as little as 400 kilometers from the best location caused lost potential projects of as much as Rs.30 lakhs per year. The penalty included higher cost of labour, power and fuel as well as higher transport costs.
(i) The different transportation medium may be listed as follows.
(ii) Railroads-all classes of traffic
(iii) Water carriers-all classes of traffic
(iv) High way vehicle-all classes of traffic.
(v) Pipe lines-Bulk liquid and gases.
(vi) Aircraft-Where speed is essential and where access by the surface agencies is difficult.
(vii) Pack animals-in different terrain.
(viii) Belt, cable or rail conveyers of various types-short distance.
(ix) Human carriers-short distance and small quantities.
(x) Electric cable-electric energy.
(xi) Telecommunications-information commercial negotiations.
Each of the above transportation mediums has its advantages and limitations, In order to select the proper transportation media, the sipper should consider the following.
(i) Type and extent of material handling facilities at origin and
(ii) destination.
(iii) The relation cost of the various media.
(iv) The urgency of the shipment.
(v) The demand for special service, e.g. refrigeration.
Transportation cost vary with the type of route, media and the type of media selected as well as the length of distance traveled. In general the cost of moving material per unit distance traveled tapers of as the length of distance traveled increases.
Fig.6.1 shows an analysis involving break even point to select a transportation media for a particular situation.
In this case truck transportation appears to be the most economical up to a distance of approx. 80 kms. Transportation by waterway appears to be most economical for long distance traveling for distance greater than about 700kms. For traveling distances between 80 – 700 kms. The railroad appears to be most efficient carrier. The break even chart shown in Fig. 6.1 is a hypothetical one. However, such a chart can be constructed if real data are available for taking the decision with respect to the selection of transport media.
Adequate transportation facilities are essential for the economic operations of a production system. The bulk of all freight shipment is made by rail. Rail transport offers a great deal of flexibility and speed. Most firms require access to railways which they consider to be essential carriers of their products.
For companies that produce or buy heavy and bulky commodities, water transportation is an important factor in locating plants.
Truck transport is also important particularly for intercity transport. Availability of pipelines may also influence location. Use of aircraft is also expanding and so the proximity to airports be vital. Traveling expenses of management and sales personnel should also be considered.
D. LABOR SUPPLY AND WAGES
Not only the labour force must be available but also it must contains the skills required in a given manufacturing process.
The history of labour relations in a prospective area for location should be studied. For obvious reasons, it is difficult to secure objective comments from area leaders and local government officials particularly if they are promoting their community. The rate of labour turnover is a good indication of the relationship between management and labour. A high turnover rate shows up in a high labour cost and it is directly related to productivity.
If the labour force required by a particular industry is predominantly female, the location problem takes on some different aspects compared to a plant whose labour force is predominately male. Wage levels must also be considered. Wages and skill available may be lower in a particular region and therefore industries requiring many unskilled workers, which pay low wages are attractive to such regions.
Manpower is one of the most important and costly inputs in production systems. An ample supply of labour is essential. Firms often look at the areas in which there will be more than three or four times of the permanent job applicants available than the required number. It is also advantageous to locate in places where there is diversification between industries and business. It is not desirable to have more than 50% of the available work force in manufacturing. The type and level of skills possessed by the labour force is important. If company requires particular skills that are not wide spread, it may have to locate near the particular areas where these skills are available. Otherwise, training costs might be more and inadequate productivity would result. In these cases, skilled labour is desirable but not essential since all the workers will require some training any way. It should be noted that a firm can relocate from a high skill/high cost to a low skill/low cost operation if sufficient process mechanization is achieved to permit trading off the higher investment in machinery for less man power and lower wages and level of skills.
The existence of regional wage rate differentials may be important particularly in those cases in which labour cost represents the bulk of total production cost as in the textile industries. This factor must be considered in light of the skills available in the area, the size of the labour force, productivity levels, etc., The extent of unionization, prevailing labour management attitudes, history of labour relations, turnover rates, absenteeism, etc., should also be considered.
E. CLIMATE AND FUEL
Climate greatly influences human efficiency and behavior. A plant whose production process requires a constant temperature of 20C will find no such situation. It should be located on a site that has a mean temperature of 20C and standard deviation of 5. This will call for the least amount of artificial heating and cooling.
Heating engineers can compute heating costs on the basis of the temperature data. In addition to fuel costs, climate can influence the selection of a territory because of the amount of precipitation or air pollution. Wind velocity and direction can also influence plant location. These become very important factors when the possibility of radioactive fall out resulting from an attack upon a distant city is considered.
F. LOCATION OF OTHER PLANTS AND WAREHOUSES
Firms always try to plays new plants where they will compliment sister plants and warehouses and minimize total cost. They look for market needs and supply and demand disparities and locate where major markets have been served by long distance travels. The location of competitors plants and warehouses must also be considered, the object being to obtain an advantage in both freight costs and the level of customer service.
6.5 COMMUNITY SELECTION
Once the general territory for location has been selected, it becomes necessary to choose a community and a site. A decision must be made regarding the size of the community in which the plant is to be located. The alternative choices can be classified as
(i) City location
(ii) Suburban location
(iii) Country location
A. CITY VS SUBURBAN VS COUNTRY
The advent of the automobile has brought new mobility to the working force. This is one of the reasons for the present day industrial rush to the country. Wide-open spaces and freedom to expand are probably two of the biggest inducement.
The type of manufacturing process may dictate the site relation. For example a country location is desirable for a plant producing explosives. Some of the general conditions leading to the selection of an appropriate type of community might be listed as follows.
(a) Conditions suggesting a city location
(i) Large skilled labour required
(ii) Process heavily dependent upon availability of city utilities
(iii) Multifloor building desirable
(iv) Close contact with suppliers is demanded
(v) Rapid public transportation is available
(b) Conditions suggesting a Suburban locatin
(i) Semiskilled labour force required
(ii) Avoidance of heavy city taxes and insurance desired
(iii) Labour force residing close to the plant
(iv) Plant expansion is easier than in city
(v) Community close to but not in large population center
(c) Conditions suggesting a country location
(i) Large site required for either present demand or expansions
(ii) Lowest property taxes available desired
(iii) Unskilled labour force required
(iv) Low wages required to meet competition
(v) Morale of working force improved by country location
(vi) Manufacturing process is dangerous or objectionable
The choice of the community depends upon the region already chosen. Most community selection factors cannot be quantified and can only be evaluated subjectively.
B. MANAGERIAL PREFERENCES
This often plays an important role in plant location decision. Many times due to community ties companies will not relocate. When firms do relocate the location selection in some cases is heavily influenced by the preferences of the managers who will be transferred.
C. COMMUNITY FACILITIES
This involves such factors as quality of life, which in turn is a function of the availability of such facilities as schools, churches, medical services, police and fire protection, cultural, social and recreational opportunities, having good streets and highways. Also important or the communication facilities and the range frequency and reliability of transportation facilities.
D. COMMUNITY ATTITUDES
Community attitude is an another factor to be considered in locating a site for the plant. The cultural social and educational community atmosphere is being given more attention by plant location investigation, since management has recognised that these aspects are often important to key employees.
The political climate of a community might well be investigated. The tendency of government bodies to encroach on the privilege of business has caused management to carefully study the political climate in a prospective location. The back issues of the local newspaper over a period of time can revel such aspects.
These can be difficult to evaluate. Unless the industry is for some reason of an offensive nature, most communities welcome new industries. However, the formation of anti-industrial pressure groups or a lack of Co-operation, interest and enthusiasm on the part of community can result in poor relation between the relocating firm and local government, labour and the general public.
E. COMMUNITY, GOVERNMENT LAWS AND TAXATION
State and local laws should be studied when considering various location. Labour laws, Workmen’s compensation laws, etc., vary widely from one location to another.
Some of the aspects of industrial operation regulated by law are hours of work, minimum wages and working conditions for women employees. The respective laws should be investigated which may penalize certain types of industry in certain areas. Waste disposal smoke reduction and nuisance regulations should be studied for the various alternative locations.
Some industries concerns pay excessive taxes. Taxes should be considered in selecting a site but a plant location analysis says that tax incentives are relatively unimportant secondary factor of location. Given the governing factor, the tax incentive may induce a specific location within the area defined by the basic factor. If the location offering tax incentives is not within the area set by the governing factor, it is simply not considered.
Stable, honest and co-operation of government officials are important asset as most of the local legislations affecting industry is under their control. Restricting, unreasonable local ordinary concerning building codes, zoning, pollution control etc., can seriously inhibit operations.
Tax rates are important but must be considered in terms of services provided. There should be some attempt to forecast these charges. If future expansion of community services and facilities is likely, taxes will probably increase.
F. FINANCIAL INDUCEMENTS
Many central and state governments offer subsidy and financial inducements to companies to influence them to build plants in their areas. Government may provide loans for plants for newly established plants within their regions. However, the companies should not allow temporary inducements to overshadow the basic merits of any location.
G. PROFILE OF PRESENT INDUSTRY
The kinds and quality of industrial concerns already in the community area also pertinent factory to be considered in plant location.
6.6 SITE SELECTION
This is the final stage in the plant location analysis.
One thumb rule regarding the size of a site is that it be not less than five times the actual size of the plant itself. This is considered a minimum in order to allow for loading platform, siding, transport access, parking facilities and storage area. Wherever possible, open land is desirable or two or more sides to allow for future expansion.
Unfortunately, tempting offers of a fine site or attractive tax promises frequently influences plant location decision. Objective data is essential to good plant location.
Researchers in plant location says, that in order to property select a site, a list of general specification should be as follows.
e maps published by the geographical Survey are useful in selecting a good plant site. These maps show the land elevations, water feature, dams, buildings, railroads and power lines.
When choosing a site the following factors should be investigated.
H. SIZE OF SITE
The plot of land must be large enough to hold the proposed plant and parking and access facilities and provide room for future expansion. Industrial parks are often an excellent choices except for heavy industry.
I. TOPOGRAPHY
The topography, soil mixture and drainage must be suited to the type of building required and must be capable of providing with a proper foundation. If considerable land improvement is required, low-priced land may turn to be expensive.
J. UTILITIES
The cost, adequacy and reliability of the supply of power and water must be evaluated.
K. POWER
All industries today require electric power of some sort. In addition, there are certain industrial processes that require large amount of electric power. For example the refining of aluminium require cheap electricity in large amounts and for this reason aluminium processing plants are located in areas where large sources of inexpensive power is available.
In a situation where a large amount of steam is utilized for processing or heating it is sometimes advisable to use this steam for power generation purpose.
The following check list may be helpful when examining the power situation in a given area.
(i) Type of service
a. Hydro - electric
b. Steam
c. Other
(ii) Reliability of service – history of stoppages.
(iii) Adequacy of supply – seasonal restriction.
(iv) Kind
a. Phase
b. Cycle
c. Voltage
(v) Rates
(vi) Availability of off peak contracts.
(vii) Fuel adjustment.
(viii) Lighting allowances.
(ix) Discounts and penalties.
Hydro – electric power is usually associated with cheap rates, although the original installation of the hydro electric plant is considerably more costly than that of steam plant. Technical developments leads to constant improvement in power generation and distribution.
L. WATER
There are certain industrial processes which requiring large quantities of water. Selecting a site with a good water supply is essential in steel, paper board, paper pulp, food and chemical processes.
Water is generally available from three sources.
1. surface – water available from three sources,
2. ground – springs and wells and
3. rain water
Surface water varies greatly in its chemical analysis and microscopic organism and vegetation may add taste and color harmful to specific manufacturing processes. Hard water can damage steam boilers, pumps and circulating systems, engines and other water jacket equipment. The pH factor is the measure of hydrogen ion concentration of water and it is an expression of its acidity or alkalinity. This factor should be checked if hardness affect the manufacturing process.
The cost of the supply of power and water are sizeable and constantly recurring costs. Accurate cost determination requires contact with the local utility company. Use restrictions may be imposed and there may be wide variations in availability. The water supply must be sufficient to meet peak needs and compensate for dry spells. If water is poor quality it may require chemical treatment or purification. The cost of connecting these services to the plant must not be overloaded. Sometimes it can be done only at high costs.
M. WASTE DISPOSAL
This must be considered when selecting the site. The plant should be positioned so that prevailing winds carry any fumes from populated areas and so that waste may be disposed of properly and at reasonable expense.
Waste disposal is getting to be more and more of a problem as industrial concentration built up. As the radioactive materials finding its use in industry in increasing numbers, the problem of disposal of radioactive waste has become quite critical. Enterprising businessman in a heavily industrialized area might establish profitable business of collecting and disposing of radioactive wastes from the industries.
N. TRANSPORTATION FACILITIES
Railroads and highways should be close by in order to minimize the cost of rail lines and access roads. There must be enough through highways and railroads to serve the community itself. Special requirements for water or air transport must be considered. The plant itself should be easily accessible by car or preferably public transport.
Intangible factors to consider include the dependability and character of the available carriers, frequency of service and freight and terminal facilities. Cost and time required to transport the finished product to market and the time required to contact or service a customer must also be considered.
O. LAND COSTS
There are generally of minor importance as they are non-recovering and make up a relatively small proportion of the total cost of locating a new plant.
It should be emphasized that plant location analysis is a periodic task. The world is rapidly changing and the management should not expect a location to remain optimal for ever. Every organization should periodically reassess its environment whether any long term changes have occurred that may make it advantageous for the organization to alter or possibly relocate some portion of its facilities.
6.7 INFLUENCE OF LOCATION ON PLANT LAYOUT
Plant location will determine the proximity of a plant to its source of raw materials and its market area. The distance from the plant to these two areas tend to determine the method of transportation to be used. In tern the type of transportation determine whether the layout should provide for railroad, truck or water loading and unloading facilities. The arrangement of the shipping and receiving departments will vary in the layout according to the type of transportation utilized.
A plant location may be determined, in part, by the fuel requirements of the concern. The plant layout must provide for storage of this fuel, whether it be coal, oil or gas. Also the layout must consider the requirements for power generation.
The demands of future expansion on the plant are influenced by the location of the plant. When plant expansion in a city location must take place by adding stories to a presently constructed building, the plant layout problems are some what different than they would be in a country location. Where plant expansion might take place horizontally by adding a wing to a single story building. Materials handing problem in a single story building are quite different from those in a multi story building.
6.8 COMMON ERRORS IN PLANT LOCATION ANALYSIS
Sometimes the location selected is poorly suited to the company’s needs. Among the more common causes of failure to make a proper location decision are the following:
• Labour cost miscalculations.
34. Inadequate labour resources
35. Failure to anticipate growth-firms overlay influenced by short term consideration find expansion restricted by natural boundaries, residential or commercial encroachment, limited utility, etc.,
36. Carelessness in checking site
37. Lack of distribution outlets
38. Failure to predict local impact of new plant
39. Lack of supporting facilities.
40. Mis-information on utility costs and problems
41. Underestimated importance of taxes
42. Failure to identify critical costs,
43. Choosing a community in which living conditions are sub-standards.
44. Allowing the personal opinions and prejudices of company officers to influence the decisions.
45. Purchase of an existing building due to low price, even though it is unsuited to firm’s process.
6.9 SUMMARY
Very early in the planning phase, the operations manger is faced with a plant location decision. The problem of facility location is a must important one and falls into the category of lorry-range planning. The data that are required for a location study should be collected from a variety of sources.
6.10 ASSIGNMENT QUESTION
Discuss the site selection
6.11 REVIEW QUESTIONS
• “The location of a plant is a major decisions affected by many factors, both internal and external to the organisations operations”- Explain.
46. List and describe plant location factors.
47. What are the steps of a plant location study?-
48. What are the common errors in plant location analysis-
49. How does the location factors influence the plant layout?
6.11 REFEERENCES
• Buffa, “Modern production management”, John Whiely.
50. Menipaz, Ehed, “Essentials of production and operations management”, Prentice Hall
51. Apple, J.M. “Plant layout and Materials Handling”, Ronald press.
52. Moore, F.G., “Plant layout and design”
LESSON-7
A PLANT LOCATION MODEL
7.1 INTRODUCTION
In plant location models, the objective is to minimize the sum of all costs affected by location. Some items of cost, such as freight, may be higher for city A and lower for city B but power costs, for example, may have the reverse pattern. A location is obtained that minimizes costs on balance.
In attempting minimize cost not only the today’s cost are considered but also long-run costs as well. Therefore the influence some of the intangible factors that may affect future costs must also be predicted.
Thus factors such as the attitude of city officials and town’s people towards a new factory site in their city may be an indication of future tax assessments. Poor local transportation facilities may mean future company expenditures to counter balance this disadvantage. A short labor supply may cost labor rates to be bid up beyond rates measured during a location survey. The type of labor available may indicate future training expenditures. Thus although a comparative cost analysis of various locations may point toward one community an appraisal of intangible factors may be the basis of a decision to select another.
A model that attempts to deal with the multi-dimensional location problem was developed by Brown and Gibson. This model classifies criteria affecting location according to the model structure, quantities the criteria and achieves the balancing or trade-off among criteria.
Objectives
The objective of this chapter is understand the factors that affect the operation of a plant through plant models.
Structure
7.1 Introduction
7.2 Classification of criteria
7.3 Model structure
7.4 Subjective factor weight
7.5 Site weight
7.6 An example
7.7 Summary
7.8 Assignment Questions
7.9 Review Questions
7.10 Reference books
7.2 CLASSIFICATION OF CRITERIA
The Brown and Gibson model deals with any list of criteria set by the management but classifies them as follows:
(i) Critical factor
(ii) Objective factor
(iii) Subjective factor
A. CRITICAL FACTOR
Criteria are critical if their nature may exclude the location of a plant at a particular site regardless of other conditions that might exist. For example, a water oriented enterprise such as brewery, would not consider a site where there is a water shortage existing. An energy oriented enterprise such as an aluminium smelting plant, would not consider sites where low-cost and plentiful electrical energy was not available. Critical factors have the effect of eliminating sites from consideration.
B. OBJECTIVE FACTOR
Criteria that can be evaluated in monetary terms such as labor, raw material, utilities and taxes are considered as objective factoRs. A factor can be both objective and critical. For example, the adequacy of labor would be a critical factor whereas labor cost would be an objective factor.
C. SUBJECTIVE FACTOR
Subjective criteria characterized by a qualitative type of measurement. For example, the nature of union relationships and activity may be evaluated, but its monetary equivalent cannot be established. Again, criteria can be classified as both critical and subjective. The subjective factors may include.
a) Availability of transportation.
b) Industrial sites,
c) Climatic conditions.
d) Educational facilities,
e) Union activities,
f) Recreation facilities,
g) Future growth,
h) Cost of living,
i) Competition,
j) Availability of labor,
k) Type of labor,
l) Attitude,
7.3 MODEL STRUCTURE
For each site, that is, a location measure LM is defined that reflects the relative values for each criterion.
LMi = CFMi [X . DFMi + [i-X) . SFMi ] (1)
Where
CFMi = the critical factor measure for site’i’
(0 or 1)
OFMi = the objective factor measure for site ‘i’
(0 < = DFMi <=1 and i DFMi =1)
SFMi = the subjective factor measure for site ‘i’
(0 <= SFMi < 1 = and i SFMi =1)
X = the objective factor decision weight.
The critical factor measure CFMi is the product of the individual factor indexes for site ‘i’ with respect to critical factor ‘j’. The critical factor index for each site is either 0 or 1 depending on whether the site has an adequacy of the factor or not. If any critical factor index is 0, then CFMi and the overall location measure Lmi are also 0. Site ‘i’ would therefore be eliminated from consideration.
The objective criteria are converted to dimensionless indices in order to establish comparability between the objective and subjective criteria. The objective factor measure for site ‘i’ OFMi in terms of the objective factor cost OFCi is defined as follows:-
OFMi = [(OFCi i (1/OFCi)]-1 …(2)
The effect of equation –2 is that the site with the minimum cost will have the largest OFMi. The relationship of total costs between sites are retained and the sum of the objective factor measures is one. This is accomplished through the weighting of the OFCs be the sum of the reciprocals of the OFCs summed over all sites. Raising the result to the power –1 converts the OFMi to proportions with large values representing relatively more desirable resulting than small values.
The subjective factor measure for each site is influenced by the relative weight of each subjective factor and the weight of site ‘i’ relative to all others sites for each of the subjective factoRs.This results in the following statement.
SFMi =k (SFWk Swik) …(3)
Where SFWk = the weight of subjective factor ‘k’ relative to all subjective
factors.
and Swik = the weight of site ‘i’ relative to all potential sites for
subjective factor ‘k’
7.4 SUBJECTIVE FACTOR WEIGHT
Preference theory is used to assign weights to subjective factors in a consistent and systematic manner. The procedure involves comparing subjective factors two at a time. It the first factor is preferred the second, then the numerical value of 1 is assigned to the first factor and 0 to the second and vice-versa for the opposite result. If it is difficult to differentiate the two factors,. a rating of 1 is given to both factors.
Procedures are also included for higher order rating. As with the objective factors, the rating are normalized so that the sum of objective weightings for a given site adds to 1.
In the preference theory, conclude for each paired comparison about which factor is more important by judgement. Assign the more important factor a value of 1 and the less important a value of 0. If it is felt that two factors are of equal value assign a 1 to both.
Develop a table with the factors in a column at the left and the comparisons to be made across the top. When all combinations of comparisons have been made total the 1’s in each row representing the sum of the preference values that factor. Factor weight is then the factor sum divided by the total preference values for all factors. As a check the sum of all factor weights should be equal to. 1.
Calculation of SFWk (relative weight to be assigned to each subjective factor) can be summarized as follows.
(i) Develop a table with subjective factors in a column at the left.
(ii) Take two factors at a time across the top of table.
(iii) Compare two factors at a time.
(iv) Conclude for each paired comparison which factor is more important
(v) Assign the more important factors a value of 1 and the less important a value of O,
(vi) If it is felt that the two factors are of equal value, assign 1 to both.
(vii) When all combinations of comparisons have been made, total the 1’s in each row (representing the sum of the preference value for that factor). Let this be called as factor sum.
(viii) Find the total preference value for all the factors.
(ix) Factor weight = factor sum / Total preference value.
(x) Check that sum of all factor weight is equal to 1.
7.5 SITE WEIGHTS
Determination of site weights for each factor follows a similar procedure. Comparison of each site for each site for each subjective factor must be made one factor at a time. Data rating of each factor for each site serve as a guide fie the weighting process. A separate table of comparisons is required for each factor. For example if there are 5 subjective factors to be considered for 6 probable site locations for each subjective factor a comparison table is developed with 6 sites in a column at left and six comparisons to be made across the top. Insert 1’s in each row representing the sum of preference values for that site and compute site weights. The result of this procedure gives the site weights for each subjective factor. For this example of subjective factors and 6 sites there will be 30 site weights.
(i) Calculation of SWik (site weights) can be summarized as follows.
(ii) develop a separate table of comparison for each factor
(iii) take sites in a column at the left of tab
(iv) take the comparisons to be made across the top of the table
(v) insert 1’s and 0’s in the table representing the results of comparisons
(vi) total 1’s in each row representing the sum of preference values for that site
(vii) compute site weights
site weight =
(viii) result of this procedure gives the site weights for each subjective factor
Compute subjective factor measure, SFMi for all the sites using the equation 3. For each site, SFM is the sum of successive multiplication of the factor weights determined previously by the site weights for each factor. As a check the sum of the SFMs should be equal to 1.
Compute location measure, LMi for each site. For calculating LMi, decide on the proportion of the decision weight that should be placed on objective factoRs. Determining objective factor weight is a judgment process. It should be justified why a particular objective factor decision weight ‘X’ have to be chosen. The factor ‘X’ establishes the relative importance of the objective and subjective factors in the over all location problem. Decision is based on the action by a management committee reflecting policies, past data and an integration of a wide variety of subjective factoRs. Determination of ‘X’ could be subjected to a Delphi process.
Given a value of X, the final location measures are calculated using equation 1. As a final check total of location measures for all sites should be equal to 1. Site that receives largest LMi is selected.
7.6 AN EXAMPLE
Table 1. gives the general data on objective factor costs. There are six objective factors and probable sites for locating the plant considered are also six. Five subjective factors are found to be relevance to location of the plant and preliminary rating for each factor is given in the table 2. The first four subjective factor are rated ob a scale of excellent-plentiful-very good-good-adequate-fair.
The fifth subjective factor is rated on a scale of active-significant-moderate-negligible.
SITE
MATERIAL
MARKETING
UTILITIES
LABOUR
BUILDING
TAXES (OFC) TOTAL OBJECTIVE FACTOR COST
1 1079 1316 9460 12773 514 3095 28237
2 945 1485 11563 11249 563 3470 29275
3 490 1467 12768 10422 539 3580 29266
4 979 1600 10548 12159 490 3755 29531
5 925 1263 10898 12333 612 3701 29732
6 1507 1950 11628 12244 612 3393 31334
Table 1 OBJECTIVE FACTOR COSTS FOR SIX SITES
SITE
SUBJECTIVE
FACTOR 1 2 3 4 5 6
1 AVAILABILITY OF LABOUR ADEQUATE PLENTIFUL PLENTIFUL VERYGOOD PLENTIFUL PLENTIFUL
2 AVAILABILITY OF TRANSPORATATION GOOD VERYGOOD GOOD VERYGOOD GOOD VERYGOOD
3
CLIMATIC CONDITION GOOD VERYGOOD VERYGOOD FAIR GOOD VERYGOOD
4
RECREATION FACILITES GOOD VERYGOOD VERYGOOD VERYGOOD GOOD VERYGOOD
5 UNION ACTIVITIES SIGNIFICANT NEGLIGIBLE NEGLIGIBLE ACTIVE SIGNIFICANT ACTIVE
Table 2 SUBJECTIVE FACTORS AND THEIR RATING FOR SIX SITES
A. CALCULATIONS OF OBJECTIVES FACTOR MEASURE, Ofmi:
i = (1/28, 237) + (1/29, 275) + (1/29, 266)
+ (1/29531) + (1/29732) + (1/31334)
= 0.0002032
OFM1 = [28,327 x 0.0002032]-1 = 0.17428
OFM2 = [29,275 X 0.0002032]-1 = 0.16810
OFM3 = [29,266 X 0.0002032]-1 = 0.16816
OFM4 = [29,531 X 0.0002032]-1 = 0.16665
OFM5 = [29,732 X 0.0002032]-1 = 0.16552
OFM6 = [31,334 X 0.0002032]-1 = 0.15706
B. CALCULATION OF SUBJECTIVE FACTOR WEIGHT, SFWk:
Preference table for the calculations of SFWk is shown in table-3 Five subjective factors are taken in a column on left of the table and the ten possible pairs are taken across the table. The preference values are given based on judgement.
For example when the availability of labor and availability of transportation (L&T) is compared, it was felt that availability of labor is more important for the plant to be located and hence a preference value of 1 is given to labor and 0 for transportation. When the availability of labor and recreation facility (L&R) are compared it was felt that both the factors are important for the plant to be considered. So a preference value of 1 is given to both these factoRs.In the similar way all the combinations are considered and the preference values are assigned. The total preference value for all the factors (sum of all 1’s in Table-3) is 16. Sum of the preference value for the factor ‘availability of labor’ (Sums of 1’s in that row of table-3) comes to 4 and it is called as ‘factor sum’. Therefore the factor weight for this factor is obtained by dividing factor sum by the total preferred values. This is calculated as 4/16 = 0.25 for the ‘labor’ factor in table-3. Similarly SFWk is calculated for all the subjective factoRs.It can be checked that the sum of all the SFWk comes to 1.
D. CALCULATION OF SITE WEIGHT, SWik;
Separate preference tables have to be developed for each subjective factor. Therefore there will be five preference tables for the five given subjective factors and these are given in tables 4, 5, 6, 7 and 8.
L&T L&C L&R L&U T&C T&R T&U C&R C&U R&U SFWk
LABOUR (L) 1 1 1 1 4/16=0.25
TRANPORTATION(T) 0 1 1 1 3/16=0.1875
CLIMATE (C) 0 0 1 1 2/16=0.125
RECREATION (R) 1 1 0 1 3/16=0.1875
UNIONACTIVITIES(U) 1 1 1 1 4/16=0.25
Table 3 PREFERENCE TABLE FOR CALCULATING SFWk
FACTOR
SITE AVAILABILITY OF TRANSPORTATION CLIMATIC CONDITIONS RECREATION FACILITIES UNION ACTIVITIES SITE WEIGHT SWIK
1 0 0 0 0 0/9=0
2 1 1 1 1 4/17=-0.235
3 1 1 1 1 4/17=0.235
4 1 1 1 0 3/17=0.176
5 1 1 1 0 3/17=0.176
6 1 1 1 0 3/17=0.176
Table 4 PREFERENCE TABLE FOR THE SUBJECTIVE FACTOR “AVAILABILITY OF LABOUR”
FACTOR
SITE AVAILABILITY OF LABOUR CLIMATIC CONDITIONS RECREATION FACILITIES UNION ACTIVITIES SITE WEIGHT SWIK
1 1 1 1 0 3/14=0.214
2 0 1 1 1 3/14=0.214
3 0 0 0 1 1/14 = 0.071
4 1 1 1 0 3/14=0.214
5 0 1 1 0 2/14=0.143
6 0 1 1 0 2/14=0.143
Table 5 PREFERENCE TABLE FOR THE SUBJECTIVE FACTOR “AVAILABILITY OF TRANSPORTATION”
FACTOR
SITE AVAILABILITY OF LABOUR AVAILABILITY OF TRANSPORTATION RECREATION FACILITIES UNION ACTIVITIES SITE WEIGHT SWIK
1 1 1 1 0 3/13=0.23
2 0 1 1 1 3/13=0.23
3 0 1 1 1 3/13=0.23
4 1 1 1 0 0/13 = 0
5 0 1 1 0 2/13=0.15
6 0 1 1 0 2/13=0.15
Table 6 PREFERENCE TABLE FOR THE SUBJECTIVE FACTOR “CLIMATIC CONDITIONS”
FACTOR
SITE AVAILABILITY OF LABOUR AVAILABILITY OF TRANSPORTATION CLIMATIC CONDITIONS UNION ACTIVITIES SITE WEIGHT SWIK
1 1 1 1 0 3/16=0.1875
2 0 1 1 1 3/16=0.1875
3 0 1 1 1 3/16=0.1875
4 1 1 1 0 3/16=0.1875
5 0 1 1 0 2/16=0.125
6 0 1 1 0 2/16=0.115
Table 7 PREFERENCE TABLE FOR THE SUBJECTIVE FACTOR “RECREATION FACILITIES”
FACTOR
SITE AVAILABILITY OF LABOUR AVAILABILITY OF TRANSPORTATION CLIMATIC CONDITIONS RECREATION FACILITIES SITE WEIGHT SWIK
1 1 1 1 1 4/16=0.25
2 0 0 0 0 0/16=0
3 0 0 0 0 0/16=0
4 1 1 1 1 4/16=0.25
5 1 1 1 1 4/16=0.25
6 1 1 1 1 4/16=0.25
Table 8 PREFERENCE TABLE FOR THE SUBJECTIVE FACTOR “UNION ACTIVITIES”
FACTOR
SITE AVAILABILITY OF LABOUR AVAILABILITY OF TRANSPORTATION CLIMATIC CONDITIONS RECREATION FACILITIES UNION ACTIVITIES
1 0 0.214 0.23 0.1875 0.25
2 0.235 0.214 0.23 0.1875 0
3 0.235 0.071 0.23 0.1875 0
4 0.176 0.214 0 0.1875 0.25
5 0.176 0.143 0.15 0.125 0.25
6 0.176 0.143 0.15 0.125 0.25
Table 9 SITE WEIGHT SWIK – WEIGHT OF SITE ‘I’ IN RELATION TO ALL POTENTIAL SITES FOR SUBJECTIVE FACTOR ‘K’
For assigning the preference values in table-4, 5, 6, 7 and table-8, ratings given in table-2 is taken as guidance. Site weight are calculated and summed in table-9.
E. CALCULATION OF SUBJECTIVE FACTOR MEASURE, SFMi:
Subjective factor measure for each of the six sites can be calculated using the expression given in the equation-3.
SFMi = EMBED Equation.3 [SFWk ( SWik]
Subjective factor measure for site-1.
SFMi = EMBED Equation.3 [SFWk ( SWik] for i = 1, …(6) = [(0.25 (0) + (0.1875 (0.214) + (0.125 ( 0.23) + (0.1875 (0.1875) + (0.25 ( 0.25)] = [0 + 0.0401 + 0.0288 + 0.0352 + 0.06251] = 0.1666 SFM2 = [ (0.25(0.235) + (0.1875 (0.214) + (0.125 ( 0.23) + (0.1875 ( 0.1875) + (0.25 (0) ] = [0.0588 + 0.0401+ 0.0288 + 0.0352 + 0 ] = 0.1629 SFM3 = [ 0.25 ( 0.235) + (0.1875 ( 0.071) + (0.125 ( 0.23) + (0.1875( 0.1875) + (0.25 ( 0) ] = [0.0588 + 0.0133 + 0.0288 + 0.0352 + 0] = 0.1361 SFM4 = [ 0.25 ( 0.176) + (0.1875 ( 0.214) + (0.125 ( 0) + (0.1875( 0.125) + (0.25 ( 0.25) ] = [0.044 + 0.0401 + 0 + 0.0234 + 0.0625 ] = 0.17
SFM5 = [0.25 0.176)+ (0.1875 0.0143) + (0.125 0.15) + (0.1875 0.125)
+ (0.25 0.25) ]
= [0.04 + 0.0268 + 0.0188 + 0.0234 + 0.0625]
= 0.1755
SFM6 = [ 0.25 0.176) + (0.1875 0.143) + (0.125 0.15) + (0.1875 0.125)
+ (0.25 0.25) ]
= [0.044 + 0.0268 + 0.0188 + 0.0234 + 0.0625]
= 0.1755
For a check the sum of the subjective factor measure should come to a value of one.
Assume for the given illustration, the objective factor decision weight X as 0.8 and the critical factor measure for all the sites is taken as 1.
F. CALCULATION OF LOCATION MEASURE LMi:
After calculating objective factor measure and subjective factor measure for all the six sites, location measure for each of the six sites can be calculated using the expressions given in the equation-1.
LMi = CFMi [ X OFMi + (1-X) SFMi) ]
Location Measure for site 1,
LM1 = 1 [ ( 0.8 0.17428) + (0.2 0.1666)]
= [0.1394 + 0.0333] = 0.1727
Location Measure for site 2,
LM2 = 1 [ 0.8 0.16810) + (0.2 0.1629) ]
= [ 0.1345 + 0.0326] = 0.1671
Location Measure for site 3,
LM3 = 1 [ 0.8 0.16816) + (0.2 0.1361) ]
= [0.1345 + 0.272) = 0.1617
Location measure for site 4,
LM4 = 1 [ 0.8 0.16665) + (0.2 0.17) ]
= [ 0.1333 + 0.034] = 0.1673
Location measure for site 5,
LM5 = 1 [ 0.8 0.16552) + (0.2 0.1755) ]
= [ 0.1324 + 0.0351] = 0.1675
Location measure for site 6,
LM6 = 1 [ 0.8 0.15706) + (0.2 0.1755) ]
= [ 0.1256 + 0.0351] = 0.1607
It can be checked that the sum of the location measure for all the sites take a value of approximately one.
It can be noted from the LMi values that site-1 produces the largest overall measure and hence site-1 is selected for locating the new plant for this example.
Sensitivity analysis can be conduced to indicate how decisions would change when the objective factor decision weight ‘x’ is varied from O to 1. From the sensitivity study it can be revealed that which site will be preferred for what range of ‘x’.
7.7 SUMMARY
The emphasis in industrial plant location is to minimize costs; however when considering long-run cost and many intangible factors it may influence future costs. The objective is to minimize the sum of all costs affected by location. Some items cost, such as freight, may be higher for city A and lower for city B but power costs. A location is obtained that minimizes costs on balance.
7.8 ASSIGNMENT QUESTIONS
Discuss the subjective factor weight
7.9 REVIEW QUESTIONS
• In the Brown-Gibson location model how is a critical factor weighted?
53. How the objective factor is weighted in a Brown-Gibson location model?
54. In the Brown- Gibson model what is the rationale for weighing subjective factors?
55. In the Brown-Gibson model how are the relative weights between objective and subjective factors determined in the overall location problem?
56. Are location choices sensitive to relative weights between objective and subjective factors in a Brown-Gibson location model?
7.10 Reference Books
• Buffa, “Modern production management”, 4th edition John Whiely.
57. Menipaz, Ehed, “Essentials, of production and operations management”, Prentice Hall
58. Buffa, “Modern production/operations management”, 7th edition, John Whiely.
LESSON – 8
MULTI-PLANT LOCATION
8.1 INTRODUCTION
Location analysis for multi-plant situation is particularly interesting because of its dynamic character. The addition of new plant is not a matter of determining a location independent of the location of existing plants. Rather, each location considered involves a new allocation of capacity to market areas, so a solution from the economic view point is one that minimizes combined production and distribution cost for the network of plants rather than for the additional plant alone. Also in the multi-plant situation, locational factors continually influence the extent of production in each plant to meet demand requirements and help determine which plants to operate and which to shut-down if demand falls.
Objective
This chapter deals with Location Analysis for Multi Plant Situation and the various methods.
Contents
8.1 Introduction
8.2 Location analysis for multi – plant situation
8.3 Linear programming – distribution method
8.4 An example
8.5 Locational dynamics
8.6 Summary
8.7 Review Questions
8.8 Reference books
8.2 LOCATIONAL ANALYSIS FOR MULTI- PLANT SITUATION
Multiplant location is influenced by existing location as well as the kinds of economic factors that have been discussed already. Each location considered must be placed in economic perspective with the existing plants and marked areas. The objective factor measures focus on the minimizing of total production – distribution costs. This aim is somewhat different from the location analysis for a single plant, because each alternate location requires a different allocation of capacity to markets in order to minimize overall costs. The formal problem can be placed in a linear programming framework and solved in a distribution table.
Before taking an example on multiplant location, the linear programming-distribution methods can be briefly discussed.
8.3 LINEAR PROGRAMMING-DISTRIBUTION METHOD
There are two major steps in the method.
(i) Finding basic feasible solutions.
(ii) Testing the solution for optimality and improving it, if not optimal.
(I) FINDING BASIC FEASIBLE SOLUTION
Before attempting to find the basic feasible solution, it should be checked that the total availability in all the plants must be equal to the total requirement of all the warehouses. If it is not equal add a dummy row or a dummy column correspondingly with zero distribution cost. There are three methods in finding the basic feasible solution.
(i) North-West corner rule.
(ii) Minimum cost methods.
(iii) Vogel’s Approximation method.
Out of three methods, Vogel’s methods is more efficient because the optimal solution would be obtained in a comparatively, lesser number of iterations if the basic solution is obtained from Vogel’s method.
A. STEPS TO BE FOLLOWED IN VOGEL’S APPROXIMATION METHOD
(i) For each row and column of the distribution side, select the lowest and second lowest cost alternatives form among those are not already allocated. The difference between the two costs will be the penalty cost for the row or column. If the lowest and second lowest cost element happens to be the same, then the penalty cost is zero.
(ii) Scan these penalty cost figures and identify the row or column with the largest penalty cost. If there is a tie in the largest penalty cost, choose any one among the tied values.
(iii) Allocate as many units as possible to this row or column in the all having the least cost.
(iv) Now delete the row or and column in which availability has been exhausted or and requirement has been met.
(v) For the reduced distribution table repeat the steps (i) to (iv) until the total availability has been exhausted and total requirement has been met.
(II) TESTING THE SOLUTION FOR OPTIMALITY AND IMPROVING IT, IF NOT OPTIMAL
Before testing the basic feasible solution for the optimality, the following condition must be satisfied.
Total number of allocations =m + n-1
Where m=Total number of rows.
n = total number of columns.
If this condition is not satisfied, add an allocation with units such that (epsilon) is a infinitely small quantity. Whatever quantity is added or subtracted to or from this the result will be the same quantity which is added or subtracted. This is added in the distribution table in the all such that
(i) the cost in the cell is the least possible.
(ii) If this is added in a square, it should not form a close loop with other allocation. A loop can be formed by drawing horizontal and vertical lines among the allocated cells. If an allocation exist in all the corners of this loop, then it is called a closed loop
After satisfying the above condition the basic solution is tested for optimality. Two methods can be used for this purpose. They are
(i) MODI (Modified Distribution Method) Method
(ii) Stepping stone Method
Among these two methods. MODI method is explained below.
A. STEPS TO BE FOLLOWED IN MODI METHOD
(i) For the basic solution, compute ‘ui’ values (corresponding to rows of the distribution table) and “vj” values (corresponding to columns of the distribution table) for the distribution table using the formula,
Cij = ui+vj
Where Cij = cost for the cell (i,j)
(ii) Take ui = 0 for the row which is having maximum number of allocations. If there is a tie take ui = 0 for any row.
(iii) Calculate the cell evaluation for all the unallocated cells using the expression.
ij = Cij – (Ui – Vj)
(iv) a. If none of the cell evaluations are (-) ve the solutions is an unique
optimal.
b. If none are (-) ve and there are zero entries then it means that there are more than one optimal solution.
c. If there are (-) ve entries for cell evaluation then the solution under test is not an optimal one.
When the outcome (iv)c is obtained the solution have to be improved for getting optimality. The following steps are followed for improving the solution for optimality.
(v) Choose the cell having the largest negative entry in the cell evaluation.
(vi) Trace a closed path with the cell having largest negative cell evaluation.
(vii) Place plus and minus signs at alternate corners of the path beginning with a plus sign at the unused square.
(viii) The smallest cell in a negative position on the closed path indicates the quantity that can be assigned to the unused cell being entered into the solution. This quantity is added to all squares on the closed path with plus sign and subtracted from those squares with minus sign.
(ix) Now repeat from step-(i) until an optimal solution has been obtained.
8.4 AN EXAMPLE
A company is having three plants A, B & C and distributes its products to five distribution centres v, w, x, y & z. The company has experienced increasing demand for its product. As a result of this market expansion, company is now considering the construction of a new plant with a capacity of 20,000 units per week. Survey has narrowed the choice to three general locations D, E and
F. The estimated production cost per 1000, distribution cost from plant to distribution points, capacity of plants and demand at distribution points are given in table 10. It is to be decided which location [D or E or F} will yield the lowest products plus distribution costs for the system of plants and distribution centers.
DISTRIBUTION COST FOR 1000 UNITS TO THE DISTRIBUTION CENTERS PLANT CAPACITY IN PRODUCTION COST PER
V W X Y Z 1000 UNITS/WEEK 1000 UNITS
EXISTING PLANTS A 18 16 12 28 54 46 270
B 24 40 36 30 42 20 265
C 22 12 16 48 44 34 275
PROPOSED PLANTS D 40 40 35 2 31 20 262
E 57 70 64 31 3 20 270
F 50 50 46 14 19 20 260
MARKET DEMAND IN 1000 UNITS/WEEK 30 18 20 19 37 - -
TABLE 10 PRODUCTION AND DISTRIBUTION COST, CAPACITIES AND DEMAND FOR EXISTING AND PROPOSED PLANTS
To get the answer for this illustrated problem on multiplant location; three linear programming (LP) distribution problems, one for each combination have to be solved.
The LP distribution problem for the first combination of including the new plant D is given and solved in Table 11, 12, 13 and 14.
TO DISTRI - BUTION CENTERS
FROM PLANTS
V
W
X
Y
Z
AVAILABLE FROM PLANTS IN 1000’ S
A 288
10 286
282
20 298 324
16 48
26
16 4.4.4.4.2.3.6
B 289
20 305
301
295 307
20 6.12
C 297
287
18 291
323 319
16 34
16 4.4.4.4.10.12
D 302
302
297 264
15 293
15 20
5 29.4.4.
REQUIRED AT DISTRIBUTION CENTERS IN 1000’S 30
10
18
20
15 37
32 120
120
1
1
9
9
9
9 1
1
1
1
1 9
9
9
9 31 14
14
26
5
5
5
TABLE 11 DISTRIBUTION TABLE AND APPLICATION OF VOGEL’S APPROXIMATION METHOD
To
From
V
W
X
Y
Z
AVAILABLE
U
A 288
10
286
-6 282
20 298
3 324
16 48 0
B 289
20 293 305
12 283 301
18 296 295
-1 307
+ 20 1
C 283 297
14 287
18 277 291
14 290 323
33 319
16 34 -5
D 257 302
45 261 302
41 251 97
46 264
15 293
5 20 -31
(REQUIRED AT DISTRIBUTION CENTERS IN 1000’s)
30
18
20
15
37 120
120
Vj 288 292 282 295 324
Table 12 MODI’S METHOD
TO
FROM V W X Y Z AVAILABLE Ui
A 288
+
26
274 286
12 292
_
20
277 298
21 306 324
18 46 0
B _ 289
4
275 305
30 283 301
18 278 295
17 307
+
16
20 1
C 301 297
-4 287
18
295 291
+
-4
290 323
33 319
16
34 13
D 275 302
27 261 302
41 269 297
28 264
15
293
5
20 -13
REQUIRE
MENT
30
18
20
15
37 120
129
Vj 288 274 282 277 306
Table 13 MODI METHOD
TO
FROM V W X Y Z AVAILABLE Ui
A 288
30 278 286
8 282
16 281 298
17 310 324
14 46 -9
B 285 289
4 275 305
30 279 301
22 278 295
17 307
20 20 -12
C 297 297
0 287
18 291
4 290 323
33 319
12 34 0
D 271 302
31 261 302
41 265 297
32 264
15 293
5 20 -26
REQUIRE
MENT
30
18
20
15
37 120
120
Vj 297 287 291 290 319
Table 14 MODI METHOD
The total availabilities in all the four plants A,B,C and D is 120 units which is equal to the total required at all the distribution centers v, w, x, y, and z. So there is no need to add dummy row or column. The Vogel’s approximation method is applied and the basic feasible solution is obtained in table-11.
Before testing this basic solution for optimality the following conditions have to be satisfied.
Total number of allocations = m + n-1
Where m = Total no. of rows.
n= total no. of columns.
From the basic solution obtained in Table 11, total number of allocations are 8 which is equal to (4+5-1),
Now MODI method is applied in Table 12 to test the solution for optimality.
From the table 12 it can be noted that the solution is not an optimal one because there are negative entries in the cell evaluation. The most negative entry is -18 and hence a close loop is formed with this cell. Following the steps of MODI method the number of units that can be allocated to the new cell is 16. The next iteration is given in table 13.
The solution obtained in table 13 is also not an optimal one since there are negative cell evaluation entries. The next iteration is given in table 14.
Since all the cell evaluation entries in table 14 are non-negative, the solution obtained is an optimal one. Therefore the optimal total production and distribution cost for the first combination with plant D is,
Total cost = (30288) + (16282) + (20307) + (18287) + (4 291) +
(12319) + (15 264) + (5 293)
= Rs.34,875
The LP Distribution problem for the second combination of including the new plant E can be formulated and solved in a similar way. The final optimal solution is shown in table 15.
Total production and distribution cost for this second combination is Rs.34,411.
The LP distribution problem for the third combination of including the new plant F can also formulated and solved. The final optimal solution is shown in table 16.
TO
FROM V W X Y Z AVAILABLE
A 288
26 286
282
20 298
324
46
B 289
305
301
295
15 307
5 20
C 297
4 287
18 291
323
319
12 34
D 327
340
334
301
273
20 20
REQUIRE
MENT
30
18
20
15
37 120
120
Table 15 OPTIMAL SOLUTION FOR THE SECOND COMBINATION
TO
FROM V W X Y Z AVAILABLE
A 288
30 286
282
16 298
324
46
B 289
305
301
295
15 307
5 20
C 297
4 287
18 291
4 323
319
12 34
D 310
310
306
274
279
20 20
REQUIRE
MENT
30
18
20
15
37 120
120
Table 16 OPTIMAL SOLUTION FOR THE THIRD COMBINATION
Total production and distribution cost for this third combination is Rs.34,850.
The three solutions of the LP distribution problems shows that the new location at ‘E’ is favourable, since the location at E results in the lowest production and distribution cost.
The combined production-distribution analysis provides input concerning the objective factor cost in the Brown-Gibson location model. Subjective factors are evaluated as before. Final decision would be based on both objective and subjective factors and relative weights are placed on them.
8.5 LOCATIONAL DYNAMICS FOR MULTI-PLANTS
Suppose that the company decides to build a new plant at location E. The decision to build the new plant at location E was based on current costs and demand. However the balance of cost factors that produced the solution shown in Table 14 could change. Then the allocation of capacity to markets should also change in order to yield a minimum total cost. Thus location analysis is a continuous consideration rather than a one-shot analysis performed only at the time of expansion.
Assume that after the plant at location E was built, the company experienced a net decline in demand because of the entry of aggressive new competitions in the market. Instead of a total demand of 1,20,000 units as projected in the original locational analysis only 1,05,000 units are required.
The result is that any three of the plants can meet the demand by using overtime capacity. The company is now faced with comparing the objective and subjective factors of five production-location alternatives. The five alternative are: operate all plants at partial capacity plus four additional alternatives that each involve shutting down one of the plants and meeting requirements using the other three plants operating on overtime schedules.
In order to compare the alternatives, five different linear programming distribution tables would be developed. In order to keep the alternatives involving overtime capacity wishing the linear programming framework the overtime capacity would be regarded as a separate source of supply. In actual shipment units produced on overtime would be segregated. Overtime capacity would simply result higher costs of production.
Five optimal production-distribution tables would be generated and the variable plus fixed costs of operations are compared for the five alternatives. The alternative with the lowest cost would be the one favoured on the basis of objective factor costs. The final decision would necessarily be influenced by both objective and subjective factors, because the plant shutdown has a number of important effects on employee and community relationships.
8.6 SUMMARY
Location analysis for multiplant situation have been discussed. Application of Linear Programming Distribution method in multiplant location situation have been elaborated. Some of the plant location trends are narrated.
8.7 ASSIGNMENT QUESTIONS
Discuss that locational analysis for multi plant situation.
8.9 REVIEW QUESTIONS
8.10
• How is the problem of locating a single plant different from locating an additional plant which manufactures the same items as existing plants-
59. What do you mean by ‘locational dynamics’ for multiple plants-
60. A company supplies its product from three factories to five distribution centeRs. The company is experiencing increasing demand for its product and considering the construction of a new plant with a capacity of 40,000 units. Survey have narrowed the choice to three locations. The relevant data is summarized in the following table. Formulate the problem in a distribution framework and find the optimal solution.
DISTRIBUTION COST FOR 1000 UNITS TO THE DISTRIBUTION CENTERS IN RUPEES PLANT CAPACITY IN
1000 PRODUCTION COST PER
1000 UNITS IN RUPEES
V W X Y Z
EXISTING PLANTS
A
B
C 36
48
44 32
80
24 24
72
32 56
60
96 100
84
88 92
40
68 540
532
552
PROPOSEDPLANTS
D
E
F 80
110
100 80
140
100 72
128
92 4
64
28 64
8
40 40
40
40 524
540
520
MARKET DEMAND 1000 60 36 40 30 74 - -
61. A company has established plants in A and B. The assembled products are sent to customers in X,Y and Z. The plant at A has a capacity to assemble 50 products. The plant at B has the capacity to assemble 70 products. Cost of transportation from A is Rs.1000 to X, Rs.1500 to Y and Rs.300 to Z. Transportation from B is Rs.600 to X, Rs.500 to Y and Rs.900 to Z. The demand for product is 40 in X. 50 in Y and 50 in Z. The company is going to build another plant with the capacity of 20 products in either P or Q. From P transportation cost is Rs.600 to X, Rs.500 to Y and Rs/300 to Z. From Q transportation cost is Rs.200 to X, Rs.400 to Y and Rs.500 to Z.
(a) Setup this problem as a distribution model.
(b) What are the steps involved in solving the location problem.
8.9 REFERENCE BOOKS
• Buffa, “Modern production management”, 4th edition John Whiely.
62. Menipaz, Ehed, “Essentials of production and operations management”, Prentice Hall
63. Buffa, “Modern production operations management”, 7thedition, John Whiely.b
LESSON-9
PLANT LOCATION TRENDS
9.1 INTRODUCTION
The overall trends in location patterns are recognized to have strategic impact on location decisions.
Objectives
The objective of this chapter is to understand the different trends involved in the selection of location for setting up of a Plant.
Contents
9.1 Introduction
9.2 Significant trends
9.3 Geographical Diversity
9.4 The growing Sunbelt
9.5 Decline of urban areas
9.6 Internationalization of production
9.6.1 Environmental adjustments
9.6.2 Exporting techniques
9.6.3 Organizing multinationally
9.7 Summary
9.8 Review Questions
9.9 Reference books
9.2 SIGNIFICANT TRENDS
It is fascinating to watch the changes in location patterns, which reflect changes in strategy. McDonald’s had an urban strategy, but now is locating stores in some low-population centeRs. Holiday Inn followed a rural strategy but now is adding more units in urban locations. The steel industry is more dispersed than before. High-tech electronics firms are clustered to achieve a critical mass, but these concentrations are scattered across the country. Four location trends are particularly evident: geographic diversity, movement to the growing Sunbelt, movement from declining urban areas, and the internationalization of production.
9.3 GEOGRAPHIC DIVERSITY
There are two causes of this trend. The first is improved transportation and communication technology. There has been a dramatic reduction in time to ship goods from Osaka, Japan, to Kansas City. Air transportation also makes it easier for executives to visit branch plants. Telephone technology facilities both voice communication between people and data communication between computeRs. The number of out-of-state phone calls doubled in one decade, standing at over 6 billion in 1980. This reduces the “friction of distance”, so that a facility can service a larger market area and need not be close to its supplieRs. In service industries, more back-room operations can be centralized at home offices, which can support a wider network of branch offices located near the customer.
The second cause of geographic dispersion, which widens the range of acceptable locations, is the narrowing of regional wage differentials. The Pacific region has enjoyed the highest income per capita, while the south has suffered the lowest. In 1960, per capita income in the Pacific region was 120 percent of the national average, while in the south it was only 78 percent. However, by 1980, per capita income in the Pacific region stood at only 111 percent and the south moved up to 89 percent of the national average. The 42 percent difference dropped to 22 percent in just 20 years.
9.4 THE GROWING SUNBELT
Industry has tended to move south and west, away from the “Frosbelt” and into the “Sunbelt”, Fig.9.1 shows how manufacturing employment shifted among regions from 1967 to 1977. Frostbelt employment decreased noticeably, particularly in the New England, mideastern of Great Lakes regions. For example, the Great Lakes share of 28.3 percent of total manufacturing employment in 1967 dropped to 27.1 % in 1977. The sunbelt regions compensated for these losses with 1-2 percent gains.
Several factors contribute to this movement. Reduced transportation and communication costs are two important factors, reducing the necessity for staying in the industrial heartland of the Great Lakes and mideastern regions. Some parts of the sunbelt offer lower labor costs, less unionism, and possibly a stronger work ethic. The advent of air conditioning and the increase in paid retirement have also favored the Sunbelt. Manufacturing has been concentrated in the Frosbelt, and manufacturers are reluctant to relocate their support and R & D activities. Sunbelt plants therefore tend to focus more on a specific product or process, allowing high volume production, with products tending to be in the mature stage of their life cycles. This strategy takes advantage of labour cost differences, leaving products that are in their early stages for the frosbelt plants and closer to R & D support activities.
Figure 9.1 also shows forecasts of population changes between 1980 and the year 2000. Once again, we can see that the sunbelt is attracting a larger share at the expense of the Frosbelt. However, these projections should be viewed with caution. Population increases do not always bring large numbers of new businesses to an area. Rapid growth in areas with a low population base, for example, has little impact on location decisions particularly for large retail chains.
Fig. 4.1 MANUFACTURING EMPLOYMENT AND POPULATION PATTERNS
9.5 DECLINE OF URBAN AREAS
Manufacturing plants have also moved from the cities to rural areas. A similar shift can be seen in Japan and the Industrialized countries of Europe. Over 50 % of the new Industrial jobs in the United States during the last 2 decades went to rural areas-in all regions. Rural areas gained manufacturing employment even in the mideastern states. Gains have been particularly impressive in the southeastern and south central regions. Reasons for this shift include high crime rates and general decline of the quality of life in many large cities. Office location decisions are following suit. For example, IBM moved its corporate office from New York City to nearby Armonk, Ex-cell-O Corporation moved from Detroit to nearby Troy, and Brunswick moved from Chicago to Skokie.
9.6 INTERNATIONALIZATION OF PRODUCTION
Between 1976 and 1983, direct investment abroad of private U.S assets increased from $136.8 billion to $226.1 billion, a 65 percent increase. At the same time, direct investment of private foreign assets in the United States jumped from $30.8 billion to $133.5 billion, a 333% increase. Many U.S manufacturers also rely increasingly on foreign supplieRs. Of the 20 most strategic materials, 17 are imported from 4 countries in southern Africa. Wage-rate differentials, expanding foreign markets, and improved transportation break down the barriers of time and space between countries. Having a local presence, with the product made where it is to be sold, can increase sales or decrease the threat of quotas. The result is a more linked world economy. This trend with some specific companies is illustrated below.
ILLUSTRATION:
A. INTERNATIONALIZATION OF PRODUCTION
(i) LOCATING OVERSEAS
Accuracy is a manufacturer of process control equipment headquartered in Columbus, Ohio. It is doubling its plant and work- force size at its plant in Ireland. One-third of its shipments are now finished at the Irish plant. Accuracy is one of 400 U.S. companies now operating in Ireland where there is skilled and low work-force.
Ford motor company moved the production of agricultural tractors from its Michigan plant to its plants in Belgium and England. Lower wage costs, the strong U.S. dollar, and the ability to consolidate production volumes saved enough to offset shipping costs to the U.S.
Caterpillar Tractor Company shifted the production of bulldozers from Illinois and Iowa to Scotland, where more than1000 Scots are now turning out bulldozers.
(ii) INFLUX OF FOREIGN FIRMS
Several Japanese firms are locating production facilities in the U.S. Honda located an automobile plant in Marysville, Ohio, with a work-force of 2300. Mazda is building a plant in Flat Rock, Michigan and will employ 3500 workers. Nissan motor company expanded its plant in Smyrna, Tenessee, to make the Sentra passenger car in addition to light trucks. These three facilities alone will have a capacity of 7,80,000 cars and trucks per year. Moreover a joint venture between Toyota and GM resulted in a new assembly plant in Freemont, California.
Four Japanese Electronics companies (NEC, Fujitsu, Seiko and Kyocera) are building five manufacturing plants in the Portland, Oregon area. They will manufacture such products as personnel computer printers and advanced fibre optics telecommunication equipment.
The Le Blont company has made metal working lathes since 1877. It is now called the Le Blont Makino, after Japan’s Makino milling machine limited bought 51% interest in the company. Le Blont makes a wider range of products than before and is much more international. It has now a plant in Singapore and selling lathes made by a German firm. The machining centers assembled at its home basing Cincinnati, Ohio will have half U.S. and half Japanese parts and labor.
Despite the advantages of more international production, a new set of problems arises, including differences in language, politics, and culture. Many firms are poorly equipped to handle these differences. For example, few U.S. managers know a foreign language. There are more English teachers in Russia than students studying Russian in the U.S. Such problems create three recurring issues for managers of international production:
(i) Environmental adjustment
(ii) Exporting techniques
(iii) Organizing multinationally
9.6.1 ENVIRONMENTAL ADJUSTMENT:
The overseas plant confronts the manager with unfamiliar labor laws, tax laws, and regulatory requirements. The role of government in foreign countries can be more dominant, requiring know-how to handle bureaucratic red tape. Hiring a foreign national to handle government contacts is not without problems, since this person is not well-versed on the firm’s own policies and procedures. The economic environment can also be quite different. What seemed to be good policies on automation or inventory may be inappropriate overseas because of a different cost mix. Cultural differences are perhaps the most baffling. Foreign nationals comprise the work force and often much of the management team at an overseas plant. Their values, customs, and attitudes toward work can collide with policies adopted at the home office. These employees may not be sympathetic to what they consider to be strange approaches and may resist change.
9.6.2 EXPORTING TECHNIQUES:
A second recurring issue is that of how much of the corporation’s production methods to transplant overseas. If a firm totally accepts the approaches of the foreign managers and workers, some effective techniques and policies may be overlooked. The other extreme can be as bad, since some techniques and policies may not fit the new environment. Some compromise between the two extremes is normally best. For example, Mc-Donald’s menu (that is, its product plan) and restaurant layout are the same in Japan as in the United States. However, sites are selected and restaurants are built closer to adjoining buildings with Japanese preferences in mind. The chain’s trademark character is named Donald McDonald (rather than Ronald McDonald) because it is easier to pronounce.
9.6.3 ORGANIZING MULTINATIONALY:
Having multiple plants always raises the question of how much control the home office should retain. Language, cultural, and economic differences make this question that much more crucial for international operations. The home office can provide technical specialists to make decisions about equipment, inventory systems, quality control procedures, and the like. Such centralized control fits the strategy of doing things “our way” and can improve interplant coordination. The decentralized strategy of giving local managers more autonomy has its own advantages such as adapting policies to local conditions, preserving incentives at lower levels and minimizing the cost of large control office.
9.7 SUMMARY
Location decisions have strategic implications. Four trends in location patterns are geographic diversity, the growing sunbelt, the decline of urban areas and the internationalization of production. Despite the advantages of international production differences in language, policies and culture introduce new problems.
9.8 REVIEW QUESTIONS
• What factors have expanded the range of possible locations?
64. What are the attractions of the sunbelt or manufacturing plants?
65. What can make foreign locations attractive?
66. Why does an overseas location confront a manager with a different set of problems?
67. Explain about internationalization of production?
9.9 REFERENCE BOOKS
• Krajewski and Ritzman, “Operations Management”, Addison-Wesley.
LESSON – 10
LAYOUT OF FACILITIES
10.1 INTRODUCTION
Plant layout is the integrating phase of the design of a production system. The basic objects of layout is to develop a production system that meets requirements of capacity and quality in the most economical way. The specification of what to make (drawing and specifications), how it is to be made (route sheets and operation sheets) and how many to make (forecasts, orders or contracts) become the basis for developing an integrated system of production. This integrated system must provide for machines, workplaces and storage in the capacities required so that feasible schedules can be determined for the various parts and products. The system should also provide a transportation system which moves the parts and products through the system. It should provide auxiliary services for production such as tool cribs and maintenance shops and for personnel such a medical facilities and cafeterias.
Because of the dynamic character of our economy, the design of this integrated production machine must retain an appropriate degree of flexibility to provide for future changes in product designs, product volumes and mixes and for advancing production technology. Both the site and building should make it possible to expand operations in a way that dovetails with existing operations. Certain financial and physical restrictions are a normal part of the layout problem. The physical restriction may be due to the site: its size, shape and orientation in relation to roads, railroads and utilities. Or they may be due to local laws which specify building restriction and safety codes. In redesign or relay out of facilities the existing building impose severe restrictions.
These general statements of the lay out problem indicate something of its complexity. Almost all of the factors which enter the problem tend to interact. For example providing flexibility affects the nature of processes and capacities which in turn interact with short and long run costs. Material transportation methods affects not only transportation costs but also the amount of handling at machines and workplaces The physical arrangement and relative location of work centers are important in determining transportation costs and direct labor costs. Storage locations and capacities interact with transportation costs and delay times.
Objectives
To understand the principle of good layout, production process and the principles of material handling.
Contents
10.1 Introduction
10.2 Principles of a good layout
10.3 Plant layout factors
10.4 Basic types of layout
10.5 Determining what to move
10.6 Process layout
10.7 Product layout
10.8 Hybrid layout
10.9 Fixed position layout
10.10 Quantitative analysis for process layout
10.11 Quantitative analysis for product layout
10.12 Service facilities
10.13 Principles of materials handling
10.14 Materials handling equipment
10.14.1 Lifting and lowering devices
10.14.2 Transporting devices
10.14.3 Combination devices
10.14.4 Common material handling equipment
10.14.4.1 Conveyors
10.14.4.2 Cranes, Hoists, Monorails
10.14.4.3 Industrial trucks
10.14.4.4 Auxiliary equipment
10.15 Summary
10.16 Assignment Questions
10.17 Review Questions
10.18 Reference books
10.2 PRINCIPLES OF A GOOD LAYOUT
An optimum plant layout is one which provides maximum satisfaction to all parties concerned; that is the employees and management as well as the stock holders. Each of the parties involved has certain interest in obtaining a good plant layout. Keeping these interests in mind the major principles of a good layout are:
i. provide over all simplifications
ii. minimize cost of materials handling
iii. provide high work-in-process turnover
iv. provide effective space utilization
v. provide for worker convenience and promote job satisfaction and safety
vi. avoid unnecessary capital investment
vii. stimulate effective labour utilization
I. SIMPLIFY THE PRODUCTION PROCESS
This is the broadest objective in obtaining a good layout. A good layout should be planned to facilitate the over-all manufacturing process so that it can be carried on in an optimum manner. More specifically Simplification may come from the following:
a. Equipment should be arranged to provide greater utilization. Equipment involving high capital inventory should be located so that it can be conveniently used on a multiple-shift basis. Material handling equipment, like conveyors should be located so that a group of products can utilize it conveniently.
b. A good layout will minimize production delays and reduce congestion production delays may be reduced or eliminated by good line balancing. Provision of proper amount of storage space reduces congestion on the floor.
c. Good plant layout allows for the needs of maintenance of equipment. Equipment must be located so that routine maintenance is easy to perform. Good layout calls for prediction of future maintenance problems.
d. Increasing output or shortening manufacturing time can be provided in an improved layout. Increased output means greater output with the same or less cost saves the man hours and reduces machine hours. Manufacturing time can be reduced by eliminating idle time and removing unnecessary storages.
ii. MINIMIZING MATERIALS HANDLING
In a plant the production machines should be arranged such that the materials pass directly from one machine to the another. Material handling is brought to a minimum by this arrangement of machines. In many situations manual material handling is most economical. Even in this situation reducing the distances required for manual material handling should be considered when planning.
iii. PROVIDING HIGH WORK-IN-PROCESS TURNOVER
Every day material remains in the plant and adds cost to the product because of the tied-up capital investment. In the process industries, for example, in petroleum refineries where the product is in the liquid state, work-in-process turnover is high and unnecessary in- process stages are reduced to a minimum. When the product is in the solid state, it is much more likely to involve a high capital investment in work-in-process. Although this is primarily a production control problem, good layout can be helpful in reducing work-in-process.
iv. EFFECTIVE SPACE UTILIZATION
Making good use of space involves considering not only production and storage areas, but also the floor area required by service departments. Stock bins spread out on only one level, idle aisles, and unorganized storage areas are all lead to poor space utilization. The cost of floor space varies from one location to another location but considerable thought have to be given for accurately calculating floor area cost.
v. WORKER CONVENIENCE AND JOB SATISFACTION
Workers want to work in a convenient environment. Providing the worker with a place to leave his tools and with easy access to materials storage, reducing excessive noise with sound-deadening walls, as well as considering his safety are factors that should be examined when planning a layout. Attention to such items as heat, ventilation, light and removal of moisture and dirt is important in promoting worker’s job satisfaction. Layout that calls for unstable stacking of materials should be changed to correct safety hazards. The layout engineer should keep close contact with the safety engineer in order to assure that safety has been thoroughly considered in a given layout.
vi. UNNECESSARY CAPITAL INVESTMENT
Capital investment in equipment can sometimes be reduced by the proper arrangement of machines and departments. By conveniently locating a particular piece of equipment two different parts, both sequencing part time use of a broach may be broach. Thus the cost of a second machine is avoided. During the process planning phase capital investment can be minimized by making use of idle time on previously owned equipment. This type of problem is primarily one of the production scheduling, but by being aware of the problem the layout man can facilitate production scheduling by installing a good layout.
vii. LABOUR UTILIZATION
Every year so many productive man-hours are wasted because of poor layout. Proper layout does not guarantee but certainly stimulates the effective utilization of man power. The following suggestions should be considered in making effective utilization of labour.
a. Direct labor utilization: Improper layout can make the production job extremely wasteful. Making it necessary for the production worker to walk great distances to obtain tools or materials can waste a number of man hours. Good methods engineering and line balancing can minimize worker idle time.
b. Indirect labor utilization: Building design to provide ease of maintenance can save many rupees per year. Proper design of aisles can result in better utilization of fork-lift operator.
c. Better supervision: A supervisor should theoretically be in contact with his department at all times. An enclosed office should be provided for a foreman with direct line authority. This is essential when a foreman finds it necessary to discipline a subordinate.
10.3 PLANT LAYOUT FACTORS
Every one with in an industrial o0rganization is concerned with plant layout in some way and everyone within a plant is interested in its layout to some degree. The worker is interested in the arrangement of his work station. The foreman is interested in layout as it affects the output of his department. Middle management is interested in layout as it affects the output and costs. Suggestions that result in plant layout thinking may come from anyone in the organization from the director to the production worker.
Most plant layout decisions are stimulated by one of the following factors.
i. product-design change
ii. new product
iii. change in volume of demand
iv. facilities becoming obsolete
v. frequent accidents
vi. poor working environment
vii. change in the location or concentration of markets
viii. cost reduction.
i. PRODUCT-DESIGN CHANGES
Automobile models are radically changed frequently which usually require a change in plant layout. A full time plant layout department is essential in an automobile industry. In industries manufacturing a more stabilized product, plant layout may not be a crucial problem. These concerns must solve the plant layout problems whenever a product change comes even though it may occur infrequently.
ii. NEW PRODUCT
The addition of a new product as well as the dropping of an old one is a development which results in thinking about the plant layout problem. Progressive companies are continually on the alert for new product developments. Research and development departments are continually providing new products for the industrial or home consumer. As these products come to the production-planning stage plant layout should be integrated with the planning of the production processes.
iii. CHANGES IN THE VOLUME OF DEMAND
An increased demand for a product may result in the revision of a present plant layout. It may result in the planning of a completely new plant. A decreased demand for a product may also result in plant layout changes.
iv. FACILITIES BECOMING OBSOLETE
Plant layout problems are often created by the obsolescence of industrial equipment, processes and buildings. Equipment replacement results in only minor changes in a present layout. On the other hand, when an industrial process becomes obsolete, changes in plant layout are usually demanded. Buildings that become obsolete, whether because of size limitations or some other reason, may result in plant expansion of present building, the building of a new plant or a move into a new building. Any one of these alternatives involves considerable plant layout work.
v. FREQUENT ACCIDENTS
Hazards to safety must be forseen while designing good plant layout. Where electric welding is a part of an industrial process, shields or screen must be provided around the arc-welding production centers in order to prevent injury to the eyes of personnel in surrounding areas. Aisles should be designed so as to minimize the possibility of accidents caused by materials handling equipment.
vi. POOR WORKING ENVIRONMENT
Worker complaints regarding working conditions such as noise or changes in temperature, may be resolved by changes in plant layout. Providing the worker with easy accessibility to materials, tools and instructions are considered in good plant layout. A layout which considers these factors helps to establish the reputation of a firm as being a good place to work.
vii. CHANGE IN THE LOCATION OR CONCENTRATION OF MARKETS
Changes of market locations lead not only to plant layout problems but often make plant location studies necessary. Often the planning of a completely new plant is the answer to changes in market location.
viii. COST REDUCTION
Cost reduction is a general term indicating management’s device to reduce any one of the numerous costs involved in operating an industrial concern. Since the time of the Industrial Revolution it has been one of the most vital of all the considerations in manufacturing industries. It must continue to have top priority if productivity curves are to continue upward.
Costs can be reduced in many ways. New materials develop which can be substituted for expensive materials. The development of a faster production process can reduce the inventory tied-up in work-in process inventory. Improved layout is synonymous with improved methods. In addition, improved plant layout can result in the reduction of cost brought by better utilization of buildings, tools and equipment. With automatic factory on its way the costs of maintenance will rise rapidly compared to the costs of production. Proper layout can facilitate maintenance procedures and thereby achieve cost reductions.
10.4 BASIC TYPES OF LAYOUT
Layout choices must closely tied to higher level decisions. Several fundamental strategic choices must be made in layout planning.
10.5 DETERMINING WHAT TO MOVE
Production consists of combining and manipulating men, materials and machines. These elements may be combined in various ways during production activity. The proportion in which these elements will be used depends on their relative cost and on the production process selected. Before laying out a plant it is necessary to determine which of these elements are to be fixed and which will be mobile during the process of production. Various alternatives are available in determining which factor to move.
a. to move the product and worker from one workstation to another workstation
b. to move the product from one workstation to another workstation, keeping machine and worker stationary
c. to move the worker and the machine to the product which is held at one location
The decision as to which arrangement to employ depends on the relative mobility of each factor in plant and on the comparative cost of each method.
The first method that is moving both product and worker from machine to machine is not very common in modern production. It is employed in some job-lot production plants turning out custom-made products, worker moves with his work from machine to machine usually operating a limited variety of machines.
The second method is common in the manufacture of standardized products. Product moves through machine work stations and continuous process equipment which are fixed to locations and attended by workers. Example is the flow of materials in any automobile manufacture.
In the third arrangement the worker and the machines are brought to the materials. Manufacturing operations producing bulky products as large steam turbines, boilers, generators, locomotives and ships.
Fabricated and assembly of smaller parts are usually carried out under the first and second arrangement. There are many instances where the machining of large castings and other parts of the product is done by portable machine tools which are brought to the product. In most manufacturing concerns producing standard products and custom made products employs the first two alternatives.
10.6 PROCESS LAYOUT
This is designed for the non-repetitive, intermittent types of production where special orders are handled. In process grouping similar processes or equipment are grouped together. When strategy calls for process focus, resources (employees and equipment) must be organized around the process. A process layout accomplishes this purpose by clustering in open center the resources that perform similar functions. For example all grinding is done in a grinding department, all drills are located in the same area of a shop and all bills are processed in an accounts payable section. This format is most commonly used when many different products (customers) must be produced or served intermittently at the same work stations. Demand levels are too low or unpredictable to allow human and capital resources to be set aside exclusively for a particular product line or type of customer. Resources are relatively general purpose, flexible and less capital intensive. The process layout is less vulnerable to changes in product mix or new marketing strategies. Employee supervision can be more specialized which is important when the job content requires a good deal of technical knowledge. A block diagram of process layout arrangement is shown in Fig.10.1
_____________ PRODUCT – A - - - - - - - - - - - PRODUCT – B
Fig. 10.1 PROCESS LAYOUT
A. ADVANTAGES OF PROCESS LAYOUT
(i) LOWER CAPITAL INVESTMENT
Less capital is needed because production machines will be utilized to greater capacity. Machine can be kept in operation most of the time. Equipment is highly productive.
(ii) WIDE FLEXIBILITY IN PRODUCTION FACILITIES
Greater variety of jobs can be handled on a comparatively small investments because of utilization of various types of general purpose equipment. Each machine can perform a wide range of similar kinds of operations. Moreover there is flexibility in planning production. Jobs are scheduled for a department as a whole. So it is possible to assign work to any available machine in the given department.
(iii) EFFECTIVE SUPERVISION READILY ACHIEVED
Each foreman supervises only a limited range of machine operations like foreman over welding, grinding and so on. Because task for each foreman is not too diverse, he becomes highly proficient in time and with practice. He is able to direct the setup and performance of every kind of operation done on the equipment. He also becomes expert in maintenance and repair of equipment, inspection requirement and planning and production control of his department.
(iv) MACHINE FAILURES DO NOT SERIOUSLY DISRUPT PRODUCTION SCHEDULES
Industrial machine break-downs do not hold up subsequent operations. If there is break-down in one machine in a department the work can be easily transferred to another machine in the same department.
B. DISADVANTAGES OF PROCESS LAYOUT
(i) MORE MATERIAL HANDLING
There will be no definite channels through which all the work will flow. Work, in-process, may return to the same department more than once for processing and this makes backtracking of work making higher cost of materials handling.
(ii) GREATER TOTAL FLOOR AREA REQUIRED
A greater proportion of the floor space is required for service activities which result in a lower proportion of total plant area being devoted to actual production activities. There is greater need for aisles, temporary storage at each department. All of these need more floor space per unit of product turned out.
(iii) HIGHER SKILLED LABOR AND DIFFICULTY IN LABOR PROCUREMENT
Workers must be skilled because they operate a number of general purpose machines doing a variety of jobs. More highly skilled labour is required and wage rates will be usually higher. Further there may be difficulty in procuring such labor on short notice.
(iv) NEED FOR MORE FREQUENT INSPECTION
Inspection is generally necessary before the work goes to the next operation in another department. Strict departmental responsibility for quality of work turned out is the main reason for the need of inspection in each department. Subsequent rejection of material by another department causes a considerable amount of handling, confusion and rerouting to rework the faulty part.
(v) LONGER PROCESSING TIMES
Total time needed for processing production orders under process layout is greater than that required in product layout. More time is consumed because work necessary for loading the machines must be delivered to each department and after processing work is to be held for inspection. More over large amount of materials handling is necessary between departments. It is difficult to co-ordinate material handling because personnel cannot always be made available to move when it is released from a department. The end result is longer period of processing time.
Process layout is suitable for intermittent production. It is employed when the same facilities are used to fabricate and assemble a wide variety of parts when part and product designs are not stable. From historical point of view process layout preceded product layout. Any considerable growth in demand for product of any industry gradually makes advisable the conversion of layout in part or whole from process to product. A gradual transition from process to product layout may take place as demand increases for products. Product layout is introduced first either in parts of fabricating activities or in assembly operations. The complete product layout arrangement is finally introduced to whole production process.
10.7 PRODUCT LAYOUT
Equipment needed to fabricate or assemble the product is brought together and setup in accordance with the required sequence of operations as shown on the process chart. Material flows through the predetermined channels of operations from the receipt of raw materials to fabrication of various component parts to final assembly. Product layout is designed for the flow type of production where continuous or repetitive operations are carried on to produce large quantities of a standardized product. Under product grouping all the machines needed to produce part or subassembly are arranged sequentially in a continuous line in the order in which the successive operations on the product must be performed. The part flows from machine to machine moving a short distance at a time until all required operations are completed. This arrangement results in processing of the product in a forward flow from the receipt of raw materials to shipment of finished product. Straight line production has been adopted in numerous continuous process industries such as sugar refineries, cement plants, automobiles etc. In recent years many other industries have recognized the advantages to be gained by adopting line production methods. A block diagram of product layout arrangement is shown in fig. 10.2.
FIG. 10.2 PRODUCT LAYOUT
A. ADVANTAGES OF PRODUCT LAYOUT
(i) CHANNELISED FLOW OF WORK REDUCES MATERIALS HANDLING
Definite and direct channels for the flow of materials, short distances between operations elimination of backtracking and mechanization of handling are features of product layout. These greatly reduces materials handling cost.
(ii) LOW COST LABOR AND EASY IN PROCUREMENT AND TRAINING
Because of the use of special purpose automatic or semi-automatic machines and elaborated tooling product layout can effectively utilize low – cost unskilled and semiskilled labor.
(iii) LESS INSPECTION REQUIRED
A limited amount of inspection at the end or at some critical point in the line is usually sufficient.
(iv) FLOOR AREA MORE PRODUCTIVE
Minimum aisles. General absence of large banks of, temporary storage and numerous inspection. There is less need for movement of quantities to center and temporary storage.
(v) SHORT PROCESSING TIME
Intermediate activities between machine operations such as travel, storage and inspection occurs less frequently. Therefore opportunities for delays will be reduced. Hence the total time for processing product is shortened.
(vi) SIMPLICITY AND EASY PRODUCTION CONTROL
As long as changes in design of product are held to a minimum and operations are standardized engineering and production planning activities is largely limited to initial program necessary to establish production. At the beginning it is necessary to prepare drawings, list of parts, materials requirement, routing procedures and so on. This simplifies production planning and control problem.
B. DISADVANTAGES OF PRODUCT LAYOUT
(i) HIGHER INITIAL INVESTMENT
In product layout frequently at various work centers more than sufficient capacity will exist. This condition result in an unavoidable duplication of facilities and increases the investment required for product layout.
(ii) PRODUCTION LINE SHUT DOWN WILL OCCUR
If a machine fails under product layout there is a shut down of production. Shut down of line can also be caused by a minor shortage of material, employee absenteeism or poor production scheduling.
(iii) SUPERVISION MORE DIFFICULT
Line is a collection of numerous kinds of machine requiring a wide range of knowledge on the part of supervisor. Foreman’s job involves supervision of diverse activities because each machine requires a knowledge of various setups, kinds of operations and operating feeds. He is also responsible for the quality control of many kinds of jobs being simultaneously processed. He must be also familiar with the maintenance requirements of his equipment.
(iv) INFLEXIBILITY OF FACILITY
Equipment under product layout consist of facilities designed to perform special operations. Usually no machine unit of the line is exactly interchangeable in capacity, kind of work performed with any other unit. This characteristic of strict product layout results in inflexibility of facilities. This makes for interruption, costly change over or machine replacement design changes are made.
10.8 HYBRID LAYOUT
More often a positioning strategy combines elements of both a product and process focus. This is an intermediate positioning strategy which calls for a hybrid layout. Some portions of the facility are designed as a process layout and other portions are designed as a product layout. This treatment is often applied when group technology cells, one-worker-multiple-machine stations, or flexible manufacturing systems are introduced. These “islands of automation” represent miniature product layouts, since all resources needed to make the family of parts are together as one center. At the same time, not all production can be handled this way and the rest of the facility represents a process layout. Hybrid layouts also are found when facilities have both fabrication and assembly operations. Fabrication operations, where components are made from raw materials, tend to have a process focus. Assembly operations tend to have a product focus.
Another example of a hybrid layout is a retail store. Similar merchandise may be grouped so that customers have a fairly good idea of where to find desired items (a process layout). At the same time customers often are routed along fairly predetermined paths product layout. The motive is to maximize exposure to the full array of goods, thereby stimulating sales.
10.9 FIXED POSITION LAYOUT
The fourth basic type of layout is the fixed-position layout. When a product is particularly massive or bulky it does not make sense to move it from one work station to another as with process, product or hybrid layouts. Such is the case in shipbuilding, assembling airplanes or locomotives, making huge pressure vessels, building dams or repairing home furnaces. Workers, along with their tools and equipment, come to the product to work on it until it is finished, or at least until much of the work is completed. This layout type minimizes the number of times that the product must be moved and often is the only feasible solution.
10.10 QUANTITATIVE ANALYSIS FOR PLANT LAYOUT
Having addressed the more strategic issues of layout, it is time to consider actual designs. The approach differs, depending on whether a process layout or product layout has been chosen. We begin with an approach to process layouts, which also applies to the parts of hybrid layouts that have a process focus. Three basic steps are involved, whether you are designing a new layout or revising an existing layout:
68. Gather information
69. Develop a block plan
70. Design a detailed layout
1. GATHER INFORMATION (STEP 1)
Figure 10.3 illustrates the type of information needed to begin designed a revised layout for a company’s product.
Sl.No. DEPARTMENT SQUARE METER
1. Burr and Grind 100
2. Nc Equipment 95
3. Shipping And Receiving 75
4. Lathes And Drills 120
5. Tool Crib 80
6. Inspection 70
TOTAL 540
(a)
2 4 3 20m
6 5 1
27 m
(b)
FROM – TO MATRIX (TRIPS / DAY)
TO
FROM 1 2 3 4 5 6
1 Burr And Grind
70
2 Nc Equipment 20 45
3 Shipping & Receiving 20 15 20
4 Lathes And Drills 20 40
5 Tool Crib 30 30
6 Inspection 10 70
(c)
• Shipping and receiving (department 3) should remain where it is, since it is next to the dock.
71. Keep lathes & drills (department 4) at its current location because relocation costs are prohibitive
(d)
Fig. 10.3 LAYOUT INFORMATION FOR LONG HORN PRODUCTS
(a) Space Requirements by Center
(b) Available Space and Current Block Plan
(c) Closeness Ratings
(d) Other Considerations
(i) SPACE REQUIREMENTS BY CENTER
As shown in Fig.10.3(a), the company has grouped its processes into six different departments, or center. For example, department 1 is the burr and grind area, and department 6 is the inspection area. The exact space requirements of each department, expressed in square feet, are shown in Fig. 10.3(a). You can calculate space requirements in various ways, but you must tie them to capacity plans. Itemize all equipment and specific space needs for each center. Add enough “circulation” space to provide for aisles and the like. It is not unusual for circulation space to be at least 5 percent of the center’s total space requirement.
(ii) AVAILABLE SPACE
Fig.10.3 (b) shows the available space and dimensions of the facility, along with a rough allocation of space for each department. Whenever there is an existing layout, it is called the current block plan. Available space at the plant is 27 m by 20m, or 540 sq. meters. You could start by dividing the total amount of space into six equal blocks of space (equivalent to 90 square meters), one for each department. This amount of space is too much for inspection (needing only 70.59 square meter) and too little for lathes and drills (needing 1120 square meter). However, the approximation is good enough until you reach the last step of process layout design.
(iii) CLOSENESS RATINGS
Another type of information required is the need for locating different centers close to each other. This helps us determine the best relative location for each department. Either a From-To matrix or a REL chart provides the needed information. Fig. 10.3(c) shows a From-To matrix for the company. The estimated number of materials handling trips from each department to every other one is shown. The greatest number of one-way trips is from department 1 to department 6 and from 6 to 3. Thus department 6 should be located near both 1 and 3, which certainly is not true in the current layout. You can estimate the number of trips from the routing and ordering frequencies for typical items made at the plant. Statistical sampling or polling of experts are other ways to obtain this information.
A REL chart is a different way to express closeness ratings. The ratings are qualitative judgments of managers or employees. An a could signify the judgment that it is absolutely necessary to locate two departments close to each other, an E could represent the judgment that it is especially important, and so on. Being qualitative, the A rating is higher that the E, but we do not know by how much.
(iv) OTHER CONSIDERATIONS
The last information gathered for the company, other considerations, is shown in fig.10.3 (d). Some performance criteria depend on the absolute location of a department. These criteria cannot be reflected in a REL chart. Similarly, a From-to matrix tends to focus only on materials handling.
2. DEVELOP A BLOCK PLAN (STEP 2)
The second step in layout design is to develop a block plans that satisfies performance criteria and area requirements insofar as possible. The most elementary way to do this is by trial and error but depends on your ability to spot patterns in the data. There is no guarantee that you will identify the best or nearly best solution. However, one study showed that such as approach, at least when supplemented by the use of a computer to evaluate solutions, often compares quite favorably with more sophisticated techniques.
TO
FROM 1 2 3 4 5 6
1 Burr And Grind
20 20 80
2 Nc Equipment 10 75
3 Shipping & Receiving 15 90
4 Lathes And Drills 70
5 Tool Crib
6 Inspection
Fig. 10.4 MERGED CLOSENESS RATING
A good place to start is with the closeness ratings shown in Fig.10.3. to make it easier to identify significant interactions, you should merge the flows between department pairs in both directions. The results are shown in Fig.10.4, and only the upper right half of the matrix is used. For example, the total number of trips between departments 1 and 6 is 80. Looking at the greatest interactions, a good block plan would locate:
Department 3 and 6 close together.
Department 1 and 6 close together.
Department 2 and 5 close together.
Department 4 and 5 close together.
Department 3 and 4 at their current locations because of the other considerations listed in fig.10.3.
It is not clear that all five requirements can be achieved. If after several attempts you cannot make them work, drop one or more and try again. If all five can be easily achieved, add more requirements. Fortunately, finding a good block plan for the company turns out is fairly easy. The plan in fig.10.5 was worked out by the trial and error method and satisfies all five requirements. Start by placing departments 3 and 4 and their current positions. Since the first requirement is to locate department 3 and 6 close to each other, you can put 6 in the southeast corner of the layout; this location minimizes the distance between 3 and 6. The second requirement is to have departments 1 and 6 close to each other. You can achieve it by putting 1 in the space just to the left of 6 and so on.
5 4 3 20m
2 1 6
27 m
Fig. 10.5 PROPOSED BLOCK PLAN
It helps to have a total desirability score for at least some aspects of a layout in order in order to see how much better one plan is than another. You can easily adapt the load-distance model for location problems to this purpose when relative locations are a key concern. In terms of material handling costs,
1 * d =
Where 1d = Total load-distance score measuring the materials handling
Iij = Load, measured as the number of trips between departments I and j in both directions
dij = Units of distance (actual, euclidean, or rectilinear) between departments I and j, where dij =0 if I=j; and
n = Total number of department.
Table 10.1 LOADS – DISTANCE SCORES CURRENT AND PROPOSED
Department Pair (IJ) Merged closeness Raging (Iij) Current Plan Proposed Plan
Distance (Dij)# Iij dij Distance (Dij)# Iij dij
1.2
1.4
1.6
2.3
2.5
3.4
3.6
4.5 20
20
80
10
75
15
90
70 3
2
2
2
2
1
3
1 60
40
160
20
150
15
270
70 1
1
1
3
1
1
1
1 20
20
80
30
75
15
90
70
785
400
* All of thes Nonzero Ratings Come From Fig.10.4
Rectilinear distances are calculated from the current plan (Fig.10.3B) and the proposed plan (fig.10.5) in the current plan, departments 1 & 2 are at the southeast & northwest blocks of the plant, respectively. The distance between the centres of these blocks is three units of distance (two horizon tally & one vertically)
Table 10.1 shows the results of applying this formula to the current and proposed block plans. The Id-score drops from 785 to400, which represents an almost 50 percent improvement with the proposed plan. You must now decide whether this improvement is worth the cost of relocating four of the six departments. If relocation cost are too much, you must come up with a less expensive proposal. Looking at the calculation for the current plan in Table 10.1, you can get some clues. Much of 785 score comes from the trips between departments 3 and 6 and between departments 5 and 6. this solution puts department 6 closer to both 1 and 3. Additional calculations will show that the Id-score for this plan drops to 610, and only two departments have to be relocated. Perhaps this is the best compromise.
4. DESIGN A DETAILED LAYOUT (STEP 3)
After a satisfactory block plan is found, it should be translated into a detailed representation showing the exact size and shape of each center, the arrangement of elements within it, and the location of aisles, stairways, and other unproductive space. These visual representations can be 2-dimensional drawings, 3-dimensional models, or even computer-aided graphics. This last step in the layout design process is important because it helps decision makers to grasp the essence of the proposal and even spot problems that might otherwise be overlooked. If others in the company are to be involved in layout decisions, the detailed layout becomes the focus of the discussion.
10.11 QUANTITATIVE ANALYSIS FOR PRODUCT LAYOUT
We now turn from process layouts to produce layouts, which raise entirely different issues for management. The two types of product layout are the production line and the assembly line. In both cases the work stations are arranged serially, and the product moves from one station to the next until the work is finished. Employees at one station work on a unit forwarded from the preceding station on the line. Although similar to an assembly line in most respects, a production line is different in one essential respect. Production-line‘work is more capital intensive, and specialized equipment is used at each station; work cannot be partially shifted from one machine to an entirely different one, just to balance workloads. As assembly line, on the other hand, is more labor intensive, giving it much more flexibility for repackaging work elements and better balancing loads; this flexibility is an advantage, but it also adds complexity. We therefore begin with production lines.
(i) PRODUCTION LINES
Designing a production line would be simple if desired output rates never varied, equipment capacity could be added in small increments, processing times were constant, and there were no unexpected capacity losses. Unfortunately, such an environment is difficult to find. Several items belonging to the same product family might be produced on a line, but their processing times may not be identical at certain work stations. Customer demands fluctuate, creating either capacity or inventory problems. Yield losses do occur. These instabilities are particularly challenging in product layouts because of the serial dependency of work stations. Capacity and pacing decisions are crucial.
(ii) CAPACITY
One question concern the best capacity for each station. Should there be one, two or three machines at the station? The greater its capacity cushion, the less likely it will delay production at downstream stations. The answer depends largely on the increments possible in adding capacity, the cost of adding increments, and management’s strategy on workforce flexibility. There is some evidence of a bowl phenomenon in production lines, which means that extra capacity helps more at the center of a line to compensate. Such a line might actually perform better than a perfectly balanced one, where the amount of capacity cushion is equally distributed.
(iii) PACING
Another question is whether to use inventory to decouple work stations. Paced lines have no buffer inventory, making them particularly susceptible to unexpected capacity losses. With unpaced lines, inventory storage areas are placed between stations. These storage areas reduce the likelihood that unexpected downtime at one station will delay work downstream but do increase space and inventory costs. If unpacked lines seem to be a good strategy, they introduce the tactical question of how big the storage areas should be. A station can be held up for two reasons:
The first station has fallen behind to the point where the inbound inventory for the second station is depleted. The second station is delayed.
The second station has fallen behind to the point where its inbound storage area is temporarily full. The first station is delayed until there is room for the inventory.
The second delay is called blocking. It seems to happen more often at stations near the beginning of a line.
(iv) ASSEMBLY LINES
The additional complexity of assembly lines is narrated in the illustration given below for a company. The management wants to set up an assembly line that will produce 2400 Big Broadcaster spreaders per week and operate one shift per day. The work elements and the times required to do them for each spreader are known. For example, bolting the leg frame to the hopper takes an average of 51 seconds. More than one work element can be performed at a station, but each work element is assigned to only one station. One worker at each station does the same work over and over. After the worker at one station finishes the assigned work for one unit, a conveyor moves the until to the next station. The basic question is: “How many stations are needed and what work elements are to be assigned to each one- Answering this question is called assembly-line balancing.
ILLUSTRATION:
(v) ASSEMBLY-LINE BALANCING AT A COMPANY
A company is expanding its product line to include a new concept in fertilizer spreaders called the Big Broadcaster. This spreader cuts fertilizer application time to 30 percent of that required with traditional methods. The Big Broadcaster is to be made on a new assembly line in one of the plants of the company. Most parts are to be purchased from outside suppliers. Management decided against further vertical integration until customer response to the new spreader is better known. The plant manager, has just received marketing’s latest forecasts for the next year. He wants the line to be designed to make 2400 spreaders per week for at least the next three months. The plant will operate 5 days per week, I shift per day, and 8 hours per shift. A few utility workers are used in the plant to relieve others for breaks, cover for absenteeism, and help at temporary bottlenecks. Since equipment failures will be negligible, the line should be operating practically 40hours per week.
The plant manager’s staff has already identified the work that must be performed to assemble the spreader. The work is broken down into work elements which are the smallest units of work that can be performed independently. Each element is listed in the table with its corresponding performance time.
The plant manager has decided on a paced line because of materials handling and space considerations. With no inventory storage, each operator will have the same time to complete the assigned work elements. It also means that the whole line can move only as fast as the slowest station. In order to maximize productivity, the manager wants a line with the minimum number of stations that will assemble the required 2400 Big Broadcasters per week. The design problem is to determine the number of stations needed and the work elements to be performed at each station.
Work element Description Times (Sec.)
Attach leg Frame
1 Bolt leg frame to hopper 51
2 Insert impeller shaft into hopper 7
3 Attach agitator to shaft 24
4 Secure with cotter pin 10
Attach axle
5 Insert bearings into housings 25
6 Slip on through first bearing and shaft 40
7 Slip axle through second bearing 20
Attach drive Wheel
8 Slip on drive wheel 35
9 Place washer over axle 35
10 Secure with cotter pin 6
11 Push on hub cap 9
Attach free Wheel
12 Slip on free wheel 30
13 Place washer over axle 6
14 Secure with cotton pin 15
15 Push on hub cap 9
Mount lower Post
16 Bolt lower handle post to hopper 27
17 Seat post in square hole 13
18 Secure leg to support strap 60
Attach Controls
19 Insert control wire 28
20 Guide wire through slot 12
21 Slip T handle over lower post 21
22
Attach on-off control 26
23 Attach level 58
24 Mount name plate 29
Total 596
A. PRECEDENCE DIAGRAM
If the work elements had to be performed in the each sequence listed in illustration, the preceding question could be easily answered. While most assembly lines must satisfy some technological precedence requirements among work elements, there usually is a fair amount of latitude and more than one possible sequence for doing them. Fig 1.6 shows a precedence diagram for assembling the Big Broadcaster. Each circle represents a work element, with the time to do it shown below the circle. The arrows show the precedence requirements. For example, either work element 2 or 5 can be done after 1. If the choice is 2, then either 3 or 5 can follow next. It also shows that 7 cannot start until after 4 or 6 are done. Work elements 4 or 6 must be assigned either to the same station as 7 or to a prior station.
B. DESIRED OUTPUT RATE
The plant manager at the company has decided on an output rate of 2400 Big Broadcaster per week. While closely related to demand forecasts, the output rate also depends on policies on rebalancing frequency, capacity utilization, and job specialization. All else being equal, production rates should match demand rates as closely as possible. Matching ensures on-time delivery and prevents the build-up of unwanted inventory. The disadvantages is that it increases rebalancing frequency. Each time a line is rebalanced, the jobs of many worker on the line must be redesigned. If the line is speeded up, a worker is given fewer work elements. If the line is slowed down, a worker is given more work elements. Time spent relearning jobs temporally hurts productivity. The changeover may even require a new detailed layout for some stations.
Capacity utilization is another factor that has to be considered. Multiple shifts increase equipment utilization, which is crucial for capital-intensive facilities, but they may be unattractive because of higher pay rates or low demand. A third policy area related to the desired output rate is the degree of job specialization. As the desired output rate from a line increases, fewer work elements can be assigned to a station and jobs become more specialized.
C. CYCLE TIME
After the desired output rate for a line has been chosen, its cycle time can be computed. An assembly line’s cycle time is the maximum amount of time allowed for work on a unit at each station. If the time required to do the work elements at a station exceeds the line’s cycle time, the station will be a bottleneck, preventing the line from reaching its desired output rate. Returning to illustration, let’s convert the desired output rate to an hourly rate. Dividing by 40 work hours per week we get 60 units per hour. The cycle time is the reciprocal of the desired hourly output rate. We need to convert it to seconds because work-element times at the company were also expressed in seconds, which gives us:
c = (1/r) (3600 sec/hr)
= (1/60) (3600)
= 60 sec/unit
where
c = Cycle time in sec/unit; and
r = Desired output rate in units/hr.
Thus no station can have more than 60 seconds of work per unit assigned to it, if the line is to assemble 2400 units per week.
D. THEORETICAL MINIMUM
If we set c to achieve the desired output rate, the assembly-line balancing problem is to assign every work element to a station, satisfy all precedence requirements, and minimize the number of stations formed. If each station is operated by a different worker, minimizing n also maximizes productivity. The ultimate in balance is when the sum of the work-element times at each station equals c; the workload at each station is perfectly balanced and no station has any idle time. Normally, this goal is impossible to achieve in real applications, owing to the unevenness of work-element times and the loss of flexibility caused by precedence requirements. However, assuming perfect balance gives us a benchmark on the smallest number of stations possible. It is called the theoretical minimum number of stations, since it may not be achievable. For the illustration,
TM = t/c
= 576/60 = 9.6 or stations
where t is the total amount of time required to assemble each unit, or the sum of all work-elements time. Since it is impossible to have a fractional station, we round 9.6 up to 10 stations, the theoretical minimum number of stations for the company.
E. THREE RELATED GOALS
Minimum n ensured automatically that we
(i) minimize idle time
(ii) maximize efficiency and
(iii) minimize balance delay.
These goals are used interchangeably in line balancing, so you need to be familiar with each one:
Idle time = nc-t
Efficiency (%) = (t/nc)(100)
Balance delay(%) = 100 – Efficiency
Idle time is the total unproductive time for all stations in the assembly of each unit. Each of the n stations spends c seconds per unit, which means that nc is the total time spent per unit. Subtracting the productive time t gives us the idle time. Efficiency is the ratio of productive time to total time, expressed as a percent, Balance delay is the amount by which efficiency falls short of 100%. So long as c is fixed, we can optimize all three goals by minimizing n.
F. FINDING A SOLUTION
An overwhelming number of assembly-line solutions are possible, even for this small problem, and the number of possibilities expands as quickly as for process layouts. Once again, computer assistance is available. One software package, for example, considers every feasible combination of work elements that do not violate precedence or cycle time requirements when forming a new station. The combination that minimizes the station’s idle time is selected. If any work elements remain unassigned, a second station is formed, and so on.
The approach we will use is even simpler. At each iteration, a work element is selected from a list of candidates and assigned to a station. This process is repeated until all stations are formed. Two commonly used decision rules for selecting from the candidate list are:
Rule 1. Pick the candidate with the longest work-element time. Intuitively, this tends to assign the more difficult work elements to stations as quickly as possible. Work elements having shorter times are easier to fit into a station and should be saved for fine tuning the solution.
Rule 2. Pick the candidate having the largest number of followers. Figure 10.6 shows, for example, that work element 18 has six followers and 21 has two followers. Intuitively, this rule helps to keep your options open for forming subsequent stations. Otherwise, precedence requirements may leave only a few possible sequences of work elements, and all of them may require an unnecessary amount of idle time.
Returning to illustration, let’s develop solutions manually using these rules. Our overall solution procedure is much like the logic that would be used in computer programs.
Step 1. Lee k=1, where k is a counter for the station being formed.
Step 2. Make a list of candidates. Each work element included in the list must satisfy three conditions.
FIG. 10.6 PRECEDENCE DIAGRAM FOR ASSEMBLING THE BIG BROADCASTER
m) it has not yet been assigned to this or any previous station
n) all its predecessors have been assigned to this or a previous station and
o) the sum of its time and those of the work elements (if any) already assigned to this station does not exceed the cycle time.
If no such candidates can be found, go to step 4.
Step 3. Pick a candidate using one of the two decision rules. Assign it to station k. Go to step 2.
Step 4. If some work elements are still unassigned, but there are no candidates, a new station must be started. Increment k by 1 and go to step 2. Otherwise, you have a complete solution. Stop.
Figure 10.7 shows a solution that begins with picking candidates at step 3, using decision rule 1. Let’s follow the first few iterations until the second station is formed to see the pattern.
(Step 1) Start with station 1 (k=1)
(Step 2) Figure 1.6 shows us that only work element 1 can be a
candidate. It is a predecessor to all others
(Step 3) Work element 1 is the first one assigned to station 1
(VI) PRECEDENCE DIAGRAM SHOWING SOLUTION
FIG. 10.7 BIG BROADCASTING SOLUTION I LONGEST WORK ELEMENT TIME RULE
(Step 2) Only 2 is a candidate. Work element 5 would exceed the station’s cycle time of 60 seconds.
(Step 3) Thus 2 is the second work element assigned to station1
(Step 2) No candidates can be found, since adding either 3 or 5 would exceed the cycle time
(Step 4) Move on to station 2 (k=2)
(Step 2) The candidates are 3 and 5.
(Step 3) Thus 2 is the second work element assigned to station1
(Step 2) Work element 3 is the only candidate. The time for 6 is too long to fit into station 2.
(Step 3) Thus 3 is the second work element assigned to station 2.
(Step 3) Thus 4 is the third work element assigned to station2.
(Step 2) No candidates exist, since adding 6 would exceed the cycle time. Station 2 is completed, consisting of work elements 5,3, and 4.
Continuing on in this manner, we find that the final solution shown in Fig 10.7 calls for only 10 stations. The efficiency is 96%and balance delay only 4%. Our calculation of the theoretical minimum number of stations told us that we could do no better than this. It is impossible to produce 2400 spreaders per week with less than 10 stations. Such a happy ending does not always occur, and, sometimes, another procedure would do better. Computer-based techniques tend to give good, although not necessarily optimal, results. Human judgment and pattern recognition often allow us to improve on computer generated solutions. In fact, manual methods are still the most prevalent practice.
The allocation of elements to station is shown in the following table.
Solution using longest work-element time rule:
Station Work element assigned Total time/cycle Station slack
S1
S2
S3
S4
S5
S6
S7
S8
S9
S10 1,2
5,3,4
6,7
8,9,10
12,16
17,11,13,14,15
18
24,19
20,21,22
23
58
59
60
56
57
52
60
57
59
58
Total
2
1
0
4
3
8
0
3
1
2
24
Efficiency= [576/10(60)]*(100)=96%
Balance delay = 100-96=4%
10.12 SERVICE FACILITIES
Many plant services must fit into the overall layout. The fact of these activities are not a part of the direct production activity of the enterprise has often tended to promote the idea that whatever space is left over is good enough for them. Actually, some of these activities, such as receiving. Shipping, and warehousing, are in the direct material flow and they process the product as do the production departments. Others, such as maintenance facilities and tool cribs, do not work on the product but interact with production costs so that their physical location and capacity deserve careful thought. The overall material flow patterns should be the major factors in determining the relative locations of receiving, shipping, storage, and warehousing areas.
The capacity question for receiving areas does not have an obvious answer. In general, the problem is such that we do not have control over the rate at which materials come in. Since receipts of shipments from suppliers occur in a somewhat random pattern, a good design provides capacity that meets the reasonably expected peak loads for truck and rail docks, unloading crews, and temporary set down areas for determining what these capacities should be. Of course, many other factors influence the details of the layout of receiving areas, such as climate, safety codes, handling equipment, dock heights, and the necessity to accommodate a variety of vehicles.
The location of tool cribs is important because of the travel time of high-priced mechanics to and from the area. Therefore, a study of the use frequency in relation to the physical layout of the production areas should determine a good location or locations. The tool storage problem is comparable to the material and part storage problem in using space efficiently while making items available quickly and conveniently. The number of attendants required to serve the tool crib is another waiting line problem.
Maintenance facilities are commonly provided for building and grounds, plant utilities, and machinery and equipment. The capacity of maintenance for machinery and equipment again poses the problem of balancing the idle time of maintenance crews against the idle time of production workers, as well as losses of output capacity. Ordinarily, a considerable amount of idle capacity in equipment and crews is justifiable, as would be shown by solutions to waiting line models of these types of problems.
Present-day personnel services cover a broad spectrum including parking, cafeterias, medical services, credit unions, locker rooms, toilets and lavatories, and, quite often, recreational facilities. Obviously, providing for these services does not have an effect on production costs since the services are used after hours. In these instances, the layout problem is to provide the space designed to perform the services in the amounts required. The activities must be studied to determine what must be done and facilities provided accordingly.
For those services used during working hours, such as medical facilities, toilet facilities, and drinking fountains, the size of the facility and its location in relation to the users become important. Studies of travel distances to and from the service facility should be made in order to determine reasonable locations. Waiting line models are again useful in determining a balance between waiting times of employees and service capacity costs. In one large company which offered a broad medical service, the question of whether or not an additional doctor on the staff was warranted was answered by a waiting time study. The results of the study indicated that there was an average of 15 employees in the waiting room during the 8-hour work day; assuming a 2000 working hour year and a modest average hourly wage of Rs. 20, this translates into Rs. 60,000 of waiting time per year. The study led to both an enlargement and decentralization of medical services.
10.13 PRINCIPLES OF MATERIALS HANDLING
The three major principles of material handling are:
1. Reduction in time.
2. Reduction in handling
3. Equipment design
A. REDUCTION IN TIME
Time lost means paying men wages when they are not doing productive work. Lost time reduces the total production possible in a given length of time. Time is consumed principally in three things:
Waiting
Loading and unloading,
Travel time.
Waiting may be due to the bad scheduling or bad organization of the later force or it may be due to improper or insufficient facilities for loading.
Loading and unloading time is the question of the efficiency of labour and the equipment for loading and unloading. In general, the larger the unit loaded or unloaded, the greater the reduction that can be made in loading time. The greater the use of mechanical means that are faster than the manual labour, the more efficient can loading and unloading be made.
Travel time depends upon the speed with which the equipment gets from one point to another. This is the factor of the individual speed of a truck and its rate of acceleration. A great deal of time can be lost by improper routing or through the selection of routes in which delays occur.
B. REDUCTION IN HANDLING
When there is less handling, less labour is involved and less time is involved in production. Factors that are involved in reduction in handling are as follows:
1. Process changes,
2. Layout improvement,
3. Increased size of units handled,
4. Use of proper equipment.
Layout improvement will make unnecessary the transfers of loads at various points to avoid obstructions. Changes in process involving a layout change may make it possible to eliminate a transfer of load. If the material is loaded in the largest nits that can be handled, the amount of handling is reduced. Equipment should be chosen which can be loaded most easily and with a minimum amount of hand labour necessary.
C. EQUIPMENT DESIGN
Factors in equipment design are efficiency, speed, weight, safety, maintenance and repair, first costs and operating costs obsolescence, flexibility and standardization.
The efficiency of materials handling equipment is determined by the power input and labor required. Both of these are expressed in units of loads handled in order to measure efficiency.
Speed in equipment design varies depending upon the nature of the product and process.
Weight is a factor in efficiency. The more dead weight the less the efficiency of the equipment. Weight must also be considered in connection with safe loading on the floors.
The safety of the equipment is important. Poor plant lighting, improper warning signs, blind corners or failure to keep aisles clear of pedestrians or workers may lead to a great many unnecessary accidents.
The principles are summarized as follows.
• All handling activities should be planned.
72. Plan a system integrating as many handling activities as possible and coordinating the full scope of operations.
73. Plan an operation sequence and equipment arrangement to optimize material flow.
74. Reduce, combine or eliminate unnecessary movements and/or equipment.
75. Utilize gravity to move material whenever practicable.
76. Make optimum utilization of building cube.
77. Increases quantity, weight, size of load handled.
78. Provide for safe handling methods and equipment.
79. Use mechanized or automated handling equipment when practicable.
80. In selecting handling equipment, consider all aspects of the material to be handled, the move to be made, and the methods to be utilized.
81. Standardize methods as well as types and sizes of handling equipment.
82. Use methods and equipment that can perform a variety of tasks and applications.
83. Minimize the ratio of mobile equipment dead weight to pay load.
84. Equipment designed to transport materials should be kept in motion.
85. Reduce idle or unproductive time of both handling and manpower.
86. Plan for preventive maintenance and scheduled repair of all handling equipment.
87. Replace obsolete handling methods and equipment when more efficient methods or equipment will improve operations.
88. Use material handling equipment to improve production control, inventory control, and order handling.
89. Use handling equipment to help achieve full production capacity.
90. Determine efficiency of handling performance in terms of expense per unit handled.
10.14 MATERIALS HANDLING EQUIPMENT
The various types of equipment available for materials handling may be divided into three major divisions.
• Lifting and lowering devices (Vertical motion)
91. Transporting devices (Horizontal motion)
92. Combination devices (Lifting and lowering plus transportation)
10.14.1 LIFTING AND LOWERING DEVICES
In establishing this division only vertical motions not accompanied by any horizontal motion are considered.
A block and tackle is one of the oldest and simplest methods of lifting something through a vertical distance. It depends on manpower and gives only the mechanical advantage. It is the oldest form of lifting, the most inexpensive in cost and the most wasteful of manpower.
Winches are devices that effect vertical motion by the rope or cable on a drum. Here it is possible to get much greater mechanical advantage than with a block and tackle by using manpower or other power. These are frequently used in loading heavy equipment into ships, construction equipment into building and in similar jobs.
Hoists are power driven devices often operated between fixed guide nails for lifting things vertically. They are similar to elevators except that, a hoist does not carry the operator on it.
Elevators are differentiated from hoists by the fact that the operator rises with the load. Generally electric drive is used in elevators.
10.14.2 TRANSPORTING DEVICES
The simplest transporting devices are wheel barrows and hand trucks. All this equipment involves a large amount of manpower for a relatively small load. The chief advantage of this equipment is its very low cost, its great flexibility and its easy portability from one job to another.
Industrial railways are narrow-gauge railroads. In general, little use is made of such equipment because it requires a heavy investment in the road bed and tracks, has little flexibility and is difficult to change at a later date.
Tractors and trailers are one of the most common methods of horizontal transportation. Great flexibility is secured as tractors can be used to haul such a variety of different types of trailers. Trailers can be left loaded and can be picked up by different tractors. This system has the advantage of great flexibility plus all the advantages of industrial railways and there is no investment in laying tracks.
Pipe lines and pumps are also horizontal transportation for many commodities. Most obvious among these is oil, which is pumped great distances through pipe lines. Gas is also carried through pipe lines. Water is similarly transported.
10.14.3 COMBINATION DEVICES (LIFTING AND LOWERING PLUS TRANSPORTATION)
One of the simplest devices that have both vertical and horizontal motion is a chute which may either be straight or spiral. Gravity is utilized in order to move material down and to change the portion of the load horizontally. Chutes are common in railway and airline terminals for handling packages and baggage. Chutes are also used in departmental stores in a spiral form to bring the stock from reserver on the upper floors to the lower selling floors.
Small crane trucks are also user for handling materials both in horizontal and vertical direction.
Conveyor is an another equipment used for this purpose. This is continuous transportation system. Wheel gravity conveyor, roller conveyor, screw conveyor and Roller spiral conveyor are the types of conveyors used normally.
10.14.4 COMMON MATERIALS HANDLING EQUIPMENT
The definitions, characteristics and used of some types of handling equipment commonly used in mechanically oriented enterprise are explained below.
10.14.4.1 CONVEYORS
A. FLAT BELT CONVEYOR
An endless fabric, rubber, plastic, leather, or metal belt operating over suitable drive, tail end, and bend terminals and over belt idlers or slider bed for handling materials, packages, or objects placed directly upon the belt.
• Top and return runs of belt may be utilized.
93. Will operate on level, incline up to 28 degrees, or downgrade.
94. Belt supported on flat surface is used as carrier of objects or as basis for an assembly line.
95. Belt supported by flat rollers will carry bags, bales, boxes, etc.
96. Metal mesh belts are used for applications subjected to heat, cold, or chemicals.
97. High capacity.
98. Capacity easily adjusted.
99. Versatile.
100. Can elevate or lower.
101. Provides continuous flow.
102. Relatively easy maintenance.
103. Used for:
Carrying objects (units, cartons, bags, bulk materials)
Assembly lines
Moving people
B. POWER AND FREE CONVEYOR
A combination of powered trolley conveyors and unpowered monorail-type free conveyors. Two sets of tracks are used, usually suspended one above the other. The upper track carries the powered trolley conveyor, and the lower is the free monorail track. Load-carrying free trolleys are engaged by pushers attached to the powered trolley conveyors. Load trolleys can be switched to and from adjacent unpowered free tracks.
• Free trolleys move by gravity, or by pusher supported from trolley conveyor on upper level.
• Interconnections may be manually or automatically controlled.
104. Track switches may divert trolleys from power to free tracks.
105. Dispatching may be automatically controlled.
106. Free gravity tracks may be installed between two power tracks for storage.
107. Speeds may be varied from one power section to another.
108. Can include elevating and lowering units in free line.
109. Can recirculate loads on all or sections of system.
110. Can be computer controlled.
111. Used for:
Temporary storage of loads between points on machining, assembly, and test lines.
Routing loads to selected points
Overhead storage for later delivery of loads to floor level.
Integrating production, assembly, and test equipment
Provides for surge storage against a breakdown.
10.14.4.2 CRANES, HOISTS, MONORAILS
A. JIB CRANE
A lifting device traveling on a horizontal boom that is mounted on a column or mast, which is fastened to :
p) floor,
q) floor and a top support, or
r) wall bracket or rails.
B. BRIDGE CRANE
A lifting device on a bridge consisting of one or two horizontal girders, which are supported at each end by trucks riding on runways installed at right angles to the bridges. Runways are installed on building columns, overhead trusses, or frames. Lifting device moves along bridge while bridge moves along runway.
• Covers any spot within the rectangular area over which the bridge travels, i.e.., length of one bay.
• Can be provided with crossover to adjacent bay.
112. Produce 3 dimensional travel.
113. Designed as:
• Top-running where end trucks ride on top of runway tracks.
• Bottom-running where end trucks are suspended from lower
114. Hoist can also be top or bottom running
115. Bottom-running usually limited to about 10 tons.
116. Bridge propelled by hand, chained gearing or power.
117. Two hoists may be mounted on one crane.
118. Usually designed and built by specialist companies.
119. Does not interfere with work on floor.
120. Can reduce aisle space requirements.
121. Can reach areas otherwise not easily accessible.
122. Crane ways can extend out of building .
123. Can be pendent or radio controlled from the floor.
124. Used for:
o Low to medium volume.
o Large, heavy and awkward objects.
o Machine shops, foundries, steel mills, heavy assembly and repair shops.
o Intermittent moves.
o Warehousing and yard storage.
o With attachments such as magnets, slings, grabs, and buckets, can handle and extremely wide range of loads
C. MONORAIL CONVEYOR
A handling system on which loads are suspended from wheeled carriers or trolleys that usually roll along the top surface of the lower flange of the rail forming the overhead track, or in a similar fashion with other track shapes.
• Relatively low installation cost.
• Low operating cost.
125. Little maintenance.
126. Track may be pipe, T, I, flat-bar or other formed structural shape.
127. Can be hand or motor propelled on both travel and lift.
128. Motor may be controlled by pendant switches, from integral cab, or automatically.
129. Removes traffic from floor.
130. Release floor space.
131. Makes use of overhead space.
132. Easily extended.
133. Switches, spurs, transfer bridges, drop sections, swinging sections, cross-overs, turntables provide flexibility.
10.14.4.3 INDUSTRIAL TRUCKS
A. FOUR WHEEL HAND TRUCK
A rectangular load-carrying platform with 4 to 6 wheels, for manual pushing, usually by means of a rack or handle at one or both ends. Some have 2 larger wheels at center of platform for easy maneuverability.
• May be fitted with box or other special body for variety of handling tasks.
134. Inexpensive
135. Versatile
136. Used for:
• Manual handling of large loads
• Supplementing mechanical handling
• Low frequency moves
• Low volume movement
• Short distances
• Relatively light loads
• Temporary storage; in process storage
• Handling awkward shapes
• Weak floors
• Small elevators
• Narrow aisles
• Crowded areas
B. HAND LIFT TRUCK
Essentially a wheeled platform that can be rolled under a pallet or skid, and equipped with a lifting device designed to raise loads just high enough to clear the floor and permit moving the load. Propulsion is by hand and lift is by hydraulic or other mechanism. Platform type is used for handling skids, and fork type for handling pallets.
• Low cost
• Durable, minimum maintenance
137. Light weight
138. Compact
139. simple to operate
140. Versatile
141. Used for:
• Loading or unloading carriers
• Supplementing powered trucks, spotting loads
• Moderate distances
• Intermittent, low-frequency use
• Low volume moves
• Increasing utilization of powered equipment
• Captive use in a local area
• Loading and unloading elevators
• Tight quarters; narrow aisle
C. FORK LIFT TRUCK
A self loading, counterbalanced, self-propelled, wheeled vehicle, carrying an operator, and designed to carry a load on a fork fastened to telescoping mast which is mounted ahead of the vehicle to permit lifting and stacking of loads.
• May be powered by petrol, diesel, battery, or LP gas engine.
• Mast may be tilted forward or backward to facilitate loading and unloading
142. Operator may ride in center or at back end of truck-or, with special attachments, on the lifting mechanism, with the load
143. Operator may sit or stand
144. Used with a wide variety of attachments to provide an extremely flexible and adaptable handling device
145. Carries own power source- therefore useful away form power lines
146. Wheels and tires can be provided for a variety of floor conditions or operating locations-wood, concrete, highway, yard.
147. Wide range of capabilities
148. Electric type especially useful where reduced noise or no fumes are desired
149. Used for:
• Lifting, lowering, stacking, unstacking, loading, unloading, maneuvering
• Variable and flexible paths
• Medium to large units loads
• Uniform shaped loads
• Low to medium volume of material
• Intermittent moves
10.14.4.4 AUXILIARY EQUIPMENT
A. DOCK BOARD
A specially designed platform device to bridge the gap between the edge of the dock and the carrier floor. Sometimes known as bridges plates. Carrier floors vary from 1200mm for rail cars, to 1300mm for pickup trucks, to 130mm for highway trucks, plus special bodies of even lower design.
• Made in formed shape to provide strength and side guards.
150. Usually lightweight metal.
151. Often designed with loops to permit moving by fork truck,
152. Can be fastened to dock edge.
153. Some can be slid along a rail from one location to another.
154. Often have pins to lock lateral position
155. Have non-skid surfaces.
156. May be flared for narrow docks.
157. Should be carefully selected for intended use.
B. DOCK LEVELERS
A platform-like device, built into the dock surface and hinged to permit raising and lowering to accommodate truck height when bridging the gap between dock and truck floor.
• Permits extension of dock floor into carrier.
158. Adjust up and down, left and right, or for vehicle tilt.
159. May be counter balanced or hydraulically operated.
160. May be automatic; i.e., adjustment to truck initiated upon bumping by vehicle.
161. Has lip, to level out vehicle end of platform.
C. PALLET
A horizontal platform device used as a base for assembling storing and handling materials as a unit load. Usually consists of two flat surfaces, separated by three stringers.
• May be expendable, general purpose, or special purpose.
162. May be single or double faced.
163. May be flush stringer, single or double wing.
164. May be one-way, two-way, or four-way entry.
165. Made of wood, plywood, metals, corrugated, plastic, etc.
166. Protects goods being moved from damage, pilferage, etc.
167. Facilitates inventorying.
168. Promotes cleanliness and good housekeeping.
169. Keeps material off floor, therefore easier to handle.
170. Used for:
• Fork-truck-based system.
• Unitizing items.
• Utilizing building cube.
• Increasing load size.
• Reducing handling of individual items.
• Minimizing packaging of individual items.
D. RACK
A frame work designed to facilitate the storage of loads, usually consisting of upright columns and horizontal members for supporting the loads, and diagonal bracing for stability.
• May be classified as Selective:
• Bolted
• Lock-fit
• Cantilever
• Bar stock
• A frame
• Custom
Or Bulk:
• Drive-in
• Drive-through
• Live
Or portable:
• Integral unit
• Rigid
• Knock-down
• Collapsible
• Pallet stacking frame
• Bolt-on
• Snap fit-independent of pallet
171. Made of metal, wood, pipe, etc.
172. May be fixed or adjustable in shelf height.
173. Usually built for pallets, but may be used or adapted for skids, rolls, drums, reels, bars, boxes, etc.
174. May have shelves for storage of loads, but may be designed for drive-in or drive-through applications.
175. Facilitates inventory taking.
176. Rugged; minimum maintenance
177. Live racks are designed for loads to flow to the unloading position.
178. Cantilever racks best for long items.
179. Used for:
• Increasing utilization of storage space
• Increasing selectivity of goods stored
• Protecting goods
• Control of inventory
• Improving housekeeping.
10.15 SUMMARY
Principles and factors of layout are discussed. Product layout and process layout are explained in detail. Advantages and disadvantage of these layout types are discussed. A three step procedure for evaluating process layout and the line balancing technique for product layout are explained. Principles of materials handling and the common materials handling equipment like conveyors, cranes and trucks are discussed in this lesson.
10.16 REVIEW QUESTIONS
• What are the principles of a good layout?
• What is product layout? Give its advantages and disadvantages.
180. What is process layout? Give its advantages and disadvantages.
181. What are the principles of materials handling?
182. Briefly identify four basic types of handling equipments. Indicate examples for each.
10.17 REFERENCE BOOKS
• Apple, J.M., “Plant layout and materials handling”, Prentice Hall. Moore, F.G., “Pland layout design”, John Whieley.
183. Krajewski and Ritzman, “Operations management”, Addison-Wesley.
184. Buffa, “Modern production management”, 4th edition. John Whieley.
LESSON-11
HUMAN FACTORS IN JOB DESIGN
11.1 INTRODUCTION
Over the years since Adam Smith, the main guide for determining job content has been division of labor. This idea has been accepted almost completely. Adam
Smith specified no limit to the division of labor and the principle has been applied as a one-way mechanism to achieve the maximum benefits of job design. Job a have been broken down to the point where the worker finds little satisfaction in performing his tasks. In recent years there has been a reaction against excessive job breakdown; a few investigators have found that combinations of operations to create jobs of greater scope recaptured the worker’s interest; increase in productivity, quality level, etc., were reported. A new term, job enlargement, appeared. Practical applications of job enlargement that were written up in the literature tended to verify the findings of the investigators. Unfortunately, although exponents of job enlargement recognize that division of labor can be carried too far, they have not been able to specify any principles or guides on how far to go in the other direction. Job enlargement is also a one-way mechanism. It does, however, provide a balancing force through the inclusion of job satisfaction as a major criterion of successful job design. The ultimate answer lies in research attempts to isolate the factors that determine an optimal combination of tasks to make up jobs. This effort has been called job design.
The past and present viewpoint of business and industry emphasizes the economic criterion as the controlling factor in determining job content and considers other criteria as effective mainly in so far as they meet economic requirements. Thus, a quality criterion often reduces to an economic one, when the job design that improves quality levels also improves productivity. For example, removing fatiguing elements of a job commonly improves productivity; eliminating hazards may reduce insurance premium rates as well as improve productivity; designing task that increase employee satisfaction often also improves productivity.
However, there certainly are instances where the various sub criteria do not correlate with the economic criterion. To obtain higher quality levels often demands increased costs, and the value of the reduced scrap may not counterbalance the higher labor costs. The employee satisfaction criterion would not necessarily decrease costs. To reduce the risks of hazards to extremely low levels might be very costly.
In Taylor’s time the non-economic criteria would have been shrugged off. Today jobs and methods are frequently designed or altered to meet non-economic needs. It is true that the economic criterion is dominant, and job and method designs are seldom set or altered without reference to the effects on cots. Most often, costs are regarded as the “quantitative” measure, with non-economic criteria being considered in the list of “intangible” advantages or disadvantages. Fig.11.1 shows in schematic form the relationship of job constraints, criteria and others. The inputs to the determination of job methods then become job content plus a host of other inputs related to man-machine systems.
Objectives
To understand the working environment in job design.
Contents
11.1 Introduction
11.2 Man-machine systems
11.3 Man versus machines
11.4 Conceptual Frame work for man-machine systems
11.5 Types of man-machine systems
11.6 Information input
11.7 Visual displays
11.8 Auditory and tactual display
11.9 Human control of man-machine systems
11.10 Analysis of control activities
11.11 Strength and forces of body movements
11.12 Speed and accuracy of motor responses
11.13 The working environment
11.14 Temperature, Humidity and air flow
11.15 Noise
11.16 Light
11.17 Contaminants and Hazards in the working environment
11.18 Summary
11.19 Review Questions
11.20 Reference books
11.2 MAN – MACHINE SYSTEMS
The great advances in computers and automation technology has changer the conceptual framework for man in productive systems. While there is still a great deal of manual labor in business and industry today, most work involves the use of at least some kind of mechanical aid, and, therefore, the conceptual framework of man-machine systems is appropriate for the entire spectrum of systems involving the human operator.
FIG. 11.1 RELATIONSHIP OF CONSTRAINTS, CRITERIA AND OTHER PRESSURES IN DETERMINING JOB CONTENT INPUTS TO JOB METHODS DESIGN
Even in an automated system, labor is necessary in a surveillance capacity. In such situations, an operator may be seated in front of a control board which continually flashes information about the progress of the manufacturing process. It is Important that these display panels be designed to transmit the essential information with minimum error.
Perhaps the majority of business and industrial manual jobs today consist of some combination of man and machine. Where there is a fixed machine cycle as in most machine tool processes, the design of the machine cycle as in most machine tool processes, the design of the machine in relation to the operator is of great importance. The location and design of controls, working heights, information displays, the flow of work, safety features, and the utilization of both the man and the machine in the cycle are all important determinants of quality, productivity, and worker acceptance of the job situation.
Many jobs are strictly manual, such as assembly, maintenance, and heavy labour. Here mechanical aids or tools are common, and we need to consider the design of these tools from the viewpoint of the user. In addition, we must consider the layout of the workplace, the flow of work, and physical and mental fatigue produced in the worker by his physical environment. In some situations, environmental factors of heat, humidity, light, noise, and hazards can seriously affect fatigue, productivity, quality, health, and worker acceptance of the job. Thus, in studying man-machine systems we assume that the questions of job content have fairly well been settled, and we concentrate attention on the detailed design of jobs.
11.3 MAN VERSUS MACHINES
Man has certain physiological, psychological, and sociological characteristics which define both his capabilities and his limitations in the work situation. These characteristics are not fixed quantities but vary from individual to individual. This does not mean, however, that we cannot make predictions about human behavior. Rater, it means that predictive models of human behavior must reflect this variation. To take a physical factor as an example, the distribution of the arm strengths of men indicates the per cent of the male population that can exert a given force. This distribution also indicates the limitations in demand for arm strength. The average man can exert a right-hand pull of 50kg. If we design a machine lever that requires the operator to exert this force, approximately half of the male population would be unable to operate the machine. On the other hand, the distribution also tells us that about 95% of the male population can exert a right-hand pull of 22kg. a level designed to take this fact into account will accommodate a large proportion of the male population.
In performing work, man’s functions fall into three general classifications
Receiving information through the various sense organs, that is, eyes, ears, touch, etc.
Making decisions based on information received and information stored in the memory of the individual.
Taking action based on decisions. In some instances, the decision phase may be virtually automatic because of learned responses as in a highly repetitive task. In others, the decision may involve an order of reasoning and the result may be complex.
Note that the general stricture of a closed-loop automated system is parallel in concept. Wherein lies the difference? Are automated machines like men? Yes, they are in certain important respects. Both have sensors, stored information, comparators, decision makers, effectors, and feedback loops. The differences are in man’s tremendous range of capabilities and in the limitations imposed on him by his psychological and sociological characteristics. Thus, machines are much more specialized in the kinds and range of tasks they can perform. Machines perform tasks as faithful servants, reacting mainly to physical factors; for example, bearings may wear out because of a dusty environment. But man reacts to his psychological and sociological environment as well as to his physical environment. The latter fact requires that one measure of effectiveness of job design must be worker acceptance or job satisfaction.
Although there are few really objective guides to the allocation of tasks to men and machines on other than an economic basis, a subjective list of the kinds of tasks most appropriate for men and for machines is given by McCormick
Human beings appear to surpass existing machines in their ability to:
i) Detect small amounts of light and sound.
ii) Receive and organize patterns of light and sound.
iii) Improve and use flexible procedures.
iv) Store large amounts of information for long periods and recall relevant fact at the appropriate time.
v) Reason inductively.
vi) Exercise judgment.
vii) Develop concepts and create methods.
Existing machines appear to surpass humans in their ability to:
i) Respond quickly to control signals.
ii) Apply great force smoothly and precisely.
iii) Perform repetitive and routine tasks.
iv) Store information briefly and then erase it completely.
v) Perform rapid computations.
vi) Perform many different functions simultaneously.
Such lists raise a question. Why do business, industry, and government not use men and machines according to these guides? We have all observed that man is used extensively for tasks given in the list for machines. The answer lies in the balance of costs for a given situation. Both labor and machines cost money; when the balance of costs favors machines, conversions are normally made. In many foreign countries extremely low-cost labor, in relation to the cost of capital, dictates an economic decision to use manual labor in many task in which man is not well suited. Because of relatively high wages in the United States, machines are used much more extensively.
11.4 CONCEPTUAL FRAME WORK FOR MAN-MACHINE SYSTEMS
As we noted previously, men and machines perform similar functions in accomplishing work tasks though they each have comparative advantages. The functions they perform are represented in Figure 11.2. The four basic classes of functions are sensing, information storage, information processing, and action. Information storage interacts with all three of the function; however, sensing, information processing, and action functions occurs in sequence.
Information is received by the sensing function. If by a man, sensing is accomplished through the various sense organs of eyes, ears, sense of touch, etc. Machine sensing can parallel human sensing through electronic or mechanical devices. Machine sensing is usually much more specific or single purpose in nature than broadly capable human senses.
Information storage for man is in the human memory or by access to records. Machine information storage can be by magnetic tape or drum, punched cards, cams and templates, etc.
FIG 11.2 FUNCTIONS PERFORMED BY MAN OR MACHINE COMPONENTS OF
MAN-MACHINE SYSTEMS
The function information processing and decision takes sensed and/or stored information and produces a decision by some simple or complex process. The processing could be as simple as a choice between two alternatives, depending on input data, or very complex, involving deduction, analysis, or computing to produce a decision for which a command is issued to the effector.
The effector or action function occurs as a result of decisions and command, and may involve the triggering of control mechanisms by man or machine, or a communication of decisions. Control mechanisms would in turn cause something physical to happen such as moving the hands or arms, starting a motor, increasing or decreasing the depth of a cut on a machine tool, etc.
Input and output is related to the raw material, or the thing being processed. The output represents some transformation of the input. The processes themselves may be of any type, that is, chemical processes to change shape or form, assembly, transport, clerical and so on.
Information feedback concerning the output states in an essential ingredient for it provides the basis for control. Feed back operates to control the simplest hand motion through the senses and the nervous system. For machine adjustment. Automatic machines couple the feedback information directly so that adjustments are automatic (closed-loop automation). When machine adjustments are only periodic based on information feedback, the loop is still closed, but not on a continuous and automatic basis.
11.5 TYPES OF MAN MACHINE SYSTEMS
We shall use the module of the functions performed by man or machine shown in figure 11.2 to discuss the basic structure for three typical system: manual, semiautomatic, or mechanical and automatic system. Figure 11.3 uses the module of figure 11.2 to show the structure of the three types of systems in schematic form.
Manual system involves man with only mechanical aids or hand tools. Man supplies the power required and acts as controller of the process; the tools and mechanical aids help multiply his efforts. The basic module of figure 11.2 describes the functions where the man directly transforms input to output as shown in figure 11.3(a). In addition we must envision the manual system operating in some working environment which may have an impact on the man and the output.
MAN (As Power Source & Controller)
11.3 (a) MANUAL SYSTEM
Semiautomatic systems involve man mainly as a controller of the process as indicated in figure 11.3 (b). He interacts with the machine by sensing, information about the process, interpreting it and using a set of controls which may start and stop the machine system and possibly make intermediate adjustments. Power is normally supplied by the machine. These are combinations of the manual and semiautomatic systems where the man is also man is also supplying some of the system power, perhaps in loading the machine or in some activities in which he may be involved while the machine goes through its cycle. Common examples of semiautomatic systems are the machine tools commonly used in the mechanical industries.
MAN (AS CONTROLLER)
11.3 (b) SEMIAUTOMATIC SYSTEM
MACHINE
11.3 (c) AUTOMATIC SYSTEM
Automatic systems presumably do not need a man since all of the functions of sensing, information processing and decision, and action are performed by the machine, such a system would need to be fully programmed to sense and take required action for all possible contingencies. Automation at such a level is not economically justified even if the machine could be designed. Figure 11.3(c) therefore, indicates man’s role as a monitor to help control the process. In this role the man periodically or continuously maintains surveillance over the process through displays which indicates the state of the crucial parameters of the process.
11.6 INFORMATION INPUT
Modern technology has made it possible to present vital information concerning the process which humans cannot sense directly, or atleast cannot sense precisely in a direct way. On the other hand some sensing may result from direct observation, for example if the transfer mechanisms were jammed, the pathways of information from original source to human sensory receptors is shown schematically in Fig 11.4
Fig. 11.4 SCHEMATIC ILLUSTRATION OF PATHWAYS OF INFORMATION FROM ORIGINAL SOURCES TO /SENSORY RECEPTORS
Figure 11.4 indicates immediately some marriage between man and machine in indirect sensing which involves an intermediate sensing by mechanisms and a coding or conversion to some new form which is then presented and sensed by the human. Therefore, in man-machine systems, human sensing can be direct, but increasingly is indirect, placing emphasis on encoding and information display systems. The design of these systems of display for information input to man is important if operation are to be effective.
Figure11.5 implies the full range of possible human sensory receptors. The most common business and industrial application focus on the use of the eyes, ears and nerve endings, in that order with visual display being by far the most common.
Fig. 11.5 FIVE DIFFERENT DIAL SHAPES AND THE PERCENTAGE INCORRECT READINGS RECORDED FOR EACH
11.7 VISUAL DISPLAYS
Much of the postwar effort of experimental psychologists has been directed toward improving visual displays. Questions such as these have been raised: Which dial shapes are most legible? What scale should be used and how should they be marked on the dials? Do people have number preference patterns that effect the interpretation of dial readings? What characteristics of numbers and letters make them most legible? Are background superior to white on black? How big should letters and numerals be and what proportions of line thickness, height and width are best? How should systems of dials be arranged? Experimental work has been carried on these and many other questions.
Scientists have experimented with the shape of dials. An experiment around five types of dials was constructed. Fig. 11.5 shows the results in terms of percentage of errors recorded. A multitude of studies indicated the following general guides on dial design.
a) A dial about 70mm in diameter is probably the best all-around size if we are going to read it at a distance 750mm or less.
b) Mark should be located at the 0,5,10,15,20 etc. (or 0,50,100,150,200 etc.) positions. The marks at the 0,10,20, (or 0,100,200) positions should be longer than those at the 5,15,25, (or50,150,250) positions. Only the mark at the 0,10,20 should be numbered.
c) The distance between the numbered markers should be about 12 mm as measured around the circumference of dial.
d) The separation between the scale markers should be the same all around the dial.
e) There should be gap between the beginning and the end of the scale.
f) Values on the scale should increase in a clockwise direction.
When there is a bank of dials to be read, it helps to orient them in a pattern so that the normal readings are in the nine o’clock or twelve o’clock positions. This makes it possible to tell at a glance if an abnormal reading is among the group instead of reading the each dial individually. As a matter of fact we often find that the operator is presented with too much information. He may not need to read the dial at all. Perhaps all that is required is simple recognition of whether the reading is in the normal operating region or not. Or perhaps the real need is to know only if something is functioning or not. Simple on-off lights may be satisfactory in such situations.
There is also the questions of the letters and numbers that are used on visual displays. Studies have indicated that capital letters and numbers are read much accurately when stroke width to height ratio is between 1:6 and 1:8 and when the overall width to height ratio is about 2:3.
11.8 AUDITORY AND TACTUAL DISPLAYS
While auditory displays are not as commonly used as visual, they have particular value as warning devices or to attract attention. There are of course other opportunities for using the auditory channel, for example, when vision is impaired, or at night or in photographic dark rooms, when vision cannot be used. Some of the common devices are bells, sirens, buzzers, horns, chimes and whistles.
Tactual displays are even less common than auditory in business and industry. Yet there are applications when vision cannot be used such as in photographic dark rooms or the shape coding of control knobs. So they can be identified by touch.
11.9 HUMAN CONTROL OF MAN-MACHINE SYSTEMS
Given information input by direct or indirect means the human operator of man-machine systems responds by performing work in the physical sense. He may be assembling objects, manipulating controls and in general using his body to accomplish the required tasks to fit in with the objectives of the system. The analysis of the hand and body motions and how they contribute to effective operation is important.
Manipulative activity in handling controls has been studied with considerable care and this knowledge can be used to design effective systems.
Finally, work place layout can be used on knowledge of anthropometry so that manual motions can take place within a prescribed area and chair and table heights can be set at levels appropriate to human body sizes.
11.10 ANALYSIS OF CONTROL ACTIVITY
The design of controls and control systems has an important impact on the effectiveness of a man machine system. A Knowledge of the forces that man can exert may be of importance in some systems so that these capabilities are not exceeded in the design of controls and control coding is sometimes important, so that controls are not confused.
11.11 STRENGTH AND FORCES OF BODY MOVEMENTS
Data on the forces that can be exerted by most of the working population is important for designing machines and tools which do not require operators with unusual physical strength. Rather exhaustive population measurements have been made for arm strength, grip strength, turning strength, elbow, back, leg-strength.
In general it can be seen that left hand strength is consistently less than that for the right hand, and that pushes and pulls are weaker when the arm is down at the side. With upward and downward movements, however, greater forces can be exerted when the arm is down at the side. Pull is slightly better than push, down slightly better than up, in better than out.
11.12 SPEED AND ACCURACY OF MOTOR RESPONSES
A motor response is one that involves physical movement and\or control of body parts. It is a muscular activity. Since man’s hand are his more important asset for performance of muscular tasks, we find that most of the available data pertain to hands. Thus, in designing tasks that involve positioning elements, for e.g., a knowledge of where in the work area positioning can be accomplished most accurately may affect the work place layout.
A. POSITIONING ELEMENTS
Much experimental effort has gone on to determine how positioning elements of various types can be best accomplished. A number of interesting results have been found, some expected and some unusual. It has been shown that where some sort of mechanical guide or stops are used to establish the exact final desired position of the part or hand. The implification of this fact tend to corroborate the idea of a fixed and definite location for everything. The rapid typing speeds attained by the touch system are based partially on this fact since key location are fixed. Conceptually, it is the difference between finding something in a carefully indexed and maintained file or in a stack of papers.
B. POSITIONING THROUGH SETTING OF DIALS, CRANKS AND HAND WHEELS
Movements to position dials, knobs, cranks, hand wheels are common means by which the human operator controls processes and machines. Several studies have been made to determine facts that optimize the design of such devices. For e.g. when knob settings must be accomplished without visual control, the average errors and variability of settings are minimized at the 12 ‘o’ clock position of the dial.
A set of experiments have been performed to determine optimal sizes of cranks and hand wheels under various conditions of friction torque, position and height. These types of hand wheels and cranks are common devices used to move the carriages and cutting tools to desired settings.
Coding controls: In complex operations where a number of controls are used, coding by colour, size, shape or location helps to distinguish between them so that mistakes are minimised. It was found that round knobs could be distinguish from each other. The location of controls can be used to distinguish them from each other. For example the clutch brake and accelerator pedals of automobile used with out looking to see where they are.
It has been also investigated knob shapes that could be distinguished solely by touch. He classified designs into 3 groups; Multiple rotational knobs, Fractional rotational knobs and detent positioning, that is where knob position is critical as a television channel selected dial where each position ‘clicks’ in to place.
C. WORK AREA LIMITS
Many tasks such as assembly work the operation of many types of machines, and much clerical work are performed by worker is seated or standing at a bench, table or desk. Movements beyond the work area require the trunk of the body to be moved. Aor repetitive operations these trunk movements are fatiguing. Similar measurements have been made in vertical plane; guides for location of the materials, supplies tools and controls are available in 3-dimensions.
D. CHAIR AND TABLE HEIGHTS
Since there is so much manual and clerical activity, the height of chairs and tables is important. The two are closely related. Table height is commonly specified in relation to elbow, so that adjustments in either chair or table height from the floor can be made to give greatest comforts to individual worker. Actual table and chair heights then depend on whether the setup is designed for sitting-standing or sitting only.
11.13 THE WORKING ENVIRONMENT
The working environment which includes such factors as temperatures humidity, light and noise can produce marked effect on productivity, errors, quality levels, and employee acceptance, as well as physiological well-being. Therefore we cannot measure the effectiveness of the job design without a knowledge of the working environment in which it will be placed. It is a part of total picture.
11.14 TEMPERATURE, HUMIDITY AND AIR FLOW
We have all experienced that our feeling of comfort is not determined solely by thermometer reading. If there is a breeze we feel cooler, even though the temp, is same. On a stifling day we have heard of the comment “it isn’t the heat, it’s the humidity.” The sensation of warmth or cold is affected by each of these factors, which have been combined into a single psychological scale called effective temperature. Effective temperature is the temperature of still, saturated air, which gives the identical sensation of warmth or cold as the various combinations of air temperature humidity and air movement would.
The human body has automatic heat regulating system that llow compensation for the environment over a certain effective temperature range. This compensation also, of course, depend on the activity level. Thus, a higher activity level can produce body comfort at lower temperature.
A. CONTROL OF THERMAL ATMOSPHERES
A scientist experimented with protective clothing for workers who must operate in very hot atmospheres such as near industrial furnaces. He found that simple protective clothing actually increased the heat stress. However, a ventilated suit, through which a continuous air flow was maintained, reduced the heat stress considerably. Control for workers adjacent to hot areas such as furnaces, where heat radiation is main problem, can be accomplished by shielding and by isolating the hot spot. General thermal control is accomplished through air-conditioning but it now universally done.
11.15 NOISE
Un wanted sound is commonly called as Noise. There is growing evidence that it can produce damaging effects, especially when workers are exposed to it over a period of years.
A. NOISE EFFECTS ON WORK PERFORMANCE
Industry of course has been interested in the possible direct effects that high noise levels may have on performance measures such as output, errors and quality levels. In a number of studies on this subject, the general result was that if the injection of noise in the environment had any bad effects, they were temporary. We should not that good experiments usually must go on over a period of time; it is difficult to know whether the results are attributable to noise effects or due to other changes which may have taken place during the same time interval. The one sure reaction is that higher noise levels are annoying, but human beings seem able to adapt to them.
B. NOISE CONTROL
Noise control can be accomplished in many ways, depending on the nature of the problem. Acoustical engineers often control it in the source, by redesigning the noise producing parts, by using vibration isolation mounting of equipment, or some times isolating the source of noise through the constriction of proper enclosures so that the amount of noise transmitted beyond the enclosures is reduced. In the, later method, a knowledge of physics of sound transmission is important. The wrong enclosure design might transmit the noise with little or no loss or might even amplify it.
Other forms of control are baffles, sound absorbers, and acoustical wall materials. Sound absorbers can be installed near or above noise sources to help reduce noise levels within a room by reducing reverberation. The reflection of sound waves back and forth in the room. Of course these wall materials have no effect on the original sound waves emanating from the source.
11.16 LIGHT
The conditions for seeing are important aspects of the working environment. However no universally accepted standard for lighting is available, although there are recommended levels from many sources. Part of the difficulty lies in the fact that various criteria have been used, such as visual acuity, blink rate, preference rating, and critical illumination levels, From a business and industrial view point, critical illumination level makes the most sense, since they are essentially performance types of criteria. The critical level for a given task is that level beyond which there is practically no increase in performance for increases in illumination intensity. Thus increase in intensity beyond these levels are assumed to be of no value.
A. ILLUMINATION EFFECT ON WORK PERFORMANCE
There have been many laboratory studies of the effect illumination level on some measure of performance of a task. In general there is a rapid improvement in performance as illumination levels increase to critical level, at which point performance measures level off and further increases in illumination produce little or no improvement in performance.
In many actual work situations where illumination levels have been increased, records of output and quality before and after the changes have indicated substantial improvements. Some studies report that output went up to 4 to 35%. We should be aware of this type of support data. However, in the complex set of conditions existing in a business or industrial environment, variables other than just the illumination level could very well have changed such as work methods, product design, control procedures supervision, the weather, and the psychological climate. For example, in the famous Hawthorne studies, at the Hawthorne works, western electric company, lighting values were increased for an experimental work group and the performance went up. Some one thought to check on the result by lowering intensities. The employees cooperated again by lowering performance. But performance increased again when employees were told that the light intensity had been increased when actually it had been lowered, and then the smiles psychological situation. They were experimental subjects, set aside from “ordinary” employees, and unconsciously were simply being very cooperative for those “nice experiments”, When the situations were understood, the direction of the study changed to an evaluation of factors in morale. Very little concerning illumination was learned.
B. GLARE EFFECTS
Glare can reduce the effectiveness of the illumination provided; glare is produced by some bright spot in the visual field, such as bright light or reflected light from a polished surface, and can cause discomfort as well as reduce visual effectiveness. Based on the experimental results, the effect of glare become acute when the sources are close to the line of sight.
Glare effects can be reduced by moving light sources where possible by diffusing light source that cannot be moved, or by increasing the general illumination level of the surroundings so that the brightness contrast between the glare source and the surrounding is reduced. Reflection surface may sometimes be moved in relation to work places or changed so that the surfaces diffuse light.
C. CRITERIA FOR THEE LIGHTING ENVIRONMENT
There is little doubt that it is worthwhile to provide at least the general critical levels of illumination. Although there is little evidence of any changes in performance above the critical levels, these levels may be exceeded without any known bad effects in order to allow for a margin of error. This idea seems to represent current practical philosophies. General illumination levels that are more than adequate are provided and the problem is forgotten. Often missed, however, is the need for special lights for fine detailed work and elimination of glare.
11.17 CONTAMINANTS AND HAZARDS IN THE WORKING ENVIRONMENT
A large number of fumes, gases, liquids, and solids have proved harmful to workers. These, together with the general mechanical hazards from machining parts, traffic from material, transportation, falling objects, etc., from a part of the working environment.
A. NOXIOUS STANCES
The number of industrial poisons is tremendous, Fortunately, however, in most situation only a few would be present and potentially, dangerous. Industrial medicine is a special field which concerns itself with the diagnosis, treatment and control of the noxious substances, Maximum available concentration (MAC) have been determined for most of these substances as a basis for proper control.
B. CONTROL PROCEDURES
Control procedures vary greatly because great variation of possible contaminants and their characteristics. In manufacturing process poses engineering problems. Protection of workmen requires exhaust system to collect dust gases and vapors in order to maintain the concentration below maximum allowable concentration. Personal protective gear, such as respirators and gas masks, supplement exhaust system. Other protective clothing, such as rubber aprons, coats, gloves, boots and goggles, is available for various jobs which involve the handling of chemicals and where the unprotective skin may leave the employee exposed to injury. In addition, vigilance through careful explanation of safe operating procedures and safety programs is common.
11.18 SUMMARY
Men and machines perform similar basic functions in accomplishing work; however, their abilities are sharply divergent in the nature of tasks each can do well. The essence of man’s great advantage lies in his flexibility, whereas, machine can perform consistently. In general man’s role in man-machine system falls into three main classes: as a power source and controller in manual systems, as a controller of semi-automatic systems and as a monitor of automatic system.
11.19 ASSIGNMENT QUESTIONS
Discuss the Types of Man-Machine Systems.
.
11.20 REVIEW QUESTIONS
a) Compare man’s capabilities with those of known machines,
b) What are the various ways that visual and auditory information can be coded?
c) Summarize the general guides for dial design.
d) What sort of information is available concerning the speed and accuracy of positioning elements?
e) What kind of control measures available for the thermal environment?
f) How can noise be controlled?
g) What are glare effects and how can they be controlled?
11.21 REFERENCE BOOKS
a) Buffa,” Modern Production Management”, 4th edition, Prentice Hall.
b) Buffa, “Modern Production/Operations Management”, 7th edition, Prentice Hall.
c) McComick E.J., “Human Factors in Engineering”, McGraw Hill.
LESSON -12
PRODUCTION CONTROL
12.1 INTRODUCTION
Production control is the factory’s nervous system. Almost all factories can perform a tremendous variety of operations and turn out various types of products. Yet nothing happens until it is directed to the shop what it has to do. The directions have to be minute and specific. These directions tell it to perform individual operations on all kinds of component parts and to put them together into finished products. Production control sends the necessary continuous stream of directions to all parts of the factory.
Production control is defined as the design and use of a systematic procedure for establishing plans and controlling all the elements of an activity. That is the main problem in production control are involved with
(i) designing a sound and systematic procedure
(ii) Properly using the system that has been designed
(iii) The production control includes
(iv) a complete plan
(v) a follow-up procedure for determining how closely the plan is followed
(vi) a means of regulating execution to meet the plan’s requirements
Objectives
The objective is to understand the need for production control, its objectives, functions and benefits,etc.
Contents
12.1 Introduction
12.2 Need for production control
12.3 Objective of production control
12.4 Functions of production control
12.5 Relationship between production control and other departments
12.6 Types of production
12.7 Distinction between intermittent and continuous production
12.8 Characteristics of intermittent production
12.9 Pros and Cons of intermittent production
12.10 Characteristics of continuous production
12.11 Pros and Cons of continuous production
12.12 Similar processes
12.13 Characteristics of similar processes
12.14 Loading
12.15 Scheduling and controlling of production
12.16 Scheduling
12.17 Scheduling procedure and techniques
12.17.1 Perpetual scheduling
12.17.2 Order scheduling
12.17.3 Loading by schedule periods
12.18 Progress control
12.19 Methods to take corrective action
12.20 Follow-up or expediting
12.21 Summary
12.22 Assignment Questions
12.23 Review Questions
12.24 Reference books
12.2 NEED FOR PRODUCTION CONTROL
Products are manufactured by the transformation of raw materials into finished goods. This is how production is achieved. Planning looks ahead, anticipates possible difficulties and decides in advance as to how the production be carried out. Control phase makes sure that the programmed production is constantly maintained. Production control is an on-going activity designed to strike a balance between several conflicting objectives. To example if inventory cost of minimized customer service will probably suffer. Costs will be higher than if optimal balance of all factors is attained.
Holding down inventory is one goal. That is ideally try to finish making product just in time to be sold but no sooner. But some inventories have to be carried out the factory operate economically. If the volume is big products can be made continuously at a steady rate and hold inventory. It takes time to make products and this fact also is to be considered while achieving minimum cost. Both continuous and lot production decide ahead how much to produce and when. If it is gussed what customers will buy and when, running out of some products and having too many of others happen. To complicate matters customers may change their minds. They may want more products than they first ordered or they want fewer. They want their orders sooner or they want them latter. They want to change the design of their product.
12.3 OBJECTIVES AND BENEFITS OF PRODUCTION CONTROL
Sound production control may result in many tangible and intangible benefits it properly installed and operated. In order to obtain these benefits, it is essential that adequate auditing of the system be made continuously. Following are some of the objectives and results of a sound production control system.
(i) Efforts can be directed into those production areas that will contribute most towards accomplishing a given objective.
(ii) Programs can be closely followed to the wants and needs of the company.
(iii) Manufacturing cycles are shortened which in turn reduces in-process inventory costs and provides better customer service.
(iv) Work must be performed according to the preplanned schedules.
(v) Supervisors are forced to take corrective action when it is necessary.
(vi) Information is provided quickly to customers concerning the status of their orders.
(vii) Over-all expenses are reduced because of systematizing and reducing the amount of paper work involved.
(viii) Production is maximized by making greater use of facilities, equipment and manpower through sound scheduling and loading.
(ix) Necessary information can be provided for determining where and when preventive or corrective action is necessary.
(x) A yardstick is provided by which management can measure both the progress and the effectiveness of the activities in which the company engages.
(xi) Administrative of the activity is put on a factual basis rather then one of experienced guesswork.
(xii) Reports are more timely, adequate and accurate.
(xiii) Continuous evaluation of the effectiveness of the planning and control system and of other function is made possible.
(xiv) Graphical or visual presentation of data is facilitated.
(xv) Time becomes available to work out details that would otherwise be left to improvisation.
(xvi) Time phasing of all elements of the activity becomes a necessity.
(xvii) More flexibility is obtained to accommodate necessary changes that occur in schedules or orders.
12.4 FUNCTIONS OF PRODUCTION CONTROL
The functions of production control may be divided into three main categories or phases.
1. The planning phase
2. The action phase
3. The follow-up or control phase
• Forecasting – estimation of future work
• Order Writing – preparation of work Prior
authorization Planning
185. Product design – preparation of specifications
186. Process Planning – preparation of work detail
& routing Plan
187. Materials control – determination of requirements Planning
and control of materials phase
188. Tool control – determination of requirements Action
and control of tools Planning
189. Loading – determination of requirements
and control of equipment
& manpower
190. Scheduling – determination of when work is
to be done
191. Dispatching – starting the works Action phase
192. Progress – collecting and interpreting
the reporting data Follow
193. Expediting – making current work · ― up
corrections phase
194. Replanning – making plan corrections
1. PLANNING PHASE
• Prior planning
195. Action planning
Planning is a course of action established in advance. Prior planning is an activity in advance of normal planning stages not generally considered to be the part of the production control department. Action control consist of material control, tool control loading and scheduling.
A. FORECASTING
Forecasting is an estimation of future activities. It is a basis for projection of work load in future. It includes long range and short range objectives and provides the basis for establishing future requirements for men, materials, machines, time and money. It is subjected to possible wide variations in accuracy.
B. ORDER WRITING
Order writing is to control the work. It must begin with a specified document authorizing it. It is the preparation of work authorization. Documents may be a manufacturing order, customer order, etc.
C. PRODUCT DESIGN
Product design is the preparation of specifications. After the work authorization has been prepared, next step is to collect all information necessary to describe the work to be done. This will include blue print, drawings, etc. This activity would come under the product engineering department
D. PROCESS PLANNING ROUTING
Process planning is the preparation of work detail plan. The function of preparation work detail consists of two parts
(i) determination of most economical methods of performing an activity - process planning
(ii) determination of where the work is to be done – routing
For process planning it is necessary to have following information.
(i) Volume of work to be done
(ii) Quality of work required
(iii) equipment, tools and facilities available to do the work.
(iv) personnel available to do the work
(v) schedule to show when the equipment, tools and personnel will become available.
Routing is normally dependent on the plant or activity workload.
E. MATERIALS CONTROL
Materials control is the determination of material requirements control of materials. Materials or inventory control is vital to an activity because of the necessity to assure sufficient raw materials to satisfy production needs and finished products to satisfy customer needs. For these reasons it is desirable to maintain optimum inventory levels at all times.
F. TOOL CONTROL
Tool control is the determination of tool requirement and tool control. Tool control may be subdivided into two categories
(i) design and procurement of new tools
(ii) control, storage and maintenance of tools after procurement.
G. LOADING
Loading is the determination and control of equipment and manpower requirements. In most activities loading function is combined with routing and scheduling. It is very difficult to distinguish or to separate these functions. Usually these functions are considered simultaneously. Loading may be defined as assignment of work to a facility. Facility can be equipment, manpower or both.
H. SCHEDULING
Scheduling is the determination of when work is to be done. Scheduling consists of time phasing of work load. This is setting both the starting and ending time for the work to be done. Many different techniques are used in scheduling. The common practice is that routing, loading and scheduling are performed simultaneously.
2. ACTION PHASE
Only one function exist in the action phase.
I. DISPATCHING
Dispatching is starting the work. It is a transition from planning phase to action phase. It consist of actual release of detailed work authorization to work center. It is commonly performed by an individual called dispatcher. In the formal production control function, dispatching is commonly performed by an individual called dispatcher. IN the informal system, dispatching may be done by the foreman or supervisor or may even be done verbally. Every job that goes to department goes through the dispatcher. Dispatching is the first step in the line of communication from the work center to production function.
3. FOLLOW UP OR CONTROL PHASE
Once the work is started it is to be evaluated continuously regarding progress in terms of plan. Any deviation can be detected and corrected quickly.
Follow up phase consists of two parts
(i) progress reporting
(ii) Corrective action
J. PROGRESS REPORTING
It is primarily a matter of communication. Timely, adequate and accurate information about the performance of an activity is furnished by this function. Data is gathered and communicated to the management. In the formal activity, dispatcher is the originating point of communication. When there is no dispatcher, foreman or supervisor is the originating point of communication. After collecting data, it is necessary to interpret it by comparing the actual performance against the plan. System must be designed in such a way that they must almost automatically evaluate the situation for management. Management should not be required to interpret the raw data in order to come up with the evaluation.
Corrective action
The whole process of production control would be defeated if corrective action was called but not taken. Corrective action may consist of one or both of the two courses of action that is, expediting and replanning.
K. EXPEDITING
In this function current work corrections are made. If the data from the production unit initiates that there is a significant deviation from the plan then some action must be taken to get back on plan (if plan cannot be changed). Progress report should indicate the reasons for the deviation in the formal system. The function of following up to eliminate the cause of deviating from plan is performed by expediting group. In the informal system, the function is usually performed by the person directly in charge of the activity such as foreman or supervisor. Obviously, no production control system is perfect, and therefore some expediting will always be required. However it should be minimized by continuously improving the production control system.
L. REPLANNING
Replanning is making plan corrections. It should be emphasized that a plan is not made to be changed, but to be followed. However, if after expediting to correct deviations, it is found that it is impossible to perform according to the plan, it would be foolish to attempt to continue with original plan. It may also be found that there were errors made while developing the plan. It may also be found that there were errors made while developing the plan. In these cases changes in the plans are necessary. The changes in the original plan should never be made just because of deviations. Careful analysis is always required.
12.5 RELATIONSHIP BETWEEN PRODUCTION CONTROL AND OTHER DEPARTMENTS
There are many important relationships which exist between production control and other element of the organization.
The most important of there are:
(i) sales department
(ii) purchasing department
(iii) traffic department
(iv) materials handling function
(v) plant engineering and maintenance
(vi) new product development
(vii) industrial engineering
Without the coordination of production control with these groups, it would be impossible for production control to operate effectively. It is vital that the designer of the production control system understands what the relationship is and assures that there is a proper co-ordination and communication between production control and the various coordinating functions. Production control men first do their own work (operating direction) and second get other departments to do their work (carrying out direction). Where one department has to issue directions covering the work of other departments, trouble sometime arises. Minor frictions and frustrations are common.
12.6 TYPES OF PRODUCTION
To understand the job of controlling production, it is needed to look into the various manufacturing situations being controlled. There are so many differences in products and in methods how they are made. It is not possible to analyze the manufacturing situations of all the products individually. So classes or groups of manufacturing situations are considered. Most manufacturing situations falls reasonably well into three groups
(i) companies in job lot work – intermittent production
(ii) mass production companies – continuous production
(iii) similar processes – batch production
The first group makes a wide variety of products, each in limited quantities. The second group makes big volumes of a limited variety of products. In the third group the quantities to be made are in lots or batches.
A survey was carried out by the American Management Association to find out how prevalent each kind of operation is. Survey was conducted with a large number of manufacturing companies about what kind of operations they carried on.
20% said job lot work and rarely made a second order
13% said job lot work and usually no reorder
46% said job lot work and many products made again and again
13% said mass production basis
8% said processed materials in batches
It can be considered that the last two together as being in highly repetitive production then 3/4 of factories surveyed were in job let work and 1/4 were in mass production.
12.7 DISTINCTION BETWEEN INTERMITTENT AND CONTINUOUS PRODUCTION
Intermittent and continuous production differs in the length of time during which equipment setups can be used without change. If you use machinery setup for only a short time and then change it to make a different product, you are in intermittent production. Perhaps you are able to use the machine setup for only a few or a few hours before the required quantity is produced. If you setup equipment and use it without change for months, we call that continuous production.
12.8 CHARACTERISTICS OF INTERMITTENT PRODUCTION
(i) Most products are made in small quantities. Parts and assemblies are made in lots, usually small lots.
(ii) Similar equipment is grouped. Similar kinds of machines or machines performing the some work are located together in single work areas or departments. A department is a place that does a certain kind of work not a place where a certain product is made. This arrangement is called “process controlled layout”.
(iii) Workloads are unbalanced. Departmental work loads are usually unbalanced. It may be found that some departments working overtime while others are on short hours. Or within a department you may find some machines working overtime while other are on short hours or are idle. This is not because anyone wants it that way. It happens because the machines you own reflect usual need, but day-to-day & week-to-week variations in the product mix result in different demands for specific machines. Which machines are idle and which are overloaded depends on the variations in the product mix.
(iv) General purpose machines are used. The term ‘general’ is relative because all general purpose machines are to some extent specialized machines are to some extent specialized machines. You can’t use a band saw to drill holes and you don’t use a drill press to polish flat surface or to apply paint. We call a drill press a general purpose machine because by changing drill bits, it can be used to drill holes of various diameters and depths. Important point is that you can use it for different jobs. You have to drill each hole separately & you can drill big or little holes, shallow or deep & can be drilled wherever it is needed.
(v) Machine operators are highly skilled because of short runs which usually happen with general purpose machines. Often setting up of machines for new jobs happens. Setup man has to select the proper tools and fasten them on the machine in exactly the right way. He must figure out & install holding and fastening arrangements for the product. Finally the operator has to put the products onto machines and do the operation both setting up and operating take skill and experience. Foreman need to be skilled operators because you expect them to be able to step in and show their best workers how to do difficult jobs.
(vi) Numerous job instructions are necessary. Specific instructions usually in writing, telling them what to do on every new job have to be given to machine operators, truckers and others. You have to tell them what materials to use, what quantities to process, what operations to perform and when and where to perform them. You have to tell them how good the products have to be in order to pass inspection. Such instructions have to be given over and over again for every lot of materials. All this makes for much clerical work.
(vii) Raw materials inventories are high. Use of any particular raw material is somewhat irregular. A relatively large stock of standard raw materials has to be kept in hand.
(viii) In process inventories are high. Almost always you finish one operation on every item in a lot of products before you start the next operation. The first item finished lie around until all the rest are done. Then completed lot waits for trucker. When he delivers the order to next machine, he parks the lot nearby because that machine may be busy. There it waits until the machine is free. Other orders may already be waiting & so the newly arrived order may have to be stored for days before its turn comes. Other delays caused by storage of tools, inspection delays, etc. Slow things still more. Job lot work means materials move through production line slowly and you always have big inventories in process.
(ix) Materials move by truck. Converse is rarely found in job shop. Materials follow a great variety of paths through these plants. Power driven or hand trucks are used to move materials. Trucking is a highly flexible method of transportation and is well suited to move things through diverse paths.
(x) Wide aisles, ample storage and numerous elevators are needed when materials are moved by trucks. Enough aisle space is needed for two-way traffic and for maneuvering space so that loads can be put down or picked up at machines. Temporary storage space is needed next to machines so that workers can unload materials directly from truck and back again afterwards. Large permanent storage areas should be available in order to store jobs between operations. Elevators used to move items to other floors. It should be large enough to carry trucks & there should be enough of them so that trucks don’t have to wait long. Wide aisle & ample storage space, through needed, are not always found because space is often scare but if you don’t have them, you will waste a lot of time & money in moving things around in crowded areas.
12.9 PROS AND CONS OF INTERMITTENT PRODUCTION
The best thing about intermittent production is its flexibilities. It is well adapted to producing numerous orders for small quantities of a wide variety of products. Flexibility will be there in the plant layout, types of machines used, transportation system, skills of workers & procedures used to direct their work. One machine breaking down is not usually serious. Work planned for that machine can be shifted to other similar machines. Order requiring that machine can’t be shifted. Only the orders requiring that machine can be shifted to other similar machines. Orders requiring, that machines are not delayed. Intermittent production also allows to push emergency rush orders through ahead of regular orders. Flexibilities of intermittent production are a kind of insurance against heavy losses I the market demand changes unexpectedly. Most general purpose machines cost less than special purpose machines. First investment in intermittent manufacturing is usually lower than in continuous manufacturing. If big orders received, some of the savings that ordinarily go with special purpose machines can be lost. Continuous production requires high volume & nearly complete standardization. If you don’t have these two conditions, intermittent production is the only practical method.
12.10 CHARACTERISTIC OF CONTINUOUS PRODUCTION
Continuous production factories make a limited of products large quantities. Plants are usually large.
(i) Large volume and small variety are essential in continuous production. The quantity produced must be great enough to allow the same equipment setup for month’s to-gather. We can say that continuous production plants are gigantic, single purpose machines. Years ago Charles F.Keffering of General Motors said “We don’t manufacturing –in fabricating in industries is a duplicating process. Decide on the original model, set up the equipment to make it in quantities and them run off hundreds of thousands or millions of copies. But even large companies do not have such complete standardization and enough market to abstract the output of a continuous production plant for very long period. Even large companies have to change now and then or more commonly provide for minor variations in style or design or products. A few variations don’t cause serious problems.
(ii) Production lines are used. Machines required for successive operations on the product are placed side by side. Machines are lined up according to the sequence of operations required on the product. This is called a ‘straight line’ production and the movement of the product dictates the layout ‘as product layout’.
(iii) Machine capacities are balance in continuous production. Materials move from operation to operation in a steady stream. The capacity of successive operations must be balanced. If one operation takes longer than the others it will be a bottleneck if you don’t equalize their production capacities.
(iv) Special purpose machines are used. The machines are designed and build to do one specific operation. A special purpose machine will do one operation rapidly and almost perfectly & requires little skill on the part of the operator.
(v) Machine operators are not highly skilled and fewer operations are needed for a given volume of output. Most machines used in continuous manufacture are almost fully automatic, Operator is only to load and unload the machine. Continuous manufacturing requires relatively unskilled men since special purpose machines are fast and automatic. Only one man is needed to operate several machines.
(vi) High skill is needed behind the scenes. Although specialized machines require little operator skill, they require a very high degree of skill on the part of the machine designers and machinery makers. They require highly skilled maintenance men. Some of the machinery is so complicated that maintenance men need special training. Perhaps the training has to be given at machinery materials plant.
(vii) Few job instructions are necessary in continuous manufacturing. Few changes occur after the first instructions are given. Workers need almost no day-to-day instructions but first instructions telling workers how to do their jobs are sometimes given in great detail. Once the men learn the job no more instructions are needed.
(viii) Raw material inventories are low. Raw materials are used in steady rate and in large quantities. This allows setting up raw material delivery schedules so that new supplies are received and no need to carry much on hand. Some companies carry so little raw materials that when new supplies arrive they are delivered directly to the first operation & not to stockroom. Automatic companies sometimes work with only one or two hours bank if their supplier is located nearby. Occasionally companies producing continuously carry low inventories of raw materials. This occurs in companies using rubber or grain because their source raw material is sometimes very far away & is not wholly dependable. Besides they have to contend with seasonality. Someone has to carry rubber and grain inventories after the harvesting season until they are used. Also when the prices go down companies lay in big supplies. Except in such cases continuous manufacturing companies rarely carry big inventories.
(ix) In-process inventories are low, Inventories of materials going through factory is almost dominated in continuous manufacturing. As soon as an operation on a piece of material is finished, the price goes right onto next operation which is performed almost immediately. Machines performing successive operations will be close-by.
(x) Preventive maintenance and quick repair are musts because there is so little float (material moving down the), if one machine stops all stop. As the successive operations are tied together, a good job of preventive maintenance & of quick repair must be done. Otherwise the line’s downtime is to use preventive maintenance, inspect, overhaul & repair machines during off-hours before anything happens. Tool wear, in particular, needs watching. If a drill or a thread taper gets dull from wear it will cut improperly. The result will be either nonstandard work or a broken tool. Either is bad.
(xi) Materials move rapidly through the plant. Materials in process keep moving except for small emergency stocks in a few places. Partly processed materials never pile up ahead of operations. Once started the first operation, materials keep moving & soon emerge as finished products.
(xii) Materials move by conveyer. Mechanical conveyers are the cheapest way to move things wherever large quantities follow the same paths.
(xiii) Medium or narrow aisles, little storage space and few elevators are needed. Utilization of floor space by machines & conveyers is nearly complete in continuous manufacturing. Since trucks are rarely used, aisles can be narrower than they are in intermittent manufacturing. Elevators are scarce because conveyers take things up & down.
12.11 PROS AND CONS OF CONTINUOUS PRODUCTION
The best thing about continuous production is its low unit cost when you have large volume & nearby complete standardization. Special purpose machines speed up the job & cut labor costs. Output is more and cuts down operator’s time. No waste of man’s time going after materials and for materials handling. No machine setup frequently. There is a big savings in labor cost. There will be saving from the higher output per worker and not from lower hourly pay rates. Bad features of continuous production are vulnerability to work stoppages, rigidity of output rate, product changing difficulties and investment commitment.
12.12 SIMILAR PROCESS
In this method of operation, the work being performed is similar nature from order to order, but now identical.
12.13 CHARACTERISTICS OF SIMILAR PROCESSES
The characteristics which distinguish the similar process are as follows:
• The product or end result of the work is highly standardized.
196. The order or work quantity is usually very large.
197. The type of equipment required, if any, is usually highly specialized.
198. Equipment is laid out by the type of end product.
199. The materials handling equipment may be both mobile and permanent installation conveyer.
200. The end-product inventory is relatively low.
201. The required worker skills are relatively low because of the repetitiveness of the work.
202. It is relatively easy to supervise the workers.
203. Relatively few job instructions are required because of the similarity of the work.
204. Prior-planning is essentially completed at one time and is relatively easy compared to the prior-planning required on custom and job-order types of process.
205. Control of the process is relatively easy because of the repetitiveness.
206. There is some degree of flexibility but not as great as in the custom and job-order types of process.
207. The cycle time is relatively short.
208. The balancing of the work load is relatively difficult because the work is laid out according to the end product of the work.
209. A relatively high equipment investment is required in manufacturing operations.
210. Disruptions in the flow of work usually result in a considerable amount of lost production.
12.14 LOADING
Loading means assignment of work to manpower, machinery etc., without specifying when the work is to be done. Loading results in a tabulated list or chart showing the planned utilization of the machines or work stations in the plant as shown in fig.12.1.
MACHINE DAILY MACHINE CAPACITY (HOURS) ASSIGNED ORDERS (HOURS)
JANUARY
1 2 3 4 5 6
LATHES 96 80 32 48 40 64
MILLING MACHINES 64 64 56 64 32 0
DRILLING MACHINES 32 24 16 16 0 0
FIG. 12.1 A MACHINE LOAD CHART
The objective of the loading function is to maintain an up to data picture of the available capacity in the plant.
Loading can be defined as the study of the relationship between load and capacity at the places where work is done. The information provided by loading is used.
(1) to ensure the efficient utilization of plant and labor in a factory,
(2) to help in the setting of reliable delivery promises, (3) and to assist in the forward planning of the purchase of new plant.
A. AIMS OF LOADING
(1) To check the feasibility of production programs
(2) To assist in the efficient planning of new work
(3) To assist in balancing the plant to the existing load
(4) To assist in the fixing of reliable delivery promised
A load chart as shown in fig.12.1 shows the productive capacity that has been sold and at the same times the available productive capacity. Load chart may be prepared for each machine or a group of machines available in the factory. Load charts,
12.15 SCHEDULING AND CONTROL OF PRODUCTION
Once the planning to meet sales is complete and a set of decisions have been formulated using Graphical or Linear programming methods the next step is the implementation of the decisions through detailed plans and schedules. Schedules are made for the use of facilities like equipment and manpower.
Scheduling and control of production focus attention on the following:
a) Knowing the total overall production targets-how to determine the amount of each product to be manufactured if there are products of different types and sizes?
b) How to decide about and deploy work force and equipment to achieve the target production rate?
c) How to determine individual work assignments?
d) What should be the information system to feed back quickly and accurately the actual output duly compared with the scheduled one?
Scheduling and control of production have one stage in between them, which is known as dispatching. In general, first of all the order is scheduled, then it is dispatched for necessary operation and lastly the progress of the order is tracked, to be certain that the schedule is being met. The phase of tracking the progress of an order and making corrections is known as control of production.
12.16 SCHEDULING
In brief, scheduling means- when and in what sequence the work will be done. It involves deciding as to when the work will start and in a certain duration of time how much will be finished. Scheduling deals with orders and machines, i.e., it determines which order will be taken up on which machine and in which department by which operator. While doing so, the aim is to schedule as large amount of work as the plant facilities can conveniently handle by maintaining a free flow of material along the production line.
Scheduling may be called as the time phase of loading. Loading means the assignment of task or work to a facility whereas scheduling includes in addition, the specification of time and sequence in which the order/work will be taken up.
A production schedule is similar to a railway time table and shows which machine is doing what and when. A production schedule, is a statement of target dates for all orders or operations in hand and reveals their starting and finishing dates. Scheduling finalizes the planning phase of Production Planning and control system.
The following factors affect production scheduling and are considered before establishing the scheduling plan.
(A) EXTERNAL FACTORS
• Customer’s demand
211. Customer’s delivery dates and
212. Stock of goods already lying with the dealers and retailers
(B) INTERNAL FACTORS
• Stock of finished goods with the firm
213. Time interval to process finished goods from raw material. In other words-how much time will be required to manufacture each component, subassembly and then assembly
214. Availability of equipment and machinery;; their total capacity and specifications
215. Availability of materials, their quantity and specifications
216. Availability of manpower
217. Additional manufacturing facilities if required, and
218. Feasibility of economic production runs
12.17 SCHEDULING PROCEDURE AND TECHNIQUES
Scheduling normally starts with the master schedule.Fig.12.2 shows the master schedule for a foundry shop.
MASTER SCHEDULE FOR THE FOUNDRY SHOP
MAXIMUM PRODUCTION 100 HRS
MINIMUM PRODUCTION 8 HRS
WEEK – 1 WEEK – 2 WEEK – 3 WEEK –4
15 18 20 15
25 25 12 10
20 28 32
35
Fig. 12.2 Master Schedule for a Foundry Shop
A master schedule resembles central office which possesses information about all the orders in hand. Master schedule, in fig.12.2 is a weekly breakdown of the production requirements. The total capacity in any week is of 100 hours of work in the foundry shop.
As the orders are received, depending upon their delivery dates they are marked on the master schedule. When the shop capacity is full for the present week the newly acquired orders are carried over to the next week and so on. A master schedule is thus updated continuously. It depicts a running total of the production requirements and shows the work ahead – yet to be completed. Master schedule is actually the basis for all subsequent scheduling techniques.
A Master Schedule possesses the following advantages. Disadvantages and applications.
A. ADVANTAGES
• It is simple and easy to understand
219. It can be kept running
220. It involves less cost to make it and maintain
221. It can be maintained by non-technical staff, and
222. A certain percentage of total weekly capacity can be allocated for rush orders.
B. DISADVANTAGES
• It provides only overall picture, and
223. It does not give detailed information
C. APPLICATIONS
It finds applications:
• It big firms, for the purpose, loading the entire plant
224. In Research and Development organisations, and
225. For the overall planning in foundries, computer centers, repair shops, etc.
After framing the overall picture of production requirements through a Master Schedule cart, the detailed schedules are thought of and made for each component, and subassemblies so that all parts are available at the time of assembly. There are a number of visual aids and techniques, both in the form of conventional charts and commercially employed for scheduling purposes depends upon the type of production, type and frequency of tasks, demand patterns, etc. A useful scheduling device normally portrays planned production, actual performance and their comparison. Actually, the Gantt chart forms the basis of commonly used scheduling techniques
Some of the techniques employed for Loading and Scheduling purposes are:
(i) Perpetual schedule
(ii) Order schedule
(iii) Loading by schedule period
12.17.1 PERPETUAL SCHEDULING
Like master scheduling. It is also simple and easy to ‘understand, is kept current, involves less costs and can be maintained by clerical staff. But, the information which it provides is very gross and at the same it is not clear from the chart – when the work will take place.
LOAD ANALYSIS SHEET
ORDER NO LOAD IN HOURS/DAYS
SECTION
A SECTION
B SECTION
C
X-320
X-210
X-314
Z-150
|
|
| 25
10
18
8
|
|
| 10
15
20
15
|
|
| 16
10
8
-
|
|
|
Fig. 12.3 Load Analysis Sheet
Making of perpetual schedule involves two steps:
(i) preparation of load analysis sheet from the orders in hand. Fig. 12.3 shows a load analysis sheet.
(ii) The total load against each section is added up and knowing the weekly capacity of a section, the number of weeks load against each department is calculated and plotted on a Gantt load chart as shown in fig. 12.4
Fig.12.4 GANTT LOAD CHART
The shaded bars show the actual work load against each section. Additional information. If any can be indicated by dotted line.
FIG 12.5 ORDER SCHEDULE CHART
12.17.2 ORDER SCHEDULING
It is a most elaborate technique. Fig. 12.5 shows an order schedule chart. Time is marked horizontally and the vertical axis shows the particular facility. The information required to generate an order schedule is, regarding the number of parts to be manufactured, name of the machines, their set up times, total production time and the date of completion of the order.
The scheduling is started by planning the last operation at the date of completion and then working backwards. For example, if order X takes 3 days to complete and it is to be delivered to the customer on 7th of January, the work will be started on 5th of January.
A. ADVANTAGES
(1) It is very detailed
(2) The earliest possible completion dates can be met
B. LIMITATIONS
(1) It is very costly
(2) It requires accurate time standards and good communication system
(3) It is difficult to maintain effectively if there are many active orders.
12.17.3 LOADING BY SCHEDULE PERIOD
The task is broken into different operations which will be required to turn raw materials into finished product. A Gantt type of chart as shown in fig. 12.6. is employed for scheduling purposes. The rows, mark different facilities and each column denotes a time period. There are as many time periods as the number of operations. The first operation is carried out in the time period-1, second operation in time period-2 and so on. It is however not specified that within the time period when the operator will start and finish; but the operation is very much supposed to be completed during that particular time period. The shop supervisor does the detailed scheduling within the framework of the specified time period.
FIG. 12.6 LOAD BY SCHEDULE PERIOD CHART
The shaded bars show the work ahead of each facility.
This type of scheduling involves a longer in process time because only one operation is to be performed in one time period. However, this makes it more flexible as an operation can be taken up at the most convenient time within the specified time period.
12.18 PROGRESS CONTROL
Once the actual production has started, it becomes essential to keep an eye at the progress of the work so that, if required, timely corrective action can be taken. Progress control means – trying to achieve the standards set, i.e., a certain level of efficiency or a certain volume of production in a specified duration. The system of progress control should be such that it furnishes timely, adequate and accurate information about the progress made, delays and under or over loading
A. STEPS INVOLVED IN PROGRESS CONTROL
a) Setting up a system to watch and record the progress of the operating facility
b) Making a report of the work progress or work accomplishment
c) Transmission of report to:
i. Control group for necessary control action, and
ii. Accounting group for recording material and labour expenditures
d) Interpretation of the information contained in the progress report by the control group
e) Taking corrective action, if necessary
The above mentioned five steps have been briefly discussed as under.
B. SYSTEM TO RECORD THE WORK ACCOMPLISHMENT
Progress charts are normally employed for this purpose. They compare the work progress against a prescribed target, and point out the failure to achieve the same; thus progress charts draw attention for an action or investigation.
The charts construction may have the following four forms:
• The Bar chart
226. The curve chart
227. The Gantt chart
1. THE BAR CHART
FIG. 12.7 A BAR CHART
It consists of a number of bars, Each bar has its length proportional to the activity duration. A bar chart is generally used to point out and analyze interrelated data which otherwise is difficult to read. Such a chart is shown fig. 12.7.
2. A CURVE CHART
FIG. 12.8 A CURVE CHART
It is a graph between two variables marked along X and Y axis. As the days pass, the number of items being produced is marked over the graph. When all such points are joined they indicate the production trend. A curve chart is shown in fig12.8
Both the bar and curve charts show the past data. They are not readily adaptable to current or future action.
3. THE GANTT CHART
It was developed by Henry L. Gantt. It is frequently used to keep track of multiple machine schedules. Gantt chart is actually a modified bar chart, wherein load is marked against a time scale with one horizontal bar or line allocated to each machine. A Gantt chart displays the following:
(1) Plans for future
(2) Progress on present operations
(3) Past achievements till date
(4) Relationship among several variables
(5) It focuses attention on situations threatening delays
(6) It tells whether a plan has fallen short and if the delivery dates can be met, and
(7) A cursor attached to the Gantt chart can be moved across the chart to know the work progress till any particular day.
Two basic types of Gantt chart are used extensively for production control.
ORDER CONTROL CHART
Fig 12.9 Order Control Gantt chart
Time is marked along the horizontal axis and orders in hand are listed along the vertical axis as shown in fig. 12.9 The amount of work planned or scheduled is shown by the firm line and the machine on which the order will processed is marked on the line. The actual progress of various orders is shown dotted. Cursor placed at today’s date indicates that order A-372 is going as per schedule. Work on order B-260n, started one week before the schedule date and it is about 70% complete which otherwise would have been only 50% as per the plan, Thus order B-260 is ahead of the schedule Order C-300 which started on the scheduled date, due to some reasons, has got delayed by one week.
MACHINE LOAD CHART
Time is marked along the horizontal axis and various machines are listed along the vertical axis as shown in fig. 12.10. The amount of work planned and his actual progress made have been shown by firm and dotted lines respectively. Orders by their numbers have been marked on the horizontal firms. Cursor set at today’s data shown that machine 3 is working as per schedule. Machine 2 started work on order B- 260 before the scheduled date and the progress is very good. Machine 1 which completed the order A-372 in time, for some reasons could not take up the order C-390.
FIG 12.10 MACHINE LOAD GANTT CHART
From the above Gantt charts the progress of various orders and machine loading can be seen at a glance. Order C-390 has fallen behind the schedule and needs expediting. Machine-1 is loaded up to the middle of February, whereas Machine-3 can be booked only after the middle of March.
MAKING A REPORT OF WORK ACCOMPLISHMENT
• The progress report should contain the following information in order to evaluate actual performance against the anticipated plan and to take corrective action, it any:
(i) Job Identification. It includes order number and operation number
(ii) Time of report, and
(iii) Work completed
228. A progress report should contain absolute minimum of information.
229. Progress Reporting Time. Progress can be reported:
(i) at fixed intervals of time, i.e., weekly monthly, or yearly depending upon the project duration;
(ii) after the work has been completed, or after each stage of the work is completed; it depends upon the size of the work:
(iii) by using the principle of ‘Management by Exception’; According to which, one reports only those things and at that time when they require an action ‘by the planning group. It is assumed that unreported events are going as per the schedule.
TRANSMISSION OF REPORT
The progress report may be transmitted by employing any one of the following systems:
(1) Written system (pre-written papers)
(2) oral system (telephone, radio, etc.,) and
(3) Electronic system (tell autograph, teletype equipment, etc.,
WRITTEN SYSTEM
A. ADVANTAGES
(1) It provides a record for future reference.
(2) The chances of misinterpreting the report are minimized, and
(3) good amount of necessary information can be supplied.
B. DISADVANTAGES
(1) There are chances of papers being misplaced in transit;
(2) Generally, it takes more time for the report to reach the other end;
(3) file keeping is necessary; and
(4) There is a tendency to send large amount of information.
ORAL SYSTEM
Advantages
(1) Progress can be reported in no time
(2) There are more chances of misinterpreting the report, and in addition
(3) Only brief information can be sent
ELECTRONIC SYSTEM
A. ADVANTAGES
(1) It possesses all the advantages of the written system and
(2) Progress can be reported much faster
B. DISADVANTAGES
(1) Equipments required are costly, and
(2) Trained operators are needed
Based upon the above systems the commonly used techniques for sending progress reports are:
1. Pre-written or Pre types papers. These are sent through messengers from one department to another.
2. Pre-written papers using pneumatic tube equipment. Papers are put inside a capsule, which is then placed inside a tube, running from one department to another. The capsule is shot by air to its destination.
3. Teletype Equipment. It has a key board similar to a typewriter. Pressing different keys gives rise to electric signals which are transmitted to receiving stations where the message is recorded.
TELEPHONE AND INTERCOMMUNICATION EQUIPMENT
4. Radio and Loudspeaker. They are especially useful for outdoor applications to control the movements of materials handling equipments and earth moving machinery.
5. Closed circuit T.V. It is employed for keeping an eye over the processes emitting harmful radiations.
CORRECTIVE ACTION
Factors creating the need for corrective action are,
A. EXTERNAL FACTORS
These factors are beyond the control of the organization; for example;
1. Change in the priority of orders due to the arrival of some new orders or due to the cancellation of a few previous orders;
2. Delay in receiving equipments, tools, or raw material. This may be due to strike or theft at the vendor’s end or due to the reasons that the raw material which arrived earlier was substandard and hence, was returned for replacement;
3. Unexpected rush orders.
B. INTERNAL FACTORS
These factors results from within the organization; for example:
• Labour turnover or mass absenteeism,
• Lack of necessary instructions and materials,
• Late staring of the work, tea breaks, etc.
12.19 METHODS TO TAKE CORRECTIVE ACTION
A. SCHEDULE FLEXIBILITY
It means keeping the schedule flexible to accommodate unexpected events. Planning is done only for a percentage of the total working time and the remaining time is kept free to take care of the unexpected jobs. The percentage of time kept free for rush order, etc., is decided from the past experience.
B. CAPACITY MODIFICATION
The following three methods can be employed for modifying the capacity of an organization:
a) Changing the number of working hours, either by employing more workers or by using over-time with the same number of workers
b) Changing the amount of work within the plant by appropriate Make\Buy decisions or by subcontracting the work to others.
C. SCHEDULE MODIFICATION
If the situation is otherwise non-manageable even after adopting the above mentioned measures, the previously established plan can be modified to suit the new set of conditions.
12.20 FOLLOW-UP OR EXPEDITING
The manufacturing activity of a factory is said to be in control when the actual performance is as per the planned performance is as per the planned performance. Follow up or expediting regulates the progress of materials and the components through the production process. Follow up serves as a catalytic agent to fuse the various separate and unrelated production activities into the unfilled whole that means progress. Follow up is concerned with the reporting of production date and the investigating of any deviation from the predetermined production schedules. Follow up ensures that the promise is backed up by performance.
The work within the organization can be expedited by the following two principles:
(i) The exception principle and
(ii) The fathering principle
In exception principle, the scheduling group, explores the jobs behind the schedule. The expediting group takes up such jobs, procures necessary materials, tools, etc., i.e., solves all problems related to these jobs and intimates the scheduling group to reschedule them.
According to fathering principle each expediter is made responsible for a job or a group of jobs for which he arranges the tools, materials, equipment, etc. Such a system works very well for controlling large projects.
12.21 SUMMARY
Production control is the factory’s nervous system. Almost all factories can perform a tremendous variety of operations and turn out various types of products. Production control is essentially a systematic procedure. Effective production control is depending upon a soundly designed system and proper evaluation and auditing of its use after proper installation. Loading and scheduling is one of the most important phases of any production control system.
12.22 ASSIGNMENT QUESTIONS-
Discussed the scheduling and control of production.
12.23 REVIEW QUESTIONS
• Describe the functions of production control.
• Discuss the characteristics of intermittent type of production.
• What is continuous production? Explain its characteristics.
• Indicate the principle limitations of master scheduling. Under what type of situation would it be used?
• Explain the perpetual loading method.
• Discuss the reasons why progress reporting is so important to production control.
• Explain the method of progress reporting.
12.25 REFERENCES BOOKS
Buffa, “Modern production Management”, 4th edition, John Wiley
Eilon, Samuel,”Elements of Production Planning and Control”
Schele, Westerman and Wimmert, “Principles and design of Production Control Systems”, Prentice Hall.
Moore, F.G. “Production Control”, Prentice Hall.
LESSON – 13
INVENTORY CONTROL
13.1 INTRODUCTION
Inventory control has a significant impact on an organisation, both operationally and financially. Inventory should be kept high enough to hedge against shortage and to provide product line flexibility, but low enough to minimize the capital investment in inventory.
High inventory levels represents high capital costs, high operating costs and increased congestion in the processing area. Too low an inventory level might lead to shortages and require tight scheduling.
One-fifth of the Indian gross national product is tied up in inventories. Obviously operations managers should be aware of the potential savings and penalties involved in keeping inventory.
Objectives
Understand the Definition of inventory, its functions, inventory decision, cost, ABC analysis, etc.
Contents
13.1 Introduction
13.2 Definition of inventory
13.3 Inventory functions
13.4 Inventory decision
13.5 Inventory costs
13.6 Minimum cost inventory
13.7 The basic fixed order quantity model
13.8 Sensitivity to changes in variable values
13.9 Fixed order quantity with non-instantaneous delivery model
13.10 Safety stock
13.11 ABC classifications
13.12 ABC analysis procedure
13.13 Summary
13.14 Review Questions
13.15 Reference books
13.2 DEFINITION OF INVENTORY
Inventory consists of stores of goods and other stocks. Alternatively, inventory is a quantity of goods and other stocks held for a specific time period in an unproductive state, intended use or sale. Manufacturing organizations carry inventory in the form of stock items, such as:
• Raw materials
230. Work-in process
231. Finished but undelivered products
232. Supplies (spare parts, lubricants, etc.).
Inventory of finished services in labor-intensive services, such as restaurants or branch operation in a bank, is mostly nonexistent. The service is consumed as it is produced and is not kept as inventory. For example, a lecture at a university being delivered by a professor cannot be stocked. A lecture is consumed as it is delivered (unless it is stored on a video cassette).
In service-oriented organizations that are not labor-intensive, such as mass transportation organizations, finished stock inventories are present. Blood banks keep inventories of blood types, and the news media hold news pieces for timely release.
Inventory control is the technique of maintaining stock items at predetermined, desired levels. Inventory management is concerned with determining polices that set the goals for the inventory control system.
13.3 INVENTORY FUNCTIONS
The major reason for holding inventory is the impossibility of exactly matching supply and demand in terms of time and quality. Inventory has a number of functions:
A. HEDGE AGAINST FUTURE INCREASES IN COSTS AND PRICES An anticipated increase in labor costs causes stocking of finished goods. An anticipated increase in selling price calls for a delay in disposing of stock on hand.
B. HEDGE AGAINST STOCKOUTS Since demand and supply do not match and are at times unpredictable, unsatisfied orders and expediting efforts become expensive. Buffer stocks are kept to hedge against stockouts, and are determined carefully.
C. DECOUPLING OF OPERATIONS Inventories break operations apart, so that one operation’s demand is independent of another’s supply. In this way, local material shortages or maintenance downtime do not carry throughout stages.
D. LEVELING OF PRODUCTION During slack periods, inventories are built up. During high-demand periods, inventories are depleted. This is done while the production rate is kept at a constant level.
E. ORDERING OF ECONOMY Basically, there is a trade-off between numerous low-quantity orders that present a high reordering cost and a few large orders that present a high carrying cost. The optimum-size order is a result of this trade-off and generally calls for some inventory. Besides, larger orders may entitle the buyer to a volume discount.
F. CONTROL SYSTEM ECONOMY A larger inventory facilitates less control effort. Fewer review actions to determine whether reordering is necessary are required if a larger inventory is kept. Frequent review action of this kind are costly.
G. REDUCING ON INVESTMENT Inventory should be carried so long as it compare favorably with other possible capital investments available to the organization. As inflation pushes purchasing costs and selling prices up, hoarding inventory presents a favorable investment.
H. REDUCING OF MATERIAL-HANDLING CHARGES Moving of single completed units from one process to another is costly. Moving of batches of completed units is less expensive, and can be done by means of a fork-lift truck, an overhead crane, or a tray. The batches, however, constitute an inventory that involves carrying costs.
I. DISPLAYING TO CUSTOMERS Departmental stores, grocery stores, and car dealers hold inventory to be able to display it to the customers and to have it on hand for sale.
13.4 INVENTORY DECISION
“When” and “how much” are the two major decisions that the operations manager should make. A decision must be made as to when to reorder inventory-namely, as to the reorder point. The reorder point is determined either in terms of the level of inventory or in terms of a calendar date. When an order is triggered, a decision must also be made as to the order size. These two decisions should be made while keeping in mind the organizational implications.
Economic considerations have to be given with respect to both decisions. The economic considerations are expressed in quantitative formulas, called inventory models. Fig. 13.1 shows a breakdown of the major inventory models.
FIG 13.1 TAXONOMY OF INVENTORY MODELS
Depending on the specific situation involved, the operations manager tries either to minimize inventory costs or, alternatively, to maximize profit. Whether costs or profits are concerned, inventory models may be either of a deterministic nature, or of a stochastic nature. There are two kinds deterministic or stochastic inventory models. In periodic order quantity models, reordering is triggered by a certain date. In fixed order quantity models, reordering is triggered when a certain level of inventory is reached.
Under the periodic order quantity model, the inventory level is checked only on certain days – for example, at the beginning of the week or beginning of the month. An order is placed on these dates in such a quantity as to bring the inventory to a predetermined, optimal level. Under the fixed order quantity model, the inventory level is monitored closely, and as it reaches a certain level, an order of a fixed quantity is placed.
Fig. 13.2 THE CHANGES OF INVENTORY LEVEL FOR THE FIXED ORDER QUALITY MODEL
The fixed order quantity model behaves as described in Fig 13.2. The level of inventory is depleted at a certain rate until it reaches a predetermined reordering level, R. At that point, an order is placed for a predetermined quantity, Q. Following the appropriate lead time, the order arrives and the inventory level rises by the ordered amount.
While the fixed order quantity model requires close monitoring of inventory levels on a frequent basis, the periodic order model does not require such monitoring. At predetermined dates, an order is placed in the amount that brings the inventory level to a predetermined optimal level, R. This is illustrated in Fig.13.3.
The orders are placed at equally spaced times T1 and T2. For example, at time T1 where the actual level of inventory is 11 and order of size (R.I1) is placed.
FIG. 13.3 THE CHANGES OF INVENTORY LEVEL FOR THE PERIODIC ORDER MODEL
13.5 INVENTORY COSTS
As was stated earlier, inventory models are quantitative formulas. These formulas consider various inventory costs. Only those costs that vary as the inventory decisions of “when” and “how” change should be considered. Costs that are fixed and independent of how much or when to order are not considered in developing the models. Operations managers should identify these costs and then minimize their total. The costs are of five types:
(i) Item cost
(ii) Ordering cost
(iii) Costs of carrying inventory
(iv) Stock out costs associated with shortages
(v) Fixed overhead costs
The costs vary from one product to another but their nature stays the same.
A. ITEM COST
Item cost is the purchase cost or the value of the item to the inventory holder. Whether at book value or market value, the item cost does not affect the reorder decision if there are no quantity discounts. If there are quantity discounts, then the item cost has an impact on the reorder decision, because the larger the order is, the lower is the cost per single unit purchased.
B. ORDERING COST
Ordering cost includes all the necessary expenses involved in placing one order. This cost is assumed to be constant and is incurred each time an order is placed. If this cost becomes very large, one would prefer placing a large order once or twice a year. The ordering cost includes clerical and paper work expenses, incoming inspection, book keeping, records updating, expediting expenses, postage, and delivery costs. The average procurement cost can be found from accounting records by totaling the annual costs of the above items and dividing by the number of orders placed throughout the year.
C. CARRYING INVENTORY COST
Carrying inventory costs are costs that reflect the investment in inventory and the costs associated with maintaining it in storage. A higher inventory level may require an expansion of warehouse, increased material- handling costs, and increased maintenance costs. The costs may be extracted from the accounting records. Items that should be considered are:
(i) Capital cost
(ii) Storage costs: land and building costs and rent
(iii) Service costs: (inventory taxes, insurance, material handling)
(iv) Risk costs: Obsolescence and shrinkage (Pilferage, damage, spoilage, theft)
The most significant cost among those is the capital cost. It may constitute anywhere from 49% to 96%of the total carrying costs. The capital cost is either:
(i) The average cost of borrowing (interest) to the company
(ii) The marginal cost of borrowing to the company
(iii) The return on an alternative investment that is not realized due to the fact that money is tied up in inventory.
The cost associated with land and building is estimated by allocating total annual building costs on the basis of square meter to the inventoried items.
Obsolescence costs are obtained from write-offs by the plant department that deals with waste. Plant engineering data and public assessments information are used in the cost estimates.
D. STOCK –OUT COST
Stock-out costs are associated with shortages. These costs occur when an item is out of stock and demand is unsatisfied. The stock out costs includes items that are specified in Table 13.1
A Shortage may occur internally or externally. An external shortage may be detrimental to the company, as customer dissatisfaction may develop. An internal shortage may also be detrimental to the company, since it may cause an external shortage or may become very costly, due to idle labor and equipment.
Shortage cost estimation is difficult. Shortages are a random phenomenon; thus, there is a need for estimation of the probability of the occurrence of shortages. Shortage costs are partially hidden costs, or costs that are not reflected in the accounting records.
Cost of Raw Material Shortage
Cost of idle production
Cost of idle labour
Premium material price
Loss of purchase quantity discount
Cost of extra ordering
Cost of expedited shipment
Cost of product spoilage
Cost of Finished Products Shortage
Cost of ill will to the seller
Loss of good will to the seller
Premium labour rate
Cost of shift premium
Subcontracting cost
Reduced quality cost
Cost of spare parts shortage
Cost of idle machine
Cost of idle labour
Cost of expediting
TABLE 13.1 ITEMS OF CARRYING INVENTORY
E. FIXED-OVERHEAD COST
Fixed-Overhead costs are costs that do not change as the number and size of reorders change. These costs support the administration activities that are part of the regular operation of the organization. They may include manual or computerized records updating. These costs are fixed over a significant range of inventory volume.
13.6 MINIMUM COST INVENTORY
An inventory policy is a set of rules that assigns managerial actions to specific inventory occurrences. As has been stated earlier, one would like to try to determine the reorder point and reorder quantity that keep the total operating costs to a minimum. The optimum inventory policy is the one that minimizes the following total cost equation:
Total annual Inventory
cost = Item Cost + Ordering cost + Carrying inventory cost + Stock out cost + Overhead cost
. . . (4.1)
The first four costs in above equation – 4.1 may be expressed in terms of reorder quantity and reorder point for a specific inventory case.
The solution for a two-variable reorder quantity and reorder point is found by three alternative methods:
(1) Graphical solution
(2) Trial-and-error method
(3) Use of calculus
The graphical solution, when only ordering costs and carrying costs are considered, is straightforward. Fig.13.4 illustrates this economic trade-off. When the reorder quantity is very small, the average inventory carried is small, the carrying costs are minimal, and the number of orders placed over a period is large and the carrying costs are high. The optimal reorder quantity is the one that minimizes the sum of both costs, and is denoted by Q*. Q* is found at the intersection of the curve representing the carrying costs and the curve representing the ordering costs.
TABLE 13.4 ECONOMIC TRADE OFFS IN INVENTORY CONTROL
When more costs are considered, the graphical cost analysis cannot be applied. However, the economic trade-off is still applicable. It is also important to understand that some inventory situations in industry have not been formally analyzed in a manner recommended here. These situations are being dealt with by operations managers on the basis of past experience. However, decisions made in this way are generally not optimal.
A. INVENTORY MODELS
The development of inventory models consists of five straightforward steps:
(i) List assumptions concerning the inventory situation. These assumptions should reflect the studied situation as accurately as possible
(ii) Develop a cost equation qualitatively
(iii) Develop a cost equation quantitatively
(iv) Minimize the total cost equation and find reorder quantity and reorder point
13.7 THE BASIC FIXED ORDER QUANTITY MODEL
The basic fixed order quantity model, otherwise known as the economic order quantity (EOQ) system, was developed more than seventy years ago in the context of batch production. However, the formula has been rediscovered by several authors in different contexts. Babcock in 1914, Harris in 1915. Taft in 1918, and other authors presented extended treatments of it.
The assumptions are:
(i) Demand is deterministic and a constant number of units are demanded each day.
(ii) No stock outs are all allowed.
(iii) Lead time is constant and independent of demand.
(iv) All costs are assumed to be known and constant.
(v) All orders are placed independently.
(vi) Orders are delivered at once.
In computing the annual total cost of applying this inventory model, only the costs that affect the reorder quantity should be included. Thus, from equation, one can exclude the annual cost of the items, since no volume discounts are applied. Furthermore, no stock out costs and no fixed costs are considered. Thus,
Total annual
Inventory cost=Ordering cost +Inventory carrying cost . . . (4.2)
The ordering cost is equal to the number of orders placed annually times the procurement cost per order. Carrying cost is the average number of units in inventory more than one a year, times the cost of carrying an inventory unit. Equation-4.2 then becomes:
Total annual Inventory
Cost = Number of
orders
placed
annually X Ordering cost + Average
inventory x Carrying
cost per unit
. . . (4.3)
In order to express the equation 4.3 in a more concise form, let us define symbols that will be used in developing the various models.
D = Annual demand in units
K = Ordering cost or set up cost
H = Carrying cost per unit, expressed as a fraction of Cost of an
individual item
Q = Reorder quantity
Q*= Optimal reorder quantity
N = Number of orders per year
R = Reorder point
R*= Optimum reorder point
tL= Lead time
C= Cost of an individual item
P= Delivery rate in units per unit
D= Average demand per unit of time during lead time
dL= Average total demand during lead time
Tc= Total annual cost
The total annual cost of operating the fixed order quantity system under the stated assumptions is:
TC = Number of orders (K)
placed annually + Average (KC)
inventory . . . (4.4)
Let us express the total annual costs of operating the fixed order quantity model in terms of the annual demand (D), the reorder quantity (Q), and the reorder point ®. If we try to keep the excess inventory charges to a minimum with no safety stock and assume immediate delivery.
R* = 0
. . . (4.5)
Whenever the inventory level reaches zero, we shall place an order. But what should be the optimal size Q* of the order? To find it, we note that
N = Number of orders
Placed annually = Annual demand / Reorder
Quantity
= D/Q . . . (4.6)
and
Average inventory = (Highest inventory level – Lowest
Inventory level/2
= (Recorder quantity – 0)/2 = Q/2
. . . (4.7)
This means that throughout the time that the fixed order quantity model is in effect, the average inventory level is half of the reorder quantity. That is so long as the lead time is zero, safety stock is reorder needed and replenishment is instantaneous. Substituting 4.6 and 4.7 into 4.4 provides us with the total annual cost:
TC = K (D/Q) + HC (Q/2) . . . (4.8)
Figure 4.4 demonstrates the basic economic trade-off. The figure shows that the annual cost is at its minimum when the carrying cost equal the ordering costs, or when
K (D/Q) = HC (Q/2)
The optimal reorder quantity is then
Q* = ((2 D K)/(H C) ) ½ . . . (4.9)
The optimal reorder quantity, Q* is as stated in equation – 4.9. The same equation may be found by using calculus. Equations 4.5 and 4.9 represent the operating concept of the basic fixed order quantity model. When the inventory level reaches
R* = O
The operations manager should order
Q* = {(2 D K)/H C)) }½
The total annual cost is kept in this way too a minimum, and is equal to
TC* = {K (D/Q*)} + {H C (Q*/2) }
In many cases the variable values, such as annual demand, ordering cost, and holding cost, are only rough estimates, and may vary. Is there a considerable impact, then, on the operation of the system? Is the optimal order quantity affected considerably? In other words, how sensitive is the inventory system to changes in the data ? This sensitivity is examined in the following section.
13.8 SENSITIVITY TO CHANGES IN VARIABLE VALUES
To analyze the sensitivity of the system to a change in costs or demand, let us compare the optimal EOQ, Q*. From equation – 4.9 one can see that a change in any one of the variables causes a change in EOQ that equals the square root of the change in the variable.
13.9 FIXED ORDER QUANTITY WITH NON INSTANTANEOUS DELIVERY MODEL
The fixed order quantity with non-instantaneous delivery model is sometimes called the economic lot size model. Sometimes, the actual delivery of units into the purchaser’s warehouse occurs over a period of time. As is shown in figure 13.5, as the level of inventory drops to a predetermined level R*, an order of size Q* is placed, and delivery starts.
FIG 13.5 INVENTORY LEVEL CHANGES IN FIXED ORDER QUANTITY WITH USAGE SYSTEM
However, as delivery continues, units are drawn from inventory at a rate of 1 per unit of time. If replenishment rate p exceeds the withdrawal rated, the inventory level rises, but not up to the level of the order or lot size in the EOQ model.
Let us define symbols that have not appeared before:
T1 = Delivery period
T2= Nondelivery period
During T1, the units are delivered and consumed, while during T2 there is no delivery, but only consumption. The delivery period T1 is
T1 = Fixed order size / Rate of delivery = Q / P . . . (4.10)
Q is the order size delivered or the bath size produced. During period T1, the inventory is accumulated at the rate of (p-d) per unit of time, assuming that the rate of delivery, P, is greater than the rate of consumption, d. The maximum level of inventory is:
Imax = (p-d) T1 = (p-d) (Q/P) . . . (4.11)
The average inventory level is determined by the maximum inventory level, Imax, and the minimum inventory level, zero.
Average inventory = (Imax – 0) / 2 = (p-d) Q / (2 p) . . . (4.12)
The annual carrying cost, then, is:
Annual carrying cost = [(p-d) Q / (2 p)] (H C)
The total annual cost of operating this inventory model is:
Tc = {{[(p-d) Q] / (2 p)] {H C}} + [(K D) / Q]
D is, as before, the annual demand. Obviously, D can be found by equating the carrying and procurement costs:
{[(p-d) Q] / [2 p]} (H C) = (k D) / Q
Q* = {[(2 K D) / (H C)] [P / (P-d)]} 1/2 . . . (4.13)
The consumption or non-delivery period is,
T2 = Imax / d = [(p-d) Q] / [d P]
The total cycle time is
T = T1 + T2
The fixed order quantity with non-instantaneous delivery model can be used to calculate optimal lot or batch sizes in manufacturing organizations. This occurs when one production department orders parts from another production department and uses the parts as soon as they arrive, on a continuous basis, rather than waiting for the whole lot to arrive. This particular use of the model is the reason for the alternative name, economic lot size.
13.10 SAFETY STOCK
Let us try to determine the optimal safety size. As the demand for the product is affected by numerous variables, one can assume a normal distribution for the demand over lead time.
The variability of the demand over the lead time is presented as a standard deviation, L. One should note the relationship between the standard deviation of demand over lead time, L and the standard deviation of the daily demand daily.
This relationship is expressed as:
L = 2 daily
When n is the number of days of lead time. The average demand over lead time, DL, is the average daily demand times the number of days of lead time.
DL = (n) * (D daily)
The safety stock is expressed as the number of standard deviations, Z, away from the average demand over lead time, when one assumes a normal distribution of demand over lead time.
Safety stock = (z) * (L)
This relationship is shown in figure 13.6. The values for Z are read from normal distribution table. The average demand over lead time is DL, the safety stock is equal to (Z) (L), and the reorder point is at DL + (Z) (L).
Fig. 13.6 SAFETY STOCK AND SERVICE LEVELS THE SAFETY STOCK IS EQUAL TO (Z) (L)
A. THE ECONOMICAL SIZE OF SAFETY STOCK
The main problem is to decide on the economical size of the safety stock, taking into account the shortage cost and the carrying cost for various service levels.
One should look for the trade-off between shortage cost and carrying cost. Let as assume that the optimal reorder quantity, Q*, has been determined already, and that one is interested in the optimum safety stock size.
Annual Storage
Cost = Cost of one shortage X No. of orders per year X Probability of one shortage
Where
Ps = Probability of one shortage = (1-service level)
D/Q* = Number of orders per year
S = cost of one shortage
Annual shortage cost = (S(D/Q*)) (1 – Service level)
The annual carrying cost is:
Annual shortage cost = (H C)(safety stock)
= (H C) (x L)
where,
Z = the number of standard deviations that provides a
Certain service level
L = the standard deviation of demand over lead time
Thus, the total annual cost for a certain demand variability, L, and a certain service level is:
TC = S (D/Q*)(1-Service level) + (H C)(Z L)
In order to find the best safety stock level, Z L, one should calculate the total cost, TC, for various service levels and choose the one that corresponds to the lowest total cost.
13.11 ABC CLASSIFICATION
The calculations and the data required to operate the quantitative inventory models become more complex as the number of different items in inventory increases. It is not practical to calculate reorder quantities, using the models described above, for each item carried, but only for those items that call for a high degree of control.
The ABC classification is a method of identifying the degree of control required for various items. It categorizes all inventoried items into three groups, based on the annual inventory rupee value of each.
Group A includes approximately 20% of the items that account for approximately 80% of the total annual inventory value. All items in this group are closely controlled and call for the use of quantitative models. The equations presented in the preceding sections should be used to determine the reorder quantity and economical safety stock.
Group B includes approximately 30% of the items that account for approximately 15% of the total annual inventory value. Less control is exercised over these items. For example, while the economic order quantity determination is recommended, safety stock consideration is somewhat less important.
Group C includes approximately 50% of the items that account for approximately 5% of the total annual inventory value. No special effort should be invested in controlling these items, as the cost of control may exceed the potential savings.
The actual percent of items and percent of total annual inventory value may vary according to the specific situation. The three groups are shown in fig. 13.7.
Fig. 13.7 THE ABC CLASSIFICATION OF INVENTORIED ITEMS
13.12 ABC ANALYSIS PROCEDURE
Step 1: Prepare a list of inventory items.
Step 2: Calculate the annual inventory rupee value for each items and
corresponding percentage.
Step 3: Arrange the items in descending order of annual inventory rupee value.
Step 4: Compute the cumulative percentage of the annual Inventory rupee
value.
Step 5: Compute the cumulative percentage of the number of Items.
Step 6: Determine the ABC categories.
13.13. SUMMARY
Inventory control has a significant impact on an organization, both operationally and financially. Inventory should be kept high enough to hedge against shortage and to provide product line flexibility. This lesson discussed with inventor function and included with Inventory Decision. Another part of discussed with ABC classification.
13.14 ASSIGNMENT QUESTIONS
Discussed that EOQ.
13.16 REVIEW QUESTIONS
• Clarify the importance of inventory and magnitude of the problem involved.
• What are the functions of inventory?
• What are the types of inventory costs?
• What are the steps involved in the development of inventory policy?
• Describe the ABC classification system.
13.17 REFERENCE BOOKS
Buffa, “Modern production management”, 4th edition, John Whiely.
Buffa, “Modern production/Operations management”, 7th edition, John Whiely.
Menipaz, “Essentials of production and operations management”, prentice Hall.
LESSON – 14
MAINTENANCE
14.1 INTRODUCTION
Efficient use of plant and equipment is a vital factor for the industrial growth, particularly in a developing country like ours. Plant and equipments besides being very expansive, are in many cases imported involving valuable foreign exchange. Further the cost of plant and equipment forms a considerable portion of the total cost of production. Thus it is imperative to look after them as carefully as possible. Plant maintenance is of great importance as it provides a means to maintain the plant and equipment in a high state of operating efficiency and enhance its productivity.
Generally in Indian industries the utilization of plant and equipment needs to be considerably improved. While there may be many reasons for under utilization, downtime due to unscheduled breakdowns and stoppages is one of the primary causes. It is necessary to increase the working life of the existing plant and increase the utilization. Efficient utilization of plant becomes extremely important in order that the capital resources are available for expansion schemes rather than replacement of equipment which is turn will help industrial development.
Poor maintenance cause economical loses such as:
(i) Increased downtime
(ii) Poor efficiency
(iii) Deterioration of equipment
(iv) Poor quality of product
(v) Higher labor costs
(vi) Loss of material in process
(vii) Higher production costs
(viii) Increased hazards etc.
Systematic maintenance procedure offers tremendous possibilities for savings in money, materials and manpower. These savings come through:
(i) Reduction in downtime
(ii) Reduced losses of material in process
(iii) Increased life of the equipment
(iv) Reduction in overtime
(v) Optimum spares inventory
(vi) Timely replacement of spares and machines
(vii) Maintenance of product quality
(viii) Proper running of equipment
(ix) Optimum operational cost of the machines
Through proper maintenance the downtime of equipment comes down considerably. Machines are attended to before they breakdown. Spare parts are replaced before they fail. Lubrication is done regularly and according to a timetable. All these and many other activities keep the equipment in good running condition.
Whenever the equipment breakdown, particularly in a chemical plant the materials in process, which are all inside the various types of equipment, undergoing some reaction or the other get spoiled. Often these materials need to be flushed and drained before starting the plant again. The losses due to this wastage can be substantial if the materials being treated are expensive. Rayon plant is one such example. If the raw materials are imported it will be still worse and hence such losses are to be reduced, which is possible through proper maintenance.
In India the cost of plant and machinery is quite high and many sophisticated equipments are still imported. Replacement are not easy. Capital is scarce. Hence the installed equipment should be kept in good working order as long as possible and its life must be prolonged to the extent possible proper maintenance, timely replacement of parts, modifications to suit the conditions of operation etc., help to enhance the life of the equipment.
Good maintenance leads to higher output through lower downtime of plant and equipment, better quality of products through improved efficiency and lower unit costs through reduced breakdown expenses. Plant and equipment deteriorate with use. If the deterioration is not checked they will not function and will become unserviceable. Maintenance primarily aims at keeping the plant and equipment in efficient operating conditions, minimizing the downtime, as to ensure their maximum availability for production.
Broadly, the objective of a systematic maintenance scheme are, to safeguard the investment, to keep the equipment in good working condition, to prolong the life of the equipment and to assure optimum availability.
Objectives
Understand the Types of maintenance, guidelines to a preventive maintenance policy, etc
Contents
14.1 Introduction
14.2 Types of maintenance
14.3 Break-down maintenance
14.4 Break-down time distribution
14.5 Preventive maintenance
14.6 Preventive versus break-down maintenance
14.7 Guide to a preventive maintenance policy
14.8 Replacement decisions
14.9 An example
14.10 Maintaining several machines
14.11 Simulation of alternate practices
14.12 Simulation of optimal size or repair crews
14.13 Summary
14.14 Assignment Questions
14.15 Review Questions
14.16 Reference books
14.2 TYPES OF MAINTENANCE
Maintenance practices can be broadly classified into following two types:
(i) Breakdown maintenance
(ii) Preventive maintenance.
14.3 BREAK-DOWN MAINTENANCE
In the case of breakdown maintenance the equipment is generally attended only when it breakdown. The maintenance crew will carry out the necessary repairs, when the machine has actually broken down and is not able to function, in order to put it back into commission. Such breakdowns may occur to any machine at any time. There are many disadvantages in this system. Some of them are:
(i) There is always an urgency to put the machine back in the working condition and hence the machine may not get adequate maintenance.
(ii) Since the type and time of breakdown is uncertain, production plans get completely disrupted.
(iii) Planning of maintenance work is not possible.
(iv) Distribution of workload is difficult.
(v) Results in imbalanced utilization of maintenance staff.
(vi) May result in overstaffing the maintenance department.
(vii) Increased overtime.
(viii) Increased downtime of equipment due to non-availability of man-power.
(ix) Excessive inventory of spares.
(x) Waste of materials in process in continuous chemical industries
(xi) Poor working conditions for maintenance staff.
However, breakdown maintenance system may be suitable in certain Conditions such as
(i) Where plant capacity exceeds market demand.
(ii) Standbys are available and quick switching over is possible
(iii) Process is obsolete and more modern equipment is under consideration
(iv) May be economical for non-critical equipment where this type of maintenance is cheaper than any other system.
Normally, breakdown maintenance system is not recommended in a general practice since it has many disadvantages and this system of maintenance is now being gradually replaced by more systematic types maintenance.
14.4 BREAK-DOWN TIME DISTRIBUTION
Breakdown time distribution data are basic to the formulation of any general policies concerning maintenance. Breakdown time distribution shows the frequency with which machines have maintenance-free performance for a given number of operating hours. Ordinarily, they are shown as distribution of the fraction of breakdowns that exceed a given run time. Breakdown time distributions are developed from distributions of run time free of breakdowns, as shown in figure 14.1.
Fig. 14.1 FREQUENCY DISTRIBUTION OF RUNTIME FREE OF BREAKDOWNS REPRESENTING THREE DEGREES OF VARIABILITY IN FREE RUN TIME Fig. 14.2 BREAK DOWN TIME DISTRIBUTIONS
Figure 14.2 shows three breakdown time distributions. These distributions take different shapes, depending on the nature of the equipment with which we are dealing. For example, a simple machine with a few moving parts would tend to breakdown at nearly constant intervals following the last repair. That is it would exhibit minimum variability In breakdown time distributions. Curve of Figure 14.1 would be fairly typical of such a situation. A large percentage of the breakdowns occur at the extremes.
In a more complex machine with many parts, each part would have a failure distribution. When all these parts were grouped together in a single distribution of the breakdown time of the machine for any reason, we would expect to find greater variability. The machine could break down for any one of a number of reasons.
Some breakdowns could occur shortly after the last repair, or at any time. Therefore, for the same average breakdown time Ta we could find much wider variability of breakdown time, as in the curve b of Fig 14.1.
To complete the picture of representative breakdown time distributions, curve c is representative of distributions with the same average breakdowns time Ta, but with wider variability. A large proportion of the breakdowns with the distribution such as curve occur just after repair; on the other hand, machines may have along running life after repair. Curve c may be typical of machines that require “ticklish” adjustments. If the adjustments are made just right, the machinery may run for a long time; if not, readjustment and repair may be necessary almost immediately.
In models of maintenance, we normally deal with distributions of the percentage of the breakdowns that exceed a given run time, as shown in figure 14.2 we see that almost 60% of the breakdowns exceeded the average breakdowns time Ta, and that very few of the breakdowns occurred after 2Ta.
In practice, actual breakdown time distributions often can be approximated by standard distributions, three of which are shown Fig. 14.2 Curve c is the negative exponential distribution.
14.5 PREVENTIVE MAINTENANCE
As the name itself indicates preventive maintenance is based on the old adage “Prevention is better than cure” or a stitch in time saves nine”, Preventive maintenance is a systematic maintenance procedure where – in the condition of the plant is constantly watched through a systematic inspection and preventive action is taken to reduce the incidence of breakdowns. The necessity for either major or minor repairs is determined, to prevent unexpected interruptions to the plant and equipment or any deterioration.
The fundamental activities of preventive maintenance are:
a) Periodical inspection of plant and equipment to discover conditions of deterioration
b) upkeep of equipment to remove or repair such conditions while they are still in a minor stage.
Thus the essence of the preventive maintenance is a well planned inspection system. Proper inspection at the right time is the crux of the preventive maintenance system. The results of inspection are used to analyze the problems of upkeep, replacement and modification well in advance and thereby help proper planning and assessment of the work contents of the jobs. It is of course necessary to determine with great care what is to be inspected and when. Meticulous recording of the facts revealed during such inspections is another important point. Analysis of such records indicates the type of maintenance work needed, replacements required, planning of maintenance work and inventory of spares. Preventive maintenance renders more effective use of manpower and material and helps to attain greater effective in plant operation. Planning of maintenance work and optimum inventory of spares and components, become possible with the introduction of this system. It will be possible to synchronize the maintenance program so that there is least interruption to continuous operation and production.
As against breakdown maintenance where plant equipment gets the attention only when they breakdown, preventive maintenance is a planned and systematic procedure which takes a continuous care of the equipment, mending and repairing as and when required to minimize breakdowns and unscheduled stoppages, resulting in various advantages and savings.
However, certain limitations of preventive maintenance are, that during initial stages of its introduction, it may appear to be expensive, although in the long run it is highly beneficial. The procedure and the frequency of inspection would have to be carefully worked out and improved over a period of time. The data for preventive maintenance will have to be built up gradually and the system has to be refined depending on the data collected.
The various elements of a preventive maintenance system in an industry are as follows:
(1) An inventory of all the plant and equipment that need to be maintained
(2) Categorization of equipments to assess the relative importance and thereby determine the equipments requiring preventive maintenance.
(3) A well designed inspection system.
(4) A good lubrication system.
(5) Maintenance of adequate records and analysis of these records.
(6) Planning of maintenance work
(7) Control of maintenance stores and spares.
(8) Organization for preventive maintenance work
Assume a preventive maintenance policy for a single machine that provides for an inspection and perhaps replacement of parts after the machine has been running for a fixed time, called the preventive maintenance period. The maintenance crew takes an average time, Tm, to accomplish the preventive maintenance. This is the preventive maintenance cycle. A certain proportion of the break-downs will occur before the fixed cycle has been completed. For these cases, the maintenance crew will repair the machine, taking an average time, Ts, For the repair. This is the cycle. These two patterns of maintenance are diagrammed in Fig 14.3. The probability of occurrence of the two different cycles depends on the specific breakdown time distribution of the machine and the length of standard preventive maintenance period. If the distribution has low variability and the standard period is perhaps only 80% of the average run time without breakdowns, Ta, actual breakdown would occur rather infrequently, and most cycles would be
Fig. 14.3 ILLUSTRATIVE RECORD OF MACHINE RUN TIME, PREVENTIVE, MAINTENANCE TIME Tm, AND SERVICE TIME FOR ACTUAL REPAIRS Ts.
Preventive maintenance cycles. If the distributions were more variable for the same standard preventive maintenance period, more actual breakdowns would occur before the end of standard period. Shortening the standard period would result in fewer actual breakdowns, and lengthening it would have the opposite effect for any distribution.
Fig. 14.4 PERCENTAGE OF TIME A MACHINE IS WORKING FOR THE
THREE DISTRIBUTIONS OF BREAKDOWN TIME SHOW IN FIGURE
Assuming that either the preventive maintenance or a repair puts the machine in shape for a running time of equal probable length, the percentage of machine running time depends on the ratio of the standard maintenance period and the average run time Ta, for the breakdown time distribution. Fig.14,4 shows the relationship between the percentage of time that the machine is working and the ratio of the standard maintenance period to average run time Ta, for the three distributions of breakdown times shown in Fig.14.1. In general, when the standard period is short (say less than 50% of Ta), the machine is working only a small fraction of time. This is because the machine is down so often owing to preventive maintenance. As the standard period is lengthened, more actual breakdowns that require repair. For curves b & c, this lengthening of the standard period improves the fraction of time during which the machine is running because the combination of preventive maintenance time and repair time produces a smaller total down time.
Curve a, however, contains an optimum preventive maintenance period, which maximizes the percentage of machine working time. What is different about curve a? It’s based on the low variability breakdown time distribution from Fig.14.1 For curve a, lengthening the maintenance period beyond about 70% of Ta reduces the fraction of machine working time because actual machine breakdowns are more likely. For the more variable distributions of curves b and c this is not true because break-down are more likely throughout the distributions of these curves’ than they are in curve a. Comparable curves can be constructed showing the percentage of time the machine is in a state of preventive maintenance and the percentage of time that the machine is being repair because of breakdown.
14.6 PREVENTIVE VERSUS BREAKDOWN MAINTENANCE
Quality control procedures are designed to track characteristics of quality and to take action to maintain quality within limits. In some instances the action called for may be equipment maintenance. The maintenance function then acts in a supporting role to equipment operating effectively to maintain quality standards, as well as to maintain the quantitative and cost standards of output.
Fig. 14.5 BALANCE OF COSTS DEFINING AN OPTIML PREVENTIVE MAINTENANCE POLICY
There are alternate policies that may be appropriate, depending on the situation and the relative costs. First, is routine preventive maintenance economical, or will it be less costly to wait for breakdowns to occur and repair the equipment? Are there a guideline that may indicate when preventive is likely to be economical? What service level is appropriate when breakdowns do occur? How large should maintenance crews be to balance the costs of downtime versus the crew costs? In addition there are long range decisions regarding the possible overhaul or replacement of a machine. The decision concerning the appropriate level of preventive maintenance rests on the balance of costs, as indicated in Fig.14.5. Managers will want to select that policy which minimizes the sum of preventive maintenance plus repair costs.
Curve ‘a’ in Fig.14.5 represents the increase in costs that results from higher levels of preventive maintenance. These costs increase because increased level means that more often we replace parts before they fall, and/or we replace more components when preventive maintenance is performed. In addition, there may be more frequent lubrication and adjustment schedules for higher levels of preventive maintenance. curve b of Fig.14.5 represents the declining cost of breakdown and repair as the level of preventive maintenance increases. These costs represent the cost of repair plus the downtime costs that results from a breakdown. With higher levels of preventive maintenance, we should experience fewer actual breakdowns. The total incremental cost curve is the sum of curves a and b. The optimal policy regarding the level of preventive maintenance is defined by the minimum of that curve.
There is a combination of costs that leads to the decision not to use preventive maintenance. Suppose that the breakdown and repair costs did not decline as the level of preventive maintenance increased or declined more slowly than preventive costs increased. Then preventive maintenance would not be justified, because the minimum total cost occurs with no preventive maintenance. The optimal policy then is simply to repair the machine when breakdowns occurred. In order to develop a framework for preventive maintenance policy. We need basic data concerning breakdowns.
14.7 GUIDES TO A PREVENTIVE MAINTENANCE POLICY
First, preventive maintenance generally is applicable to machines with breakdown time distributions that have low variability, exemplified by curve ‘a’ of Fig.14.1. In general, distributions with less variability, than the negative exponential, curve b, are in this category because low variability means that we can predict with fair precision when the majority of breakdowns will occur. A standard preventive maintenance period can then be set that anticipates breakdowns fairly well.
Equally important, however, is the relation of preventive maintenance time to repair time. If it takes just a long to perform a preventive maintenance as it does to repair the machine, there is no advantage in preventive maintenance, because the amount of time that the machine can work is reduced by the amount of time it is shut down for repairs. In this situation, the machine will spend a minimum amount of time being down for maintenance if we simply wait until it breaks down.
The effect of downtime costs can modify these conclusions. Suppose that we are dealing with a machine in a production line. If the machine breakdown, the entire line may be shut down, and very high idle labor costs will result. In this situation, preventive maintenance is more desirable than repair if the preventive maintenance can take place during second or third shifts, vacations, or lunch hours, when the line normally down anyway. This is true even when Tm > Ts. The determination of the standard preventive maintenance period would require a different, but similar, analysis in which the percentage of machine working time is expressed as a function of repair time only, because preventive maintenance takes place outside of normal work time.
An optimal solution minimizes the total of downtime costs, preventive maintenance costs, and repair costs. The effect of the downtime costs would be to justify the shorter standard preventive maintenance periods and to justify making repairs more quickly (at higher costs) when they do occur. There are many situations, however in which extra personnel on a repair job would not speed it up. In such cases, total downtime might be shortened by over time on a multiple shifts and weekends, with higher costs. Optimal solutions would specify the standard preventive maintenance period, the machine idle time and the repair crew idle time striking a balance between downtime costs and maintenance costs.
A. OVERHAUL AND REPLACEMENT
In maintaining system reliability, sometimes more drastic maintenance actions are economical. These decisions renew machines through overhauls or replace them when obsolete. Overhaul and replacement decisions can be related to the capital and operating costs (including maintenance)of the equipment. Fig.14.6 shows that although the operating costs are temporarily improved through preventive maintenance, repair, and overhaul, there is a gradual cost increase until replacement is finally justified.
FIG. 14.6 OPERATING COST INCREASES WITH TIME WITH TEMPORARY IMPROVEMENTS RESULTING FROM REPAIR, OVERHAUL AND REPLACEMENTS
B. REPAIR VERSUS OVERHAUL
The decisions concerning the choice between repair and overhaul normally occur at the time of breakdown. Many organization also have regular schedules for overhaul. For example, trucking companies may schedule major engine overhauls after the given number of miles of operation. These preventive maintenance action are mean to anticipate breakdowns and the occurrence of down time at inconvenient times and perhaps to minimize the down time costs.
Because renewals through overhaul involve future costs, these values must be discounted. For e.g., suppose that a machine breakdown has just occurred. It will cost Rs.5000 to repair the equipment, after which the annual operating cost are expected to be Rs.20000,Rs.25000 and Rs.30000 per year for the next three years, at which time replacement is planned. If the major overhaul is performed now, the cost will be Rs.15000, with operating costs of only Rs.18000, Rs.20000 and Rs.30000 in the following three years, with the replacement decisions probably postponed. Let us first examine just the next three years of cost to see if the overall is justified in that time frame. The two alternatives are compared in table 14.1 by discounting all future costs to present values, using a 10% interest rate. In this instance, the present value of overhaul is lower and tentatively would be the more economical
1 2 3 4 5 6
Year Present Value Factor for Future Single Payments Repair Costs Rs. Present Value of Repair Costs (2) (3) Overhaul costs (Rs.) Present Value of Overhaul Costs Rs. (2) (5)
Initial
1
2
3 1.000
0.909
0.826
0.751 5000
20000
25000
30000 5000
18180
20650
22530 15000
18000
20000
23000 15000
16630
16520
17270
66360 65150
TABLE 14.1 PRESENT VALUES REPAIR AND OVERHAUL ALTERNATIVES FOR A MACHINE
14.8 REPLACEMENT DECISIONS
If the choice is only between overhaul and repair, the foregoing analysis may be adequate. However, the replacement alternatives lurk in the background and need to be considered as a part of the sequential decision strategy. The possible sequences could include repair, overhaul, perhaps a second overhaul, replacement, repair, overhaul, and so on.
14.9 AN EXAMPLE
Suppose that the machine is used in a productive system and that it is usually overhaul after a two years of operation, or replaced. The present machine was purchased two years ago, and a decision must now Rs.90000 installed, and annual operating const (including maintenance) are Rs.20000 the first year and Rs.30000 during the second year. The machine can be overhaul for Rs.5000 but operating cost for the next 2 yrs. will be Rs.28000 and Rs.40000 for the first overhaul and Rs.35000 and Rs.50000 for the second overhaul.
In deciding whether or overhaul or replace at this time, you should consider the available alternate sequences of decisions. For e.g., We can overhaul at this time or replace. For each of these possible decisions, We have the same options 2 years hence and so on. Fig. 14.7 shows the simple decision tree structures.
Fig. 14.7 DECISION TREE FOR OVERHAUL – REPLACEMENT EXAMPLE
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Year Present Value Factor for Future single payment Cost for R-R Sequence Present Value for R-R Costs for R-OH Sequence Present Value pf R-OH Costs for OH-R Sequence Present Value of OH-R Costs for OH-OH Sequence Present Value of OH-OH
Rs. (2) x (3) Rs. (2) x (5) Rs. (2) x (7) Rs. (2) x (9)
Initial 1000 90000 90000 90000 90000 50000 50000 50000 50000
1 0.909 20000 18180 20000 18180 28000 25252 28000 25452
2 0.826 30000 24780 30000 24780 40000 33040 40000 33040
Replace or overhaul at the end of 2nd Year 0.826 90000 74340 50000 41300 90000 74340 50000 41300
3 0.751 20000 15020 28000 21028 20000 15020 35000 26285
4 0.683 30000 20490 40000 27320 30000 20490 50000 34150
242810
222608
218142
210227
Table 14.2 PRESENT VALUES FOR FOUR ALTERNATE STRATEGIES INVOLVING OVERHAUL AND REPLACEMENT
In order to complete the alternatives, the future costs are discounted to present value, using the present value methods. The calculations are summarized in table 14.2 for the four sequences indicated in the decision tree of Fig. 14.7. The four alternate strategies are:
(i) Replace now and in 2 years (R-R)
(ii) Replace now and overhaul in two years (R-OH)
(iii) Overhaul now and replace in 2 years (OH-R)
(iv) Overhaul now and again in 2 years (OH-OH)
The 4 year present values totals in Table 5.2 indicate that the best strategy for this example, is to overhaul each 2 years (OH-OH) and the next best strategy is to overhaul now and replace in 2 years (OH-R). This is true in spite of the rapidly mounting operating costs.
Because operating costs do increase so rapidly, perhaps it will be worthwhile to see what happens if we adopt a 6 years planning horizon. If a third overhaul is scheduled, the next two years the operating costs will be Rs.45000 and Rs.55000. On the other hand, if we add an overhaul cycle to the third alternative, it will enjoy the relatively low operating costs of the first overhaul. Adding a third cycle to each of the four alternatives results in the following strategies (we are ignoring the additional sequences created by the third branching to reduce computations for this example):
1. R-R-R
2. R-OH-R
3. OH-R-OH
4. OH-OH-OH
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Year Present Value Factor for Future single payment Cost for R-R Sequence Present Value for R-R Costs for R-OH Sequence Present Value pf R-OH Costs for OH-R Sequence Present Value of OH-R Costs for OH-OH Sequence Present Value of OH-OH
Rs. (2) x (3) Rs. (2) x (5) Rs. (2) x (7) Rs. (2) x (9)
Replace or overhaul at the end of 2nd Year 0.683 90000 61470 90000 61470 50000 34150 50000 34150
0.621 20000 12420 20000 12420 28000 17388 45000 27945
0.564 20000 16920 20000 16920 40000 22560 55000 31020
90810
90810
74098
93115
First 4 years from table 242810 222608 218342 210227
6 year totals 333620
313418
292440
303342
Table 14.3 PRESENT VALUES FOR FOUR ALTERNATE STRATEGIES INVOLVING OVERHAUL AND REPLACEMENT
Table 14.3 summarizes the calculations for the third cycle, the present values for the first 4 years, and the 6-year present value totals Alternative 3 (OH-R-OH) is now the lowest-cost strategy. This change in result demonstrates the importance of choosing a horizon that fairly represents all the alternatives. If a fourth 2-year cycle were added to the evaluation, it might seem that strategies 3 and 4 are the same, but reversed in sequence. But they are not the same because we start from an existing situation with a 2-year old machine. Strategy 2 places two replacements in sequence, whereas strategy 3 alternates overhauls and replacements.
This example assumes replacement with an identical machine, but it is often true that alternate machines will have rather different capital and operating costs characteristics. New machine designs often have improvements (owing to mechanization or automation) that reduce labor and maintenance costs, and these cost advantages would affect replacement decisions.
14.10 MAINTAINING SEVERAL MACHINES
The single-machine situation contains basic elements of general policy which can be carried over into the multimachine case. However, when several machines must be serviced, our problem more closely resembles the usual waiting line model. If we assume that all machines have the same breakdown time distribution, breakdowns are comparable to arrivals in the waiting time model, and the repair crew is the service station. As machines breakdown, the repair crew services them in the average time, Ts, as before. If the crew is already working on a machine, successive machines that breakdown must wait for service and the costs associated with down time grow with delay. We can reduce the chance that this will happen by increasing the size of the crew, but the solution also costs money and increases the amount of time that the crew will be idle, waiting for breakdowns to occur. The problem, then, is one of striking a balance between the down-time costs of the machines and the idle-time costs of the maintenance crew.
14.11 SIMULATION OF ALTERNATE PRACTICES
When maintenance is being performed anyway, it is a fairly common practice to replace parts that have not yet failed in order to prevent a future breakdown. The incremental cost of replacing these parts is often small since the machine is already partially disassembled. For example, if an automobile engine is disassembled to replace piston rings, other parts, such as the connecting rod bearing, also can be replaced for little more than the cost of the parts. If these parts are not replaced and fail later, the cost to replace them will be high because the engine must be disassembled again. Whether such practice are economical or not for individual cases depends on the distribution of part lives and the relative magnitude maintenance labor, part costs, and down-time costs. Because of the complexity of interactive probable lives of parts, simulation is often a practical way of evaluating alternate practices.
Let us take, for example, the case of a company that maintained a bank of machine which were exposed to sever service, causing bearing failure to be a common maintenance problem. There were three bearings in the machines that causes trouble. The general practice had been to replace bearings at the time that they failed. However excessive down-time costs raised the question of whether or not a preventive policy was worthwhile. The company wished to evaluate three alternative possible practices.
• The current practice or replacing bearings that fail.
233. When a bearing fails, replace all three.
234. When a bearing fails, replace that bearing plus other bearings that have been in use 1700 hours are more.
To simulate operation under the three alternate policies, data on bearing lives were needed, together with cost data. Fig.14.8 shown the cumulative distribution of bearing lives; table 14.4 summarizes pertinent time and cost data.
Fig. 14.8 CUMULATIVE DISTRIBUTION OF BEARING LIVES
Maintenance mechanic’s time:
Replace one bearing
Replace two bearings
Replace three bearings
Maintenance mechanic’s wage rate
Bearing cost
Down time costs
5 hours
6 hours
7 hours
Rs.30/hour
Rs.50/hour
Rs.20/hour
Table 14.4 MAINTENANCE TIME AND COST DATA FOR BEARING REPLACEMENT
To simulate the alternative maintenance operations, follow the procedures, establishing a percentage or a probability scale, as in Fig. 14.8. We can now use Fig. 14.9. to select bearing lives at random from the distribution. By using a random number table, or some other system for selecting numbers at random between 0 and 100, we can proceed to select bearing lives and simulate operation. For example, the random no.32 selects the bearing live of 1500 hours, as shown Fig. 14.8. To simulate the first alternate practice, bearings are selected serially for the three positions and the cost can be calculated accordingly to the maintenance time, bearing cost, and the down-time that results. To simulate the second practice, three bearing lives are drawn at random, the shortest of the three determining when they will be replaced, etc. Fig. 14.9 shows the resulting graphical representation of 20000 hours of stimulated for the three plans.
Fig. 14.9 GRAPHICAL RESULT OF SIMULATION OF THREE ALTERNATE MAINTENANCE PROCEDURES
Table 14.5 summarizes the comparative results. Plan 2 is somewhat cheaper than the other two although the bearing cost is higher, the time demand for maintenance mechanics is lower and, therefore, down-time costs are lower. Plan 3 is next best. Other plans between 2 and 3 could be tested as well shortening the permitted running life of bearings below 1700 hours, etc. We should note that a change in the structure of costs could easily change results. For example, if the value of the new bearing is Rs.1000 instead of Rs.50, plan-I is cheapest, the new totals being, respectively Rs.42500, Rs.46900, and Rs.44200.
Plan 1 Replace bearings when they fail Plan 2 when a bearing falls, replace al three Plan 3 Replace bearing that falls plus others if they have had 1700 hour of service or more
Number of single replacements
Number of double replacement
Number of triple replacements
Total number of bearings replaced
Down time, hours
Costs :
Maintenance mechanics
Cost of bearings
Down time
Total 34
-
-
34
170
Rs. 5100
1700
3400
Rs.10200 -
-
14
42
98
Rs.2940
2150
1960
Rs.7.050 28
4
-
36
164
Rs.4920
1800
3280
Rs.10000
TABLE 14.5 RESULTS OF 20,000 HOURS OF SIMULATED OPERATION UNDER THREE ALTERNATIVE MAINTENANCE PLANS
14.12 SIMULATION OF OPTIMAL SIZE OF REPAIR CREWS
A scientist reports a study made at a company of the size of a repair crew. The problem deals with the maintenance of twenty automatic machines which had been maintained by a crew of six mechanics. Production forecasts indicated the need of two more machines to meet capacity needs. This raised the question of whether or not the size of the repair crew should be enlarged. After careful study, the following data were gathered to simulate the maintenance operation.
• A breakdown time distribution which showed the length of time that the machine would run before requiring service.
235. A distribution of the length of time a machine was down while being serviced by a mechanic.
236. A distribution of the time spent by the mechanic with the machine after it had been started again, to make final adjustments and ensure that it was ready for service. This is the mechanic’s “run-in-time”.
237. A distribution of mechanic’s service time when the machine could be serviced while it was still operating.
238. A distribution of the time for a mechanic to become available to work on the machine.
239. A determination of the percent of cases where the machine could be serviced while running, and the percent where the machine had to be shut down for adjustments and repairs. Studies showed that two-thirds of the cases were those in which the machine could Continue to produce (a run call) and one-third required the machine to be shut down (a down-time call).
The computer was programmed to follow a structure, selecting at random from the appropriate distributions to provide data for the simulation of specific run and down-time calls. Fig.14.10 shows the cost
Fig. 14.10 CURVE OF COST VERSUS NUMBER OF MECHANICS IN REPAIR CREW FOR TWENTY TWO MACHINES IN SERVICE
Curve in relation to crew sizes for twenty-two machine I service. The cost factors included were maintenance labor cost and machine down-time costs. Fig 14.10 is one of a number of such curves prepared for various numbers of machines in service. The simulation model could now furnish
Information quickly regarding the optimal number of machines and repair crew size of a given production level.
14.13 SUMMARY
Efficient use of plant and equipment is a vital factor for the industrial growth, particularly in a developing country like ours. General concepts of probability of waiting like theory and of incremental cost analysis have provided a rational basis for designing preventive maintenance programs, deterring optimal crew sizes and determining capacity requirements so that the reliability of production systems can be maintained.
14.14 ASSIGNMENT QUESTIONS
Discuss the preventive maintenance policy
14.15 REVIEW QUESTIONS
• What kind of costs is associated with machine break-down?
• What is a break-down time distribution?
• Discuss the types of situations of machine break-downs.
• If it takes just as long to perform a preventive maintenance as it does a repair, is there an advantage to preventive maintenance.
• How can the techniques of simulation help in evaluating alternate maintenance practice?
14.16 REFERENCE BOOKS
Buffa, “Modern production management”, 4th edition John whieley.
Buffa, “Modern production/operations management”, 7th edition, John whieley.
Krishna, N.V., “Preventive maintenance”, National productivity council, New Delhi.
LESSON – 15
QUALITY CONTROL
15.1 OBJECTIVE
This unit with the purpose of inspection and quality control, acceptance sampling by variables and attributes. Apart from that it also deals with control charts, fraction defectives and defects.
Syllabus covered in the lesson
Objective – Quality Control – Process Control Charts – Kinds of Control Chart – Control Charts for Variable – Control Limits – Sampling Distributions.
Structure
15.1 Objective
15.2 Quality control
15.3 Process Control Charts
15.4 Kinds of Control Chart
15.5 Control Charts for Variable
15.6 Control Limits
15.7 Sampling Distributions
15.8 Summary
15.9 Technical words
15.10 Assignment Questions
15.11 Review Questions
15.12 Reference Books
15.2 QUALITY CONTROL
The methods of statistical quality control were introduced in 1924 by Walter Shewhart , in a Bell Laboratories memorandum. In the following years, Shewhart, Dodge, and others did work on the concept of acceptance inspection. Much of Shewhart’s thinking on these subjects was published in his book, Economic Control of quality of Manufactured product (1931), in which he introduced the basic concepts of statistical quality control, including the control chart. These concepts have been enlarged and refined and are widely accepted and applied throughout the advanced industrial world, particularly in Japan, where W. Edwards Deming introduced the concepts. Deming an octogenarian, is the foremost quality control guru and is widely credited for placing Japan in its world leadership position in the quality of its manufactured products.
15.3 PROCESS CONTROL CHARTS
In general, there are two types of variations that occur in a production process: chance variations and variations with assignable causes. Chance variations may have a complex of minor actual causes, none of which can account for a significant part of the total variation. The result is that these variations occur in a random manner, and nothing can be done about them, given the process. On the other hand, variations with assignable causes are relatively large and can be traced. Assignable causes result due to the following factors:
Difference’s among workers
Differences among machines
Differences among materials
Differences due to the interaction between any two or among all three of the preceding causes
A comparable set of assignable causes could be developed for any process. For example, assignable causes for variation in absenteeism might be disease epidemics, changes in interpersonal relations at home or in the employee’s work situation, and others.
When a process is in a state of statistical control, variations that occur in the number of defects, the size of a dimension, the chemical composition, the weight, and so on are due only to normal chance causes. Thus, when variations due to one or more of the assignable causes are superimposed, it is possible to find the assignable causes and correct it. These statistical control mechanisms are called control charts.
If we take a set of measurements in sequence, we can arrange the data into a distribution and compute the mean and standard deviation. If we can assume that the data come from a normal population distribution. We can make precise statements about the probability of occurrence associated with the measurements, given in standard deviation units as follows:
68.26 percent of the values normally fall within
95.45 percent of the values normally fall within 2
99.73 percent of the values normally fall within 3
These percentage values represent the area under the normal curve between the given limits; they state the probability of occurrence for the values that come from the normal distribution that generated the measurements. For example, the chances are 99.73 out of 100 that a measurement taken at random will fall within the 3% limits and only 0.27 out of 100 that that it will fall outside these limits. These values, as well as decimal values for % come from the table for the normal probability distribution available. The natural tolerance of a process, that is the expected process variation, is commonly taken to be 3% Estimates of the natural tolerance would be based on sample inform- action. We will use the following notation:
= The population mean (parameter)
= The mean of a sample drawn from the population (statistic)
= The population standard deviation (parameter)
s = The standard deviation of a sample drawn from the population (statistic)
Since sample information is used to estimate population means and standard deviations, the natural tolerance of a process is estimated by substituting in the sample statistics, x 3s.
15.4 KINDS OF CONTROL CHARTS
Two basic types of control charts, which are commonly used:
Control charts for variables
Control charts for attributes
Control charts for variables are used when the parameter under control is some measurement of a variable, such as the dimension of a part, the time for work performance, and so forth. Variables charts can be based on individual measurements, mean values of small samples, and mean values of measures of variability.
Control charts for attributes are used when the parameter under control is the proportion or fraction of defectives. There are several variations for attributes control charts. Control charts for the number of defects per unit are used when a single defect may not be of great significance but a large number of defects could add up to a defective product. All of the above types of control charts, are being discussed in the following sections:
15.5 CONTROL CHARTS FOR VARIABLES
Consider a variables chart constructed for samples of n = 1 and relate the statistical properties of this simplest of control charts to the more common and R control charts.
If standards are established for the mean and the standard deviation of a normally distributed variable resulting from normal conditions, these data can be used to construct a control chart. Taking the natural tolerance of the +3s control limits as a standard deviation from the mean, the individual measurements are plotted and checked for stray points that lay outside the limits. It is known that if successive samples are representative of the original population, the probability that a sample will fall outside the established control, is small. On the other hand, if sample measurements do fall outside the control limits, then it shows that something in the process has changed, the cause for which may be investigated and corrected. (Figure 1) shows a control chart for samples of n=1 drawn from the distribution of 200 shaft diameters with x = 25.000 mm and s = 0.05 mm.
The control limits for the control chart in figure 1
Upper control limit UCL = 3s = 25.000 + 3 * 0.050
Lower control limit LCL = 3s = 25.000 – 3 * 0.050
15.6CONTROL LIMITS
The process from which the samples were drawn in figure 1 appears to be in control using the 3s control limit criterion. But had 2s control limits been adopted, the next to last point would have been outside limits. There is a 4.55 percent chance that this could have occurred by randomness in the data. The occurrence would have triggered an investigation, and if that investigation indicated that the process had not changed, the cost of conducting the investigation would have been wasted. On the other hand, if the control limits were 3s as shown in figure 1 and process process had in fact changed, the observation would have been ignored and more scrap product would have been produced in the interim before the change in the process was actually discovered.
Thus the issue in setting control limits is one of balancing two costs the cost of investigation and inspection against the cost of losses when no investigation is made. Generally, if the investigation cost is large relative to the possible losses if the process continues out of control, the limits should be fairly broad, perhaps 3s. Conversely, is the potential loss is high relative to the cost of investigation, more sensitive control limits are needed.
Usually control charts are constructed for samples larger than one, but the statistical relationships for figure 1 are simple and are of value in understanding the statistical basis of other control charts.
15.7 SAMPLING DISTRIBUTIONS
For figure 1 the control chart based on sample of n = 1, the normality of the distribution had already been established, An important reason for taking sample larger than n = 1 is that the issue of the normality of the population distribution can be ignored. Although a population distribution may depart radically from normality, the sample distribution of means of random samples will be approximately normal if the sample size is large enough. This statement of the central limits theorem is of great importance, here in this context of the design of control limits. Actually, deviation from normality in the population distribution can be fairly substantial, yet sampling distribution of the means of samples as small as n = 4 or 5 will follow the normal distribution quite closely. If samples of n = n or 4 are taken from the shaft diameter distribution, the means of the samples will form a new distribution with a mean and a standard deviation of its own. This distribution is called a sampling distribution of means of n = 4. To distinguish the statistics from the distribution of individual measurements in figure 2 the notation or the grand mean of the sampling distribution is used and s for the standard deviation of the sampling distribution. It is expected that and will be very nearly equal and that they will be equal in the limit as the number of samples increases.
The standard deviation for the sampling distribution will be much smaller than that for the individual measurements because the variation is reduced by the averaging process within each sample. The resulting relationship between the two distributions for the shaft data is shown figure 2. The relationship between s and S given by
To construct a chart for means, it is necessary to establish standard values for and s and the control limits on the sample means. The means of subsequent samples are plotted, and action would be called for if a sample mean should fall outside the control limits. Control mechanisms that employ samples means are called and R control charts.
15.8 SUMMARY
This lesson discussed with inspection and quality control acceptance sampling by variables and attributes, A part from that it also deals with control chart, fraction defectives and defects. Another discussed with Quality Control and included with process control charts. This lesson covered with sampling distributions.
15.9 TECHNICAL WORDS
Economic Control of Quality, Octogenarian, Interpersonal, Assignable, Epidemics
15.10 ASSIGNMENT QUESTIONS
Discuss the sampling distributions.
15.11 REVIEW QUESTIONS
Discuss the process control charts.
15.12 REFERENCE BOOKS
Duncan, A.J. , (1974) “Equality control and Industrial statistics” (4th ed.), Irwin, Home wood, III.
❑
LESSON – 16
CONTROL CHARTS
Syllabus covered in the lesson
- Charts – sample size – Determining the process average and control limits – procedures for determining x-chart control limits – R-charts, control charts for measures of variability – procedure for determining R-chart control limits – Examples of - chart and R-charts – control charts for attributes – p-charts – p-charts for variable sample size – c-charts, control charts for defective per unit.
Structure
16.1 - Charts
16.2 Sample size.
16.3 Determining the process average and control limits
16.4 Procedures for determining x – chart control limits
16.5 R – Charts – Control Chart for Measures of variability
16.6 Procedures for determining R-chart Control Limits
16.7 Examples of – Charts and R-Charts
16.8 Control Charts for Attributes
16.9 P-Charts
16.10 P-charts for variable sample size
16.11 c-Chairs – Control charts for Defects per Unit
16.12 Summary
16.13 Technical words used
16.14 Assignment Questions
16.15 Review Questions
16.16 Reference Books
16.1 - CHARTS
In constructing -charts. There are several issues that must be confronted: sample size, setting standards for process average and control limits. And practical procedures for reducing the computations required.
16.2 SAMPLE SIZE
In industry, sample sizes are, usually, small for good reasons. First, small samples cost less to gather, inspect, and process. Next large samples must be taken over a longer time span, and changes could occur within that time, so response might not be timely: out-of-control conditions would not be detected as rapidly, and additional scrap might be produced. Generally, sample sizes of four or five are most common. These sizes anticipate the problems noted, yet they are large enough for the central limit theorem to guarantee normality in the sampling distribution. On the other hand, larger samples have the effect of tightening control limits. Note that samples size is in the denominator of the formula for S . Thus, a larger samples size means a smaller S . Finer variation in process can be detected when samples are larger.
16.3 DETERMINING THE PROCESS AVERAGE AND CONTROL LIMITS:
In order to determine the process average, , and the control limits that are representative of the process when it is in a state of statistical control, standard deviation, or both a separate S is computed for a preliminary subgroup for each of the small samples and then average them. The means of the subgroup samples are plotted on a control chart based on 3s to see whether changes in the process average have occurred in the period during which the preliminary data were gathered. To achieve the objectives, the size of the subgroup should be relatively small, perhaps 20 to 25, and the time period over which the preliminary data are gathered should be long enough for any changes in the process that occur between the sampling intervals to be recognized.
16.4 PROCEDURES FOR DETERMINING X – CHART CONTROL LIMITS
The control limits require an estimate of S , onerous, it does require the input of all the data on which the statistic is based. Practitioners in field have developed short-cut methods for calculating control limits, using the range instead of the standard deviation as a measure of variability. Table 1 is a small portion of a table of factors used to convert the average range, to the 3sx control limit. The procedure is simple. Select the appropriate factor from Table 1 for charts, and compute the control limits as follows
Control Limits = , A2 R
Sample
Size, n -Chart Control
Limits, A2 R-Chart Control Limits
Lower, D3 Upper, D4
3
4
5
6
7
8 1.023
0.729
0.577
0.483
0.419
0.373 0
0
0
0
0.076
0.136 2.575
2.282
2.115
2.004
1.924
1.864
Source: Abstracted from a much larger table of factors useful in the construction of control charts, Table B2 of the A.S.T.M. Manual on Quality Control of Materials, p.115.
Table1 PACTORS TO CONVERT AVERAGE RANGE, R, TO VARIABLES CONTROL – LIMITS
As an example, if = 25.000 R = 0.010 and n = 5, then the factor from Table 1 is A2 = 0.577 and the control limits are
UCL = 25.000 + (0.577 x 0.010) = 25.583
LCL = 25.000 – (0.577 x 0.010) = 25.571
The basic calculations for determining the center line and control limits remain the same, regardless of the variable being measured.
16.5 R – CHARTS – CONTROL CHART FOR MEASURES OF VARIABILITY
In calculating the control limits for the – chart, the statistics used are the small sample means, and these are the data plotted on the chart. A measure of variability, such as the standard deviation or the range, can be used as the basic statistic. For each sample, compute a sample standard deviation(or range), such that these observations are formed into a distribution that approximates normal distribution. This new distribution of measures of variability has a mean, a standard deviation, and a range that can be used to construct a control chart. This control chart indicates when the variability of the process is greater or less than standard.
In quality control, the statistic chosen is, usually, the range rather than the standard deviation because of the ease with which the range can be computed in a processing setting. For each sample, the difference between the highest and lowest measurement is plotted on the -chart. The distribution of ranges has an average, R, and a standard deviation, S . The 3 SR limits have the same general significance as with the – chart.
16.6 PROCEDURES FOR DETERMINING R-CHART CONTROL LIMITS
The computation of the control limits for the R-chart has been simplified by using the statistic rather than the standard deviation. Using the data in Table 1 for the sample size n, select the factors D3 and D4 and calculate the 3sr control limits as follows.
UCLR = D4
LCLR = D3
As an example, if n = 4 and = 3.000 and from Table 1 D4 = 2.282 and D3 = 0. then the control limits for the R chart are
UCLR = 2.282 x 3.000 = 6.846
LCLR = 0 x 3.000 = 0
16.7 EXAMPLES OF – CHARTS AND R-CHARTS
Sample Number Individual Observations Sample Average,
Sample Range, R
(1) (2) (3) (4) (5) (6) (7) (8)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 0.198
0.224
0.195
0.183
0.194
0.212
0.179
0.216
0.221
0.226
0.181
0.176
0.217
0.204
0.243
0.255
0.210
0.178
0.163
0.218 0.175
0.209
0.172
0.191
0.142
0.238
0.186
0.212
0.172
0.184
0.210
0.179
0.199
0.192
0.184
0.217
0.226
0.188
0.223
0.192 0.201
0.184
0.204
0.168
0.208
0.219
0.206
0.201
0.201
0.187
0.219
0.206
0.225
0.203
0.187
0.200
0.187
0.157
0.171
0.198 0.209
0.225
0.213
0.194
0.226
0.198
0.170
0.196
0.205
0.182
0.206
0.182
0.205
0.2057
0.220
0.231
0.189
0.184
0.208
0.199 0.204
0.209
0.208
0.202
0.188
0.230
0.212
0.224
0.204
0.229
0.184
0.244
0.208
0.208
0.214
0.214
0.190
0.162
0.202
0.199 0.197
0.210
0.198
0.188
0.192
0.219
0.191
0.210
0.201
0.202
0.200
0.197
0.211
0.203
0.210
0.223
0.200
0.174
0.193
0.201
= 0.201
0.034
0.041
0.041
0.034
0.084
0.040
0.042
0.028
0.049
0.047
0.038
0.068
0.026
0.016
0.059
0.055
0.039
0.031
0.060
0.026
R= 0.043
Table 2 MEASUREMENTS TAKEN IN SEQUENCE ON THE OUTPUT OF A PRODUCTION PROCESS (SAMPLE SIZE IS N = 20, n = 5)
Assume a production process to set up both an X – chart and R – chart. In order to initialize the charts. 20 sample of n = 5 measurements are taken at random as the process continues. These observations are shown in Table 2 in columns 2 through 6, each line representing a sample of n = 5. Each sample average is given in column 7, and the sample range is given in column 8. The grand mean and the average range are shown at the bottom of the last two columns of the table as = 0.201, and R = 0.043, respectively.
A. CHART
The preliminary center line and control limits for the X-chart, are computed as follows:
UCL = + A2R
= 0.201 + (0.577 x 0.043) = 0.236
LCL = – A2 – R
= 0.021 – (0.577 x 0.043) = 0.176
The preliminary control limits and the center line for the grand mean are shown in Figure 3, with the 20 sample means computed in column 7 of Table 2 plotted. The control chart, generally, indicated that we have a stable data generating system, with the exception of sample 18 which falls below the LCL. It is entirely possible that this sample mean represents on of the chance occurrences of a mean falling outside the 3xs limits. However, it is known that this event occurs with a probability of only 0.0027, so an investigation is necessary. The investigation reveals that the operator had been following a nonstandard method at the time that resulted in the low – valued observation-an assignable cause. Sample 18 is eliminated from the data and a revised grand mean and control limits are computed as = 0.202 and = 0.044. The revised control limits are then
UCL = 0.202 + (0.577 * 0.044) = 0.227
LCL = 0.202 – (0.577 * 0.044) = 0.177
The following are guidelines to anticipate troubles by taking investigative action:
A single point goes out of limits, either above or below
Two consecutive points are near an upper or lower control limit
A run of five points above or below the process average
A five – point trend toward either limit
A sharp change of level
Erratic behavior
B. R-CHARTS
The preliminary control limit for an R chart is computed using the D3 = 0 and D4 R = 2.115 factors from Table 1 as follows:
UCL = D4 R = 2.115 x 0.043 = 0.0909
LCL = D2 R = 0 x 0.043 = 0
Figure 4 shows the R-chart with the preliminary control limits and the 20 sample ranges plotted. It should be noted that the range for sample 18 does not fall outside the control limits on the R-chart. Nevertheless, since it was eliminated from the X-chart, it must also be eliminated from the R-chart; the revised center line and control limits reflect this procedure. The R-chart indicates that the variability of the process is normal. The revises center lines and control limits in Figure 3 and 4 represent reasonable standards for comparison of future samples.
16.8 CONTROL CHARTS FOR ATTRIBUTES
In control charts for attributes, the population is divided into two classifications: defective parts and good parts. In every instance where it is needed to construct a control chart, this “good-not good” distinction is made.
16.9 P-CHARTS
Control charts for the proportion or fraction of defectives occurring are called p-charts: they are based on the binomial distribution. For the binomial distribution, it is recalled that
where, n = The size of the sample
The control limits are set at the process average of defectives plus and minus three standard deviations, + 3sp. Table 3 shows a set of data for the number of defectives found in daily samples of 200 for 24 consecutive production days. First, is necessary to determine whether the data exhibit statistical control, and then whether it is necessary to set up a control chart. The daily fraction defective is calculated by dividing each daily figure by the sample size, n = 200. Preliminary figures for , sp and UCL and LCL are also calculated in Table 3. These preliminary figures are used to determine whether the process grating the data is in control.
Production Day Number of Defectives Fraction Defectives Production Day Number of Defectives Fraction Defective
1
2
3
4
5
6
7
8
9
10
11
12
13 10
5
10
12
11
9
22
4
12
24
21
15
8 0.05
0.025
0.05
0.06
0.055
0.045
0.11
0.02
0.06
0.12
0.105
0.075
0.04 14
15
16
17
18
19
20
21
22
23
24
Total 14
4
10
11
11
26
13
10
9
11
12
294 0.07
0.02
0.05
0.055
0.055
0.13
0.065
0.05
0.045
0.55
0.06
3sp = 3 0.017 = 0.051
UCL = p + 3sp = 0.061 + 0.051 = 0.112
LCL = p – 3sp = 0.061 – 0.051 = 0.010
Table 3 RECORD OF NUMBER OF DEFECTIVES AND CALCULATED FRACTION DEFECTIVE IN DAILY SAMPLES OF n = 200
Figure 5 show the resulting plot of the daily proportion defective in relation to the preliminary control limits. Two points are outside of Limits, and the point for first point, day 7 is nearly outside the upper limit. For second point, day 10, it appears that a logical explanation is that three new workers were taken on that day. The last point, day 19, is explained by the fact that the die had worn and finally fractured that day.
To set up standards for normal variation, variation, the data for the days for which assignable causes (day 10 and 19) have been established are eliminated and P, UCL, and LCL are recomputed as follows:
These revised values reflect the variation due to chance causes. They are now used as standards for judging the proportion of defective future samples. If any future samples fall outside these limits, then it is known that it is highly probable that there is an assignable cause for the unusual observation of proportion defective. The cause is then corrected before more scrap has been produced.
16.10 P-CHARTS FOR VARIABLE SAMPLE SIZE
In the previous example, the sample size was constant. Often, however, sample sizes vary, as is true then 100 percent inspection is used and output volumes vary from day to day. If samples sizes vary only slightly, control limits may be based on the average sample size. However, when sample size vary widely, new control limits can be computed for each sample. These control limit computations can be simplified. For example, if P = 0.099, then
3 =
For each sample then, the square root of the sample size is divided into 0.896 to obtain the 3sp value that must be added to and subtracted from p to obtain the individual control limits. Of course, a different P requires a new computation of the constant.
Another way to handle this problem of variable sample sizes to construct a stabilized p-chart by converting the deviations from the process average into standard deviation units. An sp is computed for each sample using the short-cut method just discussed (the factor for the example would simply be 0.896/3 = 0.299) and it is divided into the sample variation from , p – . If the sample proportion defective were P = 0.085, = 0.099 as before and n = 95, then sp = 0.299/ 95 = 0.030006. Then (p – p) / sp = -0.015 / 0.036 = -0.49 standard deviation units. The control limits are plotted in terms of standard deviation units and this sample is 0.49 standard deviations below the mean.
16.11 C – C HAIRS – CONTROL CHARTS FOR DEFECTS PER UNIT
Sometimes the parameter to be controlled cannot be expressed as with the p-charts. In weaving, for example, the number of defects per 10 square yards of material might be the parameter to be controlled. In such instances, a defect itself might be minor, but a large number of defects per unit area might be objectionable. The Poisson probability distribution is commonly applicable. For the Poisson distribution, the standard deviation Sc is equal to the square root of the mean, c. Computation of control limits is then extremely simple, for example, if the mean number of defects per unit were c = 25, then
UCL = + 3Sc = 25 + (3 * 5) = 40
LCL = + 3Sc = 25 – (3* 5) = 10
16.12 SUMMARY
Constructing charts there are several issues that must be confronted, sample size, setting standards for process average and control limits, and practical procedure for reducing the computations required. The lesson discussed sample size included with c-chart and R-chart.
16.13 TECHNICAL WORDS USED
Stabilized, Distribution, Standard deviation.
16.14 ASSIGNMENT QUESTIONS
Discussed with control charts for attributes.
16.15 REVIEW QUESTIONS
State that the control charts.
16.16 REFERENCE BOOKS
Grant, E.L., and R.S. Leavenworth,(1980) Statistical Control (5th ed.), McGraw Hill, New York.
❑
LESSON – 17
ACCEPTANCE SAMPLING
Introduction
This chapter introduces to Sampling.
Objectives
The understand the various methods of sampling and its uses.
Contents
17.1 Acceptance sampling by Attributes
17.2 OC curves
17.3 Changes in acceptance number
17.4 Determining OC curves
17.5 Producer’s Risk and Consumer Risk
17.6 Specification of a sampling plan
17.7 Specification of n and c for single sampling plan
17.8 Average outgoing quality (AOQ) curves
17.9 Sampling plan with specified LTPD OR AOQL protection
17.10 Double sampling plan
17.11 Sequential sampling plan
17.12 Selecting sampling plans
17.13 Acceptance sampling by variables
17.14 Kinds of variables sampling plans
17.15 Variable sampling plan where x is known and constant
17.16 Upper and lower tolerance levels
17.17 Field of application of variables sampling plans.
17.18 Summary
17.19 Assignment Questions
17.20 Review Questions
17.21 Reference Books
17.1 ACCEPTANCE SAMPLING BY ATTRIBUTES
When production has already taken place, it is often necessary to know the quality level of the lot. Acceptance sampling is the statistical quality control technique for making decisions.
17.2 OPERATING CHARACTERISTIC (OC) CURVES
To specify a particular sampling plan, the sample size n, and the number of defectives in the sample permitted c (acceptance number), are indicated before the entire lot from which the sample is drawn is to be rejected. The OC cure for a particular combination of n and c shows how well he plan discriminates between good and bad lots. The given Fig 6 is an OC curve for a sampling plan with the sample size n = 100 and acceptance number c = 2. In this plan, if c = = 0.1, or 2 defectives are found in the sample of n = 100, the lot would be considered acceptable. If the actual lot quality is 1% defectives, the plan in Fig 6 would accept the lot about 91.5 percent of the time and reject it about 8,5 percent of the time. However, that if the actual lot quality is good is somewhat worse than 1 percent defectives then the probability of accepting the lot falls to about 13 percent. Therefore, if the actual quality is good, the plan provides for a high probability of acceptance, but if the actual quality is poor, the probability of acceptance is low. Thus, the OC curve shows how well a given plan discriminates between good and poor quality.
The discriminating power of the sampling plan depends on the size of the sample. Fig 7 shows the OC curves for sample sizes of 100, 200 and 300, with the acceptance number remaining in proportion to the sample size. It is to be noted that the OC curve becomes more steeper as the sample size goes up. If the discriminating power of the three plans represented in Fig 7 percent defectives about 83 percent of the time. However, if the actual quality falls to 3.0 percent defectives, the plan with n = 100 accepts lots about 20 percent of the time; n=200 accepts lots about 6 percent of the time: and n = 300, less than 1 percent of the time. Plans with larger sample sizes are definitely more effective.
17.3 CHANGE IN ACCEPTANCE NUMBER
Figure 8 shows OC curves for a sample of n = 50 and acceptance numbers of c = 0,1,2, and 3. It should be noted that the effect is mainly to change the level of the OC curve, so lower acceptance numbers make the plan “tighter” that is, they hold outgoing quality to lower percentages. As a generalization there is some interaction between sample size and acceptance number in determining the discriminating power of OC curves.
A sampling plan that discriminates perfectly between good and bad lots would have a vertical OC curve: that is, it would follow the dashed lone in Fig 7. For all lots having percent defectives to the right of the line, the probability of acceptance of zero. Unfortunately, the only plan that could achieve this discrimination is requiring 100 percent inspection. Therefore, the justification of acceptance sampling turns on a balance between inspection costs and the probable costs of passing bad parts.
By making sampling plans more discriminating (increasing sample sizes) or tighter (decreasing acceptance numbers), any desired level of outgoing quality can be approached, but at increasing inspection costs. This increasing inspection effort would result in lower probable costs of passing defective parts. At some point the combination of this incremental costs is minimum, this minimum point defines the most economical sampling plan for a given situation. Obiviously, if the cost of passing defective products is high, a great deal of inspection is economically justified.
To justify 100 percent inspection of a sample, the probable losses due to the passing of bad products would have to be large in relation to inspection costs, perhaps resulting in the loss of contracts and customers. It is on this basic that the Japanese objective of “zero defects” can be justified. On the other hand, to justify no inspection at all, inspection costs would have to be very large in relation to the probable losses due to passing bad parts. The most usual situation is between these extremes. Where there is a risk of not accepting lots that are actually good and a risk of accepting lots that are bad.
17.4 DETERMINING OC CURVES
OC curves can be constructed from data obtained from normal or Poisson distributions. If lots are large, perhaps greater than 10 times the sample size, probabilities for the OC curve can be obtained from the binomial distribution. However, if samples are large, the normal or Poisson approximations are also very good, and they are much more convenient to use. Rules of thumb are as follows:
If p n > 5, the probabilities can be determined from the normal distribution with a mean p and standard deviation of (p(1-p)/n)½.
If p n 5, use the Poisson distribution.
Usually, the lot percent defective is small and the lots are relatively large, so the Poisson distribution is used to calculate values for the percentages probability of acceptance, Pa, for OC curves. The Thorndike chart (Fig 9) provides cumulative Poisson probability distribution curves for different values of the acceptance number c. The chart gives the probability of c or fewer defectives in a sample of n selected from an infinite universe in which the percent defective is PD.
Actual
Percent
Defective
PD (PD n)/100 Percent Probability of
Acceptance from
Figure 13-9
0
1
2
3
4
5
6
7
8 0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0 100.0
91.5
68.0
42.0
24.0
12.0
6.0
3.0
1.5
Table 4 CALCULATION OF THE VALUES OF P 100 IN FIGURE 9 FROM THE THORNDIKE CHART (SAMPLING PLAN : n = 100 AND c = 2)
The Thorndike chart is used to calculate the values for Pa used to plot the OC curves of Fig 9 or any of the other OC curves used as examples. The sampling plan for fig 6 is to be referred where n=100 and c=2. The values of Pa for 9 points on the OC curve are calculated in Table 4, reading the values of Pa from the Thorndike chart. For example, for PD=2 percent, PD* n/100=2* 100/100=2.0. From the horizontal scale of the Throndike chart the value read is Pa=68 percent for c=2 on the vertical scale.
Fig. 9
17.5 PRODUCER’S RISK AND CONSUMER’S RISK
The definition of these risks can be made more specific by referring to a typical OC curve. Fig 10 shows graphically the following four definition:
AQL= Acceptable quality level-lots of this level of quality are regarded as
good, and it is wished to have a high probability for their acceptance.
= Producer’s risk - the probability that lots of quality level AQL will not
be accepted. Usually = 5 percent in practice.
LTPD= Lot tolerance percent defective-the dividing line selected between
good and bad lots. Lots of this level of quality are regarded as poor,
and it is wished to have a low probability for their acceptance.
= Consumer’s risk – the probability that lots of the quality level LTPD
will be accepted. Usually = 10 percent in practice.
When the levels are set for each of these four values, two critical points on the OC curve are determined, points a and b shown in Figure 10.
17.6 SPECIFICATION OF A SAMPLING PLAN
To specify a plan that the requirements for AQL,LTPD, and a combination must be found with n and c with an OC curve that passes through points a and b, as shown in the figure 10. The mechanics of actually finding specific plans that fit can be accomplished by using standard tables, charts, or formulas that result in the specification of a combination of n and c that closely approximates the requirements set for AQL, , LTPD, .
17.7 SPECIFICATIONS OF N AND C FOR SINGLE SAMPLING PLANS
To specify a plan, it is necessary to determine the single sample size n and the acceptance number c that will produce an OC curve approximating that specified by the four values AQL, , LTPD, . This can be done referring to tables or by referring to the Thorndike chart.
An Example
Assume that the characteristics of the OC curve desired have been already specified as
AQL = 2 Percent
= 5 Percent
LTPD = 8 Percent
= 10 Percent
(1) (2) (3) (4)
Acceptance Number Value of (PD n)/100 at P=95 percent from Figure 13-9 Value of (PD n)/100 at P = 10 percent from Figure 13-9 Ratio of Col. 3: col.2 = LTPD/AQL
1
2
3
4
5
6
7
8 0.36
0.80
1.35
1.97
2.60
3.30
4.00
4.70 3.9
5.3
6.7
8.0
9.3
10.5
11.8
13.0 10.83
6.63
4.96
4.06
3.58
3.18
2.95
2.77
Table 5 DETERMINATION OF SAMPLING PLANS WITH SPECIFIED AQL AND LTPD ( = 5 PERCENT, =10 PERCENT)
STEP 1. Tabulate values of PD* n/100 for Pa=(1-)=95 percent and Pa==10 percent for each value of c from the Thorndike chart. For example, for Pa=95 percent and c=1, read PD* n/100=0.36, and for Pa=10 percent and c=1, read PD* n/100=3.9. Do this for various values of c, as in columns 1,2, and 3 of Table 5. Note that in column 2, the PD we are referring to is AQL, whereas in columns 3, it is LTPD.
STEP 2. Computer the ratio of columns 3 to column 2 for each of the values of c, as in column 4 of Table 5. This ratio is LTPD/PD. For the plan we seek, we scan column 4 for the ratio 8/2=4, since for our desired plan LTPD=8 and PD=2 percent. This ratio of 4 falls between 4.06 at c=4 and 3.58 at and PD=2 percent. The ratio of 4 falls between 4.06 at c=4 and 3.58 at c=5.
STEP 3. compute sample sizes as in Table 3, deciding whether to hold fixed and let float, or vice versa. If, for example, we set c=4 and hold at 5% then PD* n/100=AQL* n/100=1.97, and we can solve for the sample size n:
n=(1.97* 100)/2 = 99
The sampling plan would then be n=99 and c=4.
STEP 4. Check the resulting value of the risk floated. Using the Thorndike chart, for plan 1, enter with a values of c=4 and PD* n/100=LTPD* n/100=8* 99/100=7.92, and read the actual value of =10.5 percent. Table 6 also shows the actual floating values of and for each of the four plans. For plan 1, the probability of accepting lots of 8 percent quality increase slightly while holding the other specification. For plan 2, the probability of rejecting lots of good quality increase slightly while holding the other specification for and so on. Plans 1 and 2 come closest to meeting the original specifications and the choice between them depends on the emphasis desired.
Other values of and
Table 5 was constructed for the common values of and , 5 and 10 percent, respectively. But obviously a comparable table could be constructed from the Thorndike chart for any values of and , so the methods described are general.
17.8 AVERAGE OUTGOING QUALITY (AOQ) CURVES
Fig 11 shows the flow of good and rejected parts in a typical sampling plan and provides the structural basis for calculating the average outgoing quality (AOQ). The random sample of size n is inspected, and any defects found in the sample are replaced with good parts. Based on the number of defectives, c, found in the sample, the entire lot is accepted if c c and is rejected if c > c.
If the lot is rejected, it is subjected to 100 percent inspection, and all defectives found are replaced by good parts. Then, the entire lot of N parts is free of defectives. If, however, the lots is accepted by the sample, we run the risk that some defectives parts have passed. The average number of defective parts can be calculated.
If the average incoming quality is PD, acceptance occurs with the probability Pa (taken directly from the OC curve for the PD). The average number of defectives is then the product of the fraction defectives received times the number remaining in the lot weighted by the probability that acceptance occurs or (Pa/100)* (PD/100)* (N-n). The average outgoing quality AOQ in percent is then.
From the foregoing relationship, a curve can be developed for any given sampling plan showing the AOQ for any level of incoming quality. Data to plot the curve are generated by assuming different values for incoming quality, determining from the OC curve the Pa, and substituting these values in the formula to compute AOQ, as indicated in the Fig 12. This AOQ curve is based on the OC curve of Fig 6 for a sampling plan of n=100, c=2, and N=1000.
The interesting characteristics of the AOQ curve should be noted, first there is a maximum or limiting number of average defectives that can be passed. This peak in the curve is called the average outgoing quality limit (AOQL). There is an AOQL for every sampling plan, which depends on the characteristics of the plan. When good quality is presented to the plan-for example, 0 to 2 percent – Pa is relatively high, so most of the defectives that will exist will pass. As we go beyond 2 percent incoming quality, of 100 percent inspection increase, so more defectives are screened out – outgoing quality improves automatically as incoming quality worsens. Specifically, AOQ never exceeds 1.25 percent, regardless of incoming quality for the plan.
If the defectives are not replaced, then the formula for AOQ becomes
17.9 SAMPLING PLANS WITH SPECIFIED LTPD AOQL PROTECTION
Dodge-Romig provides both tables and charts for sampling plan designs that provide specified LTPD or AOQL protection with B = 10 percent and minimum total inspection. The levels of LTPD or AOQL selected for a given situation depend on the consequences of bad quality. If subsequent operations can catch further defectives without disrupting results in high production and quality – related costs, LTPD or AOQL should be held to low levels.
17.10 DOUBLE SAMPLING PLANS
Double sampling has the advantage of lower inspection costs for a given level of protection. It is accomplished by taking a smaller sample initially. Based on the results of this sample, the lot is either accepted, rejected, or no final decision is made. In the last instance, a second sample is drawn and a final decision is made based on the combined samples. The disadvantage of double sampling is that inspection load varies considerably.
c Fixed at 4 c Fixed at 5
(1) = 5 Percent, Floats (2) = 10 percent, Floats (3) = 5 Percent, Floats (4) = 10 Percent, Floats
n = 1.97100/2 = 99
= 10.5 percent n = 8.0 100/8 = 100
= 5.5 percent n = 2.60 100/2 = 130
= 5 percent n = 9.3 100/8 = 115
= 3 percent
Table 6 SINGLE SAMPLING PLANS FOR c=4 AND c=5 WHEN IS FIXED, ALLOWING TO FLOAT, AND WHEN IS FIXED, ALLOWING TO FLOAT
As with single sampling. Dodge-Romig provides both tables and charts to aid in plan design. These aids are constructed both for the situation where one wishes to specify LTPD or AOQL, with = 10 percent, and for minimum total inspection.
17.11 SEQUENTIAL SAMPLING PLANS
In sequential sampling, samples are drawn at random, as before. But after each sample is inspected, the cumulated results are analyzed and decision made to (1) accept the lot. (2) reject the lot. Or (3) take another sample. Sequential sample sizes can be small as n = 1. Fig 13 shows the graphical structure of a sequential sampling plan. The main advantage of sequential sampling is a reduction in the total amount of inspection required to maintain a given level of protection. In the plan shown in Fig 13, a minimum of 15 items must be inspected in order to accept a lot. If the number of rejects on the graph rises such that the point falls on or above the upper line, the lot is rejected. If the point falls on or below the lower line, the lot is accepted. Until one of these events occurs, sampling is continued. As before, the sequential sampling plan is specified by the four requirements: AQL, LTPD, and . In turn, these requirements determine the OC curves of the sequential plans that meet the requirements. The disadvantage of sequential sampling is that the inspection loads vary considerably. Detailed procedures for the construction of sequential sampling plans are given in Duncan (1974).
17.12 BASES FOR SELECTING SAMPLING PLANS
The relative advantages and disadvantages of alternative sampling plans do not rest on the protection from poor quality that can be achieved. The risks involved depend on the OC curve of the plan and can be preset, and a specific objectives of LTPD or AOQL protection can be implemented in all the three. Table 7 provides the comparison of several factors that influence the choice among the three types of plans.
Type of Sampling Plan
Factor Single Double Sequential
Protection against rejecting high quality lots and accepting low quality lots
Total inspection cost
Amount of record keeping
Variability of inspection load
Sampling costs when all samples can be taken as needed
Sampling costs when all samples must be drawn at same time
Accurate estimate of lot quality
Sampling costs when dependent on the number of samples drawn
Relationship with suppliers, that is, give more than one chance Same
Highest
Least
Constant
Highest
Least
Best
Least
Worst Same
Intermediate
Intermediate
Variable
Intermediate
Highest
Intermediate
Intermediate
`
Intermediate Same
Least
Most
Variable
Least
Intermediate
Worst
Highest
Best
Table 7 FACTORS INFLUENCING THE CHOICE AMONG TYPES OF SAMPLING PLANS
17.13 ACCEPTANCE SAMPLING BY VARIABLES
In acceptance sampling by variables, actual measurements are recorded instead of simply classifying items as good or bad as in attribute sampling. This difference in procedure changes the details of determining the plan that meets our specifications of AQL, LTPD and because the appropriate statistical distribution is now the normal distribution instead of distributions for proportions. Conceptually, however, the basic ideas on which the control of outgoing quality is maintained remain the same. The discriminating power of plan is represented by an OC curve, which shows the probability of acceptance for different levels of actual quality presented to the plan. To specify a plan that gives the desired protection requires basically the same procedure as for sampling by attributes.
17.14 KINDS OF VARIABLES SAMPLING PLANS
There are two main categories, which depend on our knowledge of the population standard deviation. X: where X is known and constant and where X is unknown and may be a variable. Furthermore, the classification may be extended to the nature of the decision criterion; that is, where the criterion is average of measurements and where the criterion is percent defectives (PD). To summarize, the classification is as follows:
X is known and constant
c) The decision criterion is expressed as the average of measurements ,
d) The decision criterion is expressed as PD in the lot.
X is unknown and may be variable
e) The decision criterion is expressed as the average of measurements,
f) The decision criterion is expressed as PD in the lot.
17.15 VARIABLE SAMPLING PLANS WHERE X IS KNOWN AND CONSTANT
These procedures will be discussed in the context of an example in which steel bar is received in batches from a vendor. It has been determined that a tensile strength of 90,000 Newton per s.q. mm is required, and we wish to specify that Pa = 10 percent for lots of this average tensile strength. Lots with an average tensile strength of 95,000 Nsm are regarded as good quality, and it is specified that Pa = 95 percent for lots of this average tensile strength. X is known to be 6000 Nsm, and the measurements are normally distributed. To summarize, the plan specifications are
AQL = 95, 000 N/sq.mm
Xt = 90,000 N/sq. mm (equivalent to LTPMD in attributes sampling)
= 5 percent
= 10 percent
The objective is to determine a sampling plan that will indicate an acceptance average for sample tests, xa, and a sample size n that will accept lots to our specifications. The acceptance average for sample test xa, is equivalent to acceptance number, c, in attributes sampling plans. In other words, when xa is less than the critical value, the lot from which sample was drawn will be rejected and returned to the supplier. Lots for which the sample average tensile strength is equal to or greater than xa will be accepted.
The standard deviation of the sampling distribution of means for samples of size n will be 6000/ . To be accepted 95 percent of the time, AQL= 95 percent of the time, AQL = 95000 N/sq. mm must be 1.645 units above the grand mean, x = xa, since 5 percent of the area under a normal curve is beyond + 1.645 . Therefore, xa – 95000 is 1.645 units. Then,
Xa - 95000 = -1.645 * (6000/ )
Also, to ensure that lots of average tensile strength xt = 90000 have only a 10 percent chance of acceptance, which ensures that samples with xi = 90000 N/sq. mm must be 1.28 units below the grand mean,
Xa – 90000 = +1.28 * (6000/ )
Now there are two independent equations with two unknowns, xa and n. They may be solved simultaneously to yield the following values:
Xa= 92,200 N/sq. mm
n=12
Fig. 14
Figure 14 shows the relationships of the various elements of the problem that answer the question. “What is the grand mean, x, and the sample size, n, of a normal distribution with = 6000 N/sq. mm and x = 6000/ ?”
The OC curve for the plan just described is determined by cumulating the areas under the normal curve for the sampling distribution of sample size n.
17.16 UPPER AND LOWER TOLERANCE LEVELS
There are often upper and lower tolerance levels specified for measurements of part dimensions, chemical content, and so forth. When a measured characteristic may be too small or too large to be useful, these two-sided tolerance levels can be reflected in the specifications of variables sampling plans. A sampling plan would then specify a sample size, with upper and lower average acceptance levels, Two equations must then be written for each limit and solved for xa (upper) and xa (lower) and the integer value of the sample size n that most nearly satisfies the stated risks and .
Sampling by Attributes, Sample size Sampling by Variables, Sample Size Difference in sample size Percentage Difference
10
20
40
75
150
300
750
1500 7
13
20
35
60
85
125
200 3
7
20
40
90
215
625
1300 30
35
50
58
60
72
83
87
Table 8 SAMPLE SIZES FOR VARIABLES VERSUS ATTRIBUTES SAMPLING FOR COMPARABLE PROTECTION LEVELS
17.17 FIELD OF APPLICATION OF VARIABLES SAMPLING PLANS
Obiviously, inspection, recording, and computing costs will normally be higher with variables sampling plans than with attributes sampling plans. The most important reason for using variable plas are that, for a given level of protection, variable plans will require smaller sample sizes and less total inspection. Table 8 demonstrates the contrasting sample sizes, but if a plan requires a sample size of 750 for attributes sampling, comparable protection could be obtained with a sample of only 125 for variables sampling. These smaller sample sizes can be very important when the inspection process destroys the part. From an economic point of view, then variables sampling should be used when the smaller sample size tips the balance of the costs of inspection, scrap, recording, and computing. In addition to the possible cost advantages, the data generated by variables sampling ( and s) provide additional valuable diagnostic for controlling production processes.
17.18 SUMMARY
When production has already taken place, it is often necessary to know the quality level of the lot, acceptance sampling is the statistical quality control technique for making decisions. This lesson covered with OC curves and sampling plan included with tolerance levels.
17.19 ASSIGNMENT QUESTIONS
Explain of variables sampling plans.
Discuss the specification of a sampling plan
17.20 REVIEW QUESTIONS
Why is acceptance sampling not considered an attempt to control the quality of a process?
Why is it necessary to control both and variations for control of variables?
Distinguish between the types of inspection required for a p-chart and a c-chart?
Discuss the considerations involved in selecting the inspection points within a process.
17.21 REFERENCE BOOKS
Duncan, A.J. Quality Control and Industrial Statistics (4th ed.), Irwin. Homewood, III., 1974.
Elwood S.Buffa and Rakesh K. Sarin, Modern Production/ Operations Management (8th ed.), John Wiley & Sons, Inc. Singapore., 1987.
Grant, E. L., and R.S. Leavenworth, Statistical Quality control (5th ed.). McGraw-Hill, New York. 1980.
Shwhart. W.A., Economic Control of Quality for Managers and Engineers, Van Nostrand, Princeton, N.J., 1931.
LESSON – 18
METHODS ANALYSIS & WORK MEASUREMENT
18.1 INTRODUCTION
Resource required to produce goods and services would be from the following: (a) Man (b) Materials (c) Machines (d) Money (e) Technology and (f) Time. They are to be deployed in the most effective and efficient manner. This process of deployment is a continuous one since the best available combination of the resources at some point would not necessarily coincide with the best available combination at some later point of time. This emphasises that there is a need for analysing existing working methods to develop more efficient working methods for the future.
Objectives
To understand the different method of work analysis and measurement.
Contents
18.1 Introduction
18.2 Definition of Method Study
18.3 Objectives of Method Study
18.4 The Method Study Procedure
18.5 Process Chart symbols
18.6 Flow Process Chart (on example)
18.7 Examine Critically
18.8 Develop the impressed Method
18.9 Summary
18.10 Assignment Questions
18.11 Review Questions
18.12 Reference Books
18.2 DEFINITION OF METHOD STUDY
Method Study is the systematic recording and critical examination of existing and proposed ways of doing work, as a means of developing and applying easier and more effective methods and reducing costs.
18.3 OBJECTIVES OF METHOD STUDY
The objectives of method Study are:
Improvement of processes and procedures,
Improvement in the design of plant and equipment,
Improvement of plant layout,
Improvement in the use of men, materials and machines,
Efficient materials handling.
Improvement in the flow of production and processes,
Economy in human effort and the reduction of unnecessary fatigue,
Method Standardisation,
Improvement in safety standards,
Development of a better physical working environment.
18.4 THE METHOD STUDY PROCEDURE
The solution of any problem follows the following sequence of phases in that order:
DEFINE the problem
RECORD all the facts critically but impartially.
EXAMINE the facts critically but impartially.
CONSIDER the courses of actions (possible solutions) and decide which to follow.
IMPLEMENT the solution.
FOLLOW UP the development
The basic procedure for method study are as follows:
g) SELECT the work to be studied
h) RECORD all the relevant facts about the present method by direct observation.
i) EXAMINE those facts critically and in an ordered sequence, using the techniques best suited to the purpose.
j) DEVELOP the most practical, economic and effective method, having due regard to all contingent circumstances.
k) DEFINE the new method so that it can always be identified.
l) INSTALL the methods as standard practice.
m) MAINTAIN that standard practice by regular routine checks.
These are the seven essential stages in the application of method study; none can be excluded. Strict adherence to their sequence, as well as to their content, is essential for the success of an investigation. They are shown disgrammatically on the chart in Figure 1.
1. SELECTION OF JOB
When a study team is considering whether a method study investigation of a particular job should be carried out, certain factors should be kept in mind. These are:
Economic considerations
Technical considerations
Human relations
(I) ECONOMIC CONSIDERATIONS
The cost of the study, the loss of time due to the investigation. The cost both short-term and long term associated with the prospective changes in the recommended working method of the job should be carefully estimated and examined. If the accumulated estimated benefits from the recommended method outweigh the estimated total cost, for any job then we should take up the job under study.
Under preliminary considerations the early job choices are: Bottlenecks which are holding up other production operation. Movement of materials over long distances between shops or operations involving a great deal of man-power or where there is repeated handling of material. Operations involving repetitive work using a great deal of labour liable to run for a long time.
(II) TECHNICAL CONSIDERATIONS
The most important point is to make sure that adequate technical knowledge is available with which to carry out the study. For example:
A machine tool constituting a bottleneck in production is known to be running at a speed below that at which the high-speed or ceramic cutting tools will operate effectively.
(III) HUMAN RELATIONS
Trade union official workers’ representatives and the operators themselves should be educated in the general principles and objectives of method study. Participative management may facilitate overcoming the negative human reactions to investigation and changes of method. If the study of a particular job appears to be leading to unrest or ill feeling leave it alone, however, promising it may be from the economic point of view. If other jobs are tackled successfully and can be seen by all to benefit the people working on them, opinions will change and it will be possible in time to go back to the original choice.
2. RECORD, EXAMINE, DEVELOP
After selecting the work to be studied systematic recording of all the facts of the existing method and critical examination of these are carried out to eliminate every unnecessary element or operation and to develop the quickest and best method by having an improved sequence of doing the work, omitting the redundant elements, selecting more appropriate person and more suitable place for doing the work.
The most commonly used method study charts are Outline process chart, Flow process chart- man type, Flow process chart- material type, Flow process chart- equipment type and two handed process chart. Charts indicating process sequence provide a systematic description of a process or workcycle with details for the analyst to develop method improvements.
18.5 PROCESS CHART SYMBOLS
I. OPERATION
Indicates the main steps in a process, method or procedure, usually the part, material or product concerned is modified or changed during the operation.
II. INSPECTION
Indicates an inspection for quality and /or check for quantity.
III. TRANSPORT
Indicates the movement of workers, materials or equipment from place to place.
IV. TEMPORARY STORAGE OR DELAY
Indicates a delay in the sequence of events: for example, work waiting between consecutive operations or any object laid aside temporarily without record until required.
V. PERMANENT STORAGE
Indicates a controlled storage in which material is received into or issued from a store under some form of authorization; or an item is retained for reference purposes.
RECORD, EXAMINE, DEVELOP
Figure 2
FLOW PROCESS CHART: ENGINE STRIPPING, CLEANING AND DEGREASING
CHART NO.1 SHEET No.1 OF1 METHOD: Original
PRODUCT: Bus Engines OPERATIVE (S):
LOCATION: Degreasing shop
PROCESS: Stripping, degreasing and CHARTED BY:
Cleaning used engines APPROVED BY: DATE:
Fig. 2
18.6 FLOW PROCESS CHART (AN EXAMPLE)
A flow process chart is a process chart setting out the sequence of the flow of a product or a procedure by recording all events under review using the appropriate process chart symbols. An example of a material type flow process chart constructed to study what happened when a bus engine was stripped a degreased and cleaned for inspection is given in Figure 2. When flow process charts are being made regularly, it is convenient to use printed or stenciled sheets similar to that shown in Figure 3. Some points must be remembered in the preparation of process charts.
Charting is used for recording because it gives a complete picture of what is being done and helps the mind to understand the facts and their relationships to one another.
The details which appear on a chart must be obtained from direct observation. Once they have been recorded on the chart the mine is freed from the task of carrying them but they remain available for reference and for explaining the situation to others. Charts must not be based on memory but must be prepared as the work is observed.
A high standard of neatness and accuracy should be maintained in preparing fair copies of charts constructed from direct observation.
To maintain their value for future reference and to provide as complete information as possible, all charts should carry a heading and giving the following information. (see figure 3.)
n) The name of the product, material or equipment charted, withdrawing numbers or code numbers
o) The job or process being carried out, clearly stating the starting point and the end point, and whether the method is the present or the proposed one.
p) The location in which the operation is taking place.
q) The chart reference number, sheet number and the total number of sheets.
r) The observers name and, if desired, that of the person approving the chart.
s) The date of the study.
t) A key to the symbols used.
u) A summary of distance, time and, if desired, cost of labour and material, for comparison of old and new methods.
Before leaving the chart, check the following points:
v) Have the facts been correctly recorded?
w) Have any over-simplifying assumptions been made?
x) Have all the factor contributing to the process been recorded?
18.7 EXAMINE CRITICALLY
The questioning technique is the means by which the critical examination is conducted, each activity been subjected in turn to a systematic and progressive series of questions.
The five sets of activities recorded on the flow process charts fall-naturally into two main categories, namely-
those in which something is actually happening to the material or the work piece under consideration, ie, it is being worked upon, moved or examined; and
those in which it is not being touches, being either in storage or at a stanstill owing to the delay.
Activities in the first category may be subdivided into three groups.
# MAKE READY activities required to prepare the material or work piece and set it in position ready to be worked on.
# DO operations in which a change is made in the shape, chemical composition or physical condition of the product.
# PUT AWAY activities during which the work is moved aside from the machine or work place.
Detailed examination of the chart leads to a number of questions. For example, it will be seen that an engine been transported from old-engine stores has to change cranes in the middle of the journey. Let us apply the questioning technique to these first transports:
Q. WHAT IS DONE?
A. The engine is carried part of the way through the stores by one electric crane, is placed on the ground and is then picked up by another which transports it to the stripping bay.
Q. WHY IS THIS DONE?
A. because the engines are stores in such a way that they cannot be directly picked up by the monorail crane which runs through the stores and degreasing shop.
Q. WHAT ELSE MIGHT BE DONE?
A. The engines could be stores so that they are immediately accessible to the monorail crane, which could then pick them up and run directly to the stripping bay.
Q. WHAT SHOULD BE DONE?
A. The above suggestion should be adopted.
18.8 DEVELOP THE IMPRESSED METHOD
From the very brief example of the use of the questioning sequence given above, it will be seen that once the questions have been asked most of them almost answer themselves.
The first step in doing so is to make a record of the proposed method on a flow process chart, so that it can be compared with the original method and can be checked to make sure that no points has been overlooked.
This will also enable a record to be made in the summary of the total numbers of activities taking place under both methods, the savings in distance and time which may be expected to accrue from the change and the possible savings in money which will result. The improved method for the example discussed is shown in Figure 4.
18.9 SUMMARY
Resources required to produce goods and services would be from the following Man, Materials, Machines, Money, Technology, Time. They are to be deployed in the most effective and efficient manner. These processes are to be continuous once since the best available combination of the resources at some point would not necessarily coincide with the best available combination at some later point of time.
This lesson is discussed with method study.
18.10 ASSIGNMENT QUESTIONS
Discuss the method study procedure.
18.11 REVIEW QUESTIONS
Explain objectives of Study.
18.12 REFERENCE BOOKS
Shwhart. W.A., (1931) Economic Control of Quality for Managing and Engineering, Van Mostrand, Printice Hall, N.J.
LESSON – 19
TIME STUDY
19.1 Introduction
Time study is defined as a work measurement technique for recording the times and rates of working for the elements of a specified job carried out under specified conditions, and for analyzing the data so as to obtain the time necessary for carrying out the job at a defined level of performance.
Objectives
To understand the concept of time study and its use.
Contents
19.1 Introduction
19.2 Definition and Purpose of Time Study
19.3 Basic Steps in Time Study
19.4 Performance Rating
19.5 Rating of Effort
19.6 Factors Affecting the Rate of Working
19.7 Determination of Basic Time
19.8 Recording the Rating
19.9 Summary
19.10 Assignment Questions
19.11 Review Questions
19.12 Reference Books
19.2 DEFINITION AND PURPOSE OF TIME STUDY
Time study is defined as a work measurement technique for recording the times and rates of working for the elements of a specified job carried out under specified conditions, and for analyzing the data so as to obtain the time necessary for carrying out the job at a defined level of performance.
19.3 BASIC STEPS IN TIME STUDY
The following eight steps constitute the time study process excluding the selections of the job for the worker which have to be done before the steps in the list are taken up:
Obtaining and recording all the available information about the job, operator and the surrounding conditions likely to affect the execution of work.
Recording the complete description of the method, breaking down the operation into ‘elements’.
Examining the detailed breakdown to ensure the most effective method and motions are being used and determining sample size.
Measuring with a timing device (stop-watch), and recording the time taken by the operator to perform each element of the operation.
At the same time, assessing the effective speed of working the operator relative to the observers concept of the rate corresponding to standard rating.
Extending observed time to “basic times”.
Determining the allowances to be made over and above the basic time for the operation.
Determining the “standard time” for the operation.
A. THE STOP WATCH
Usually, three types of stop watches are used for performing time study;
i) Flyback type, ii) Non-flyback type, and iii) the split hand stop-watch type. However the first two types are used for a large majority of cases,
B. TIMING ELEMENTS BY STOP-WATCH
There are two principal methods of timing with the stop-watch. a) Cumulative timing and b) Flyback timing. In cumulative method the watch runs continuously throughout the study. It is started at the beginning of the first element of the first cycle to be timed and is stopped only after the study is completed. The purpose of this procedure is to ensure that all the time during which the job is observed is recorded in the study.
In flyback method the stop-watch is reset to zero reading, by returning the hands of hands of the watch to zero, at the end of each element and the hands of the watch are allowed to start immediately at the beginning of the next element, the time for each element being observed directly.
In case of flyback timing, the study man reaches the clock at an exact minute, preferably at the next major division such as the hour or one of the five minute points, and sets his stop-watch running, noting the exact time in the “ time on “ space. He reaches the location where the study is to be made water running and allows it to do so till he is ready to start timing. At the beginning of the first element of the first work cycle, as the hands are snapped back there is nothing in the first entry to show for the time that has elapsed. At the end of the study, the hand is snapped back to zero on completion of the last element of the last cycle and thereafter allowed to run continuously until he can again reach the clock and note the time of finishing when the watch is finally stopped. The final clock time is entered in the “time off” space on the form. The two times recorded before and after the study are know as “check times”. The clock reading at the beginning of the study is subtracted from the clock reading at the end of the study yielding the elapsed time, to be entered in its appropriate location.
The recorded time is obtained as the aggregate of time of all the elements, ie., other activities noted in the study and ineffective time and check time are also noted. This aggregate should ideally equal the elapsed time but in practice is found to be different from the elapsed time. The difference may be attributed to the cumulative loss of very small fractions of time at the return of the hand to zero and too bad reading of missed elements. The difference observed on case of cumulative timing is less since there is no loss due to snapback effects.
Cumulative timing has the significant advantage that even in the event of missing element non-recording of some occasional element it does not have any effect on the overall time. However, cumulative timing calls for spending of more time in determining individual element timing which can be only obtained after performing a subtraction operation.
19.4 PERFORMANCE RATING
Rating and allowances are the two most controversial aspects of time study. Most time study in industry are used to determine standard times for setting workloads and as a basis for incentive plans. The procedures employed have a bearing on the earnings of the workers as well as on the productivity and possibly, the profits of the enterprise. Time study is not an exact science, although much research has been and continues to be undertaken to attempt to establish a scientific basis for it. Rating (the assessment of a worker’s rate of working) and the allowances to be given for recovery from fatigue and other purposes are still largely matters of judgement and therefore of bargaining between management and labour.
It has, already, been said that time studies should be made, as far as possible, on a number of qualified workers; and that very fast or very slow workers should be avoided, at least while making the first few studies of an operation. What is a “qualified worker”? A QUALIFIED WORKER is one who is accepted as having the necessary physical attributes, who possesses the required intelligence and education, and who has acquired the necessary skill and knowledge to carry out the work in hand to satisfactory standards of safety, quantity and quality.
The acquisition of skill is a complicated process. It has been observed that among the attributes which differentiate the experienced worker from the inexperienced are the following:
• achieves smooth and consistent movements;
• acquires rhythm;
• responds more rapidly to signals;
• anticipates difficulties and is more ready to overcome them;
• carries out the task without giving the appearance of conscious attention and is therefore more relaxed.
RATING is the assessment of the worker’s rate of working relative to the observer’s concept of the rate corresponding to standard pace. AND STANDARD PERFORMANCE is the rate of output which qualified workers will naturally achieve without over-exertion as an average over the working day or shift, provided that they know and adhere to the specified method and provided that they are motivated to apply themselves to their work. This performance is denoted as 100 on the standard rating and performance scales.
19.5 RATING OF EFFORT
The purpose of rating is to determine, from the time actually taken by the operative being observed, the standard time which can be maintained by the average qualified worker and which can be used as a realistic basis for planning, control and incentive schemes. What the study man is concerned within, therefore the speed with which the operative carries out the work, in relation to the study man’s concept of a normal speed.
Speed of what? Certainly not merely speed of movement, because an unskilled operative may move extremely fast and yet take longer to perform an operation than a skilled operative who appears to be working quite slowly. The unskilled operative puts in a lot of unnecessary movements which the experienced operative has long since eliminated. The only thing that counts is the effective speed of the operation. Judgment of effective speed can only be acquired through experience and knowledge of the operations being observed. It is very easy for an inexperienced study man either to be fooled by a large number of rapid movements into believing that an operative is working apparently slow movements are very economical of motion. The amount of effort which has to be exerted and the difficulty encountered by the operative is a matter for the study man to judge in the light of his experience with the type of job. Operations involving mental activities (judgement of finish, for example, in inspection of work) are most difficult to assess. Experience of the type of work is required before satisfactory assessments can be made. Inexperienced study men can be made to look very foolish in such cases, and moreover can be unjust to above-average and conscientious workers.
In any job the speed of accomplishment must be related to an idea of a normal speed for the same type of work. This is an important reason for doing a proper method study on a job before attempting to set a time standard. It enables the study man to gain a clear understanding of the nature of the work and often enables him to eliminate excessive effort or judgement and so bring his rating process nearer to a simple assessment of speed.
19.6 FACTORS AFFECTING THE RATE OF WORKING
Variations in actual times for a particular element may be due to factors outside or within the control of the worker. Those outside his control may be
Variations in the quality or other characteristics of the material used, although they may be within the prescribed tolerance limits.
Changes in the operating efficiency of tools or equipment within their useful life.
Minor or unavoidable changes in methods or conditions of operation.
Variations in the mental attention necessary for the performance of certain of the elements.
Changes in climatic and other surrounding conditions such as light and temperature.
These can, generally, be accounted for by taking a sufficient number of studies to ensure that a representative sample of times is obtained.
Factors within his control may be-
y) Acceptable variations in the quality of the product.
z) Variations due to his ability
aa) Variations due to his attitude of mind, especially his attitude to the organisation for which he works.
The optimum pace at which the worker will work depends on-
1) The physical effort demanded by the work
2) The care required on the part of the worker
3) His training and experience.
Greater physical effort will tend to slow up the pace. The ease with which the effort is made will also influence the pace. For example, an effort made in conditions where the operative cannot exert his strength in the most convenient way will be made much more slowly than one of the same magnitude in which he can exert his strength in a straightforward manner (for instance, pushing a car with one hand through the window on the steering wheel, as opposed to pushing it from behind). Care must be taken to distinguish between slowing up due to effort and slowing up due to fatigue.
An increased need for care in carrying out an element will reduce the pace. An example is placing a peg with parallel sides in a hole, which requires more care than if the peg is tapered.
The study man should be careful not to rate too highly when-
bb) The worker is worried or looks hurried.
cc) The worker is obviously being over-careful.
dd) The job looks difficult to the study man.
ee) The study man himself is working very fast, as when recording a short-element study.
Conversely, there is a danger of rating too low when-
ff) The worker makes the job look easy.
gg) The worker is using smooth, rhythmic movements.
hh) The worker does not pause to think when the study man expects him to do so.
ii) The worker is performing heavy manual work.
jj) The study man himself is tired.
A. SCALES OF RATING
There are several scales of rating in use, the most common of which are those designated the 100-133 scale, the 60-80, the 75-100. and the British Standard scale which is the 0-100 scale. The newer 0-100 scale has, however, certain important advantages which have led to its adoption as the British Standard. In the 0-100 scale, 0 represents zero activity and 100 the normal rate of working of the motivated qualified worker- that is, the standard rate.
19.7 DETERMINATION OF BASIC TIME
The number 100 represents standard performance. If the study man decides that the operation he is observing is being performed with less effective speed than his concept of standard, he will use a factor of less than 100, say 90 or 75 or whatever he considers represents a proper assessment. If, on the other hand, he decides that the effective rate of working is above standard, he gives it a factor greater than 100-say, 110, 115 or 120.
It is usual practice to round off ratings to the nearest multiple of five on the scale; that is to say, if the rate is judged to be 13% above standard, it would be put down at 115 During the first weeks of their training, study men are unlikely to be able to rate more closely than the nearest ten.
If the study man’s ratings were always impeccable, then, however, many times he rates and times an element the result should be that-
Observed Time * Rating = A constant
An example, expressed numerically, might read as follows:
Cycle Observed time
(decimal minutes) Rating Constant
1. 0.20 * 100 = 20
2. 0.16 * 125 = 20
3. 0.25 * 80 = 20
and so on:
It is always a comparison with the standard rating. So, if the standard rating is taken to be 100, then dividing the constant by the standard rating (100) will yield the constant known as the “basic time” for the element.
Observed Time * Rating/Standard Rating = Basic Time
For example:
0.16 * 125/100 = 0.20 min.
19.8 RECORDING THE RATING
In general, each element of activity must be rated during its performance before the time is recorded, without regard to previous or succeeding elements.
It is important that the rating should be made while the element is in progress and that it should be noted before the time is taken, as otherwise there is a very great risk that previous times and ratings for the same element will influence the assessment. Since the rating of an element represents the assessment of the average rate of performance for that element, the longer the element the more difficult it is for the study man to adjust his judgment to that average. Long elements, though timed as a whole up to the break points, should be rated every half minute.
Rating to the nearest five is found to give sufficient accuracy in the final result. Greater accuracy than this can be attained only after very long training and practice.
19.9 SUMMARY
Time study is defined as a work measurement technique for recording the times and rates of working for the elements of a specified job carried out under specified conditions, and for analyzing the data so as to obtain the time necessary for carrying out the job at a defined level of performance.
19.10 ASSIGNMENT QUESTIONS
Discuss the steps in time study.
Explain the performance rating.
19.11 REVIEW QUESTIONS
Compare and contrast the rate of working and the rating of effort.
19.12 REFERENCE BOOKS
Conje, D.K., (1977) Production control in Engineering, Edward Arnold.
LESSON – 20
ALLOWANCE FACTORS
20.1 Introduction
The determination of allowances is the most controversial part of work study. The fact that the calculation of allowances cannot be altogether accurate under all circumstances is no excuse for using them as a dumping ground for any factors that have been missed or neglected in making the time study.
Objective
To understand how allowances are determined in a work environment.
Contents
20.1 Introduction
20.2 Allowances Factors
20.3 Calculation of Allowance
20.4 Standard Time
20.5 Work Sampling Technique
20.6 Conducting the Work Sampling Study
20.7 Making the Observations
20.8 Uses of Work Sampling
20.9 Summary
20.10 Assignment Questions
20.11 Review Questions
20.12 Reference Books
20.2 ALLOWANCES FACTORS
The determination of allowances is the most controversial part of work study. The fact that the calculation of allowances cannot be altogether accurate under all circumstances is no excuse for using them as a dumping ground for any factors that have been missed or neglected in making the time study. The difficulty experienced in preparing a universally accepted set of precise allowances that can be applied to every working situation is due to various reasons. The most important among them are-
1) FACTORS RELATED TO THE INDIVIDUAL
If every worker in a particular working area was to be considered individually it might well be found that a thin, active, alert worker at the peak of physical condition required a smaller allowance to recover from fatigue than an obese, inept worker. Similarly, every worker has a unique learning curve which can affect the manner in which he conducts his work. There is also some reason to believe that there may be ethnic variations in the response to the degree of fatigue experienced by workers, particularly when engaged on heavy manual work.
2) FACTORS RELATED TO THE NATURE OF WORK ITSELF
Many of the tables developed for the calculation of allowances give figures which may be acceptable for light and medium work in industry but which are inadequate when applied to operation involving very heavy and strenuous work such as work beside furnaces in steel mills. Moreover every working situation has its own particular attributes which may affect the degree of fatigue experienced by the worker or may lead to unavoidable delay in the execution of a job. Other factors inherent in the job can also contribute to the need for allowance, although in a different way- for example, when protective clothing or gloves have to be worn, or when there is constant danger or when there is a risk of spoiling or damaging the product.
3) FACTORS RELATED TO THE ENVIRONMENT
Allowances in particular relaxation allowances, have to be determined with due regard to various environmental factors such as heat, humidity, noise, dirt, vibration, light intensity, dust, wet conditions and so on. Each of these will affect the amount of relaxation allowances needed. Environmental factors may also be seasonal in nature. This is particularly so for those who work in the open air, such as workers in the construction industry or in shipyards.
20.3 CALCULATION OF ALLOWANCES
The basic model for the calculation of allowances is shown in Figure 5. It will be seen from this model that relaxation allowances are the only essential part of the time added to the basic time. Other allowances such as contingency, policy and special allowances are applied under certain conditions only.
A. RELAXATION ALLOWANCES
Relaxation allowance is an addition to the basic time intended to provide the worker with the opportunity to recover from the physiological and psychological effects of carrying out specified work under specified conditions and to allow attention to personal needs. The amount of allowance will depend on the nature of the job.
Relaxation allowances are calculated so as to allow the worker to recover from fatigue. Fatigue may be defined as physical and/or mental weariness, real or imagined, existing in a person and adversely affecting his ability to perform work. The effects of fatigue can be lessened by rest pauses, during which the body recovers from its exertion, or by slowing down the rate of working and thus reducing the expenditure of energy.
Allowances for fatigue are normally added element by element to the basic times, so that a work value for each element is built up separately, the element standard times being combined to yield the standard time for the whole job or operation. In this way it is possible to deal with any extra allowance which may be required to compensate for severe climatic conditions, since the element may sometimes be performed in cool weather and sometimes when it is very hot. Allowances for climatic conditions have to be applied to the working shift or working day rather than to the element or job, in such a way that the amount of work which the worker is expected to produce over the day or the shift is reduced. The standard time for the job remains the same whether the job is performed in summer or winter, since it is intended to be a measure of the work that the job contains.
Relaxation allowances have two major components; fixed allowances and variable allowances.
Fixed allowances are composed of
1. Allowances for personal needs. This allowance provides for the necessity to leave the workplace to attend to personal needs such as washing, going to the lavatory and getting a drink. Common figures applied by many enterprises range from 5 to 7%.
2. Allowances for basic fatigue. This allowance always a constant is given to take account of the energy expended while carrying out work and to alleviate monotony. A common figure is 4% of basic time. This is considered to be adequate for a worker who carried out the job while seated who is engaged on light work in good working conditions and who is called upon to make only normal use of hands, legs and senses.
Variable allowances are added to fixed allowances when working conditions differ markedly from those stated above, for instance because of poor environmental conditions that cannot be improved, added stress, and strain in performing the job in question and so on:
Rest pauses: Relaxation allowances can be taken in the form of rest pauses. While there is no hard and fast rule governing rest pauses, a common practice is to allow a 10 to 15 minutes break at mid – morning and mid-afternoon often coupled with facilities for tea, coffee or cool drinks or snacks and to permit the remainder of the relaxation allowance to be taken at the discretion of the worker.
Rest pauses are important for the following reasons:
They decrease the variation in the worker’s performance throughout the day and tend to maintain the level nearer the optimum.
They break up the monotony of the day.
They give the workers the chance to recover from fatigue and to attend to personal needs.
They reduce the amount of time off taken by workers during working hours.
B. CONTINGENCY ALLOWANCES
A contingency allowance is a small allowance of time which may be included in a standard time to meet legitimate and expected items of work or delays, the precise measurement of which is uneconomical because of their infrequent or irregular occurrence.
The allowance provides for small unavoidable delays as well as for occasional and minor extra work and so it would be proper to split the allowance into these components, the contingency allowance for work being allowed to attract fatigue allowance just as any other items of work does, and the delay part of the allowance being given with only a personal needs increment. In practice this is a distinction which is often ignored. Contingency allowances are always small and it is usual to express them as a percentage of the total repetitive basic minutes in the job, adding them to the rest of the work in the job and adding a relaxation percentage to the whole contingency allowance. Contingency allowance should not be more than 5% and should only be given in cases where the study man is absolutely satisfied that the contingencies cannot be eliminated and that they are justified.
C. POLICY ALLOWANCES
A policy allowance is an increment, other than bonus increment, applied to standard time (or to some constituent part of it, eg. Work content) to provide a satisfactory level of earnings for a specified level of performance under exceptional circumstances.
Policy allowances are not a genuine part of time study and should be used with the utmost caution and only in clearly defined circumstances. They should always be dealt with quite separately from basic times, and if used at all, should preferably be arranged as an addition to standard times, so as not to interfere with the time standards set by time study.
The usual reason for making a policy allowance is to line up standard times with the requirements of wage agreements between employers and trade unions. In several enterprises in the United Kingdom, for example, the incentive performance is generally set at such a level that the average qualified worker as defined, can earn a bonus of 33.5% of his basic time rate if he achieves standard performance. There is no need to apply a policy allowance to achieve this state of affairs; it is simply necessary to arrange for the rate paid per standard minute of work produced to be 133.5% of the basic time rate per minute, and in general it is better to accommodate any special wage requirements in this way, by adjusting the rate paid per unit of work rather than the standard time.
D. SPECIAL ALLOWANCES
Special allowances may be given for any activities which are not normally part of the operation cycle but which are essential to the satisfactory performance of the work. Such allowances may be permanent or temporary. Wherever possible, these allowances should be determined by time study.
When time standards are used as the basis for a payment – by-results scheme, it may be necessary to make a start-up allowance to compensate for time taken by any work and any enforced waiting time which necessarily occurs at the start of a shift or work period before production can begin. A shut down allowance may similarly be given for work or waiting time occurring at the end of the day. A cleaning allowance is of much the same character: it is given when the worker has to give attention from time to time to cleaning his machine or workplace. Tool allowance is an allowance of time to cover the adjustment and maintenance of tools.
A small batch allowance is required to enable a worker working on small batches to decide what to do and how to go about it and then to work up to a standard performance by practice and repetition. The calculation of this allowance will depend on whether it is a one-of-a type batch or not, on the length and batch size or run length and on the frequency of similar work and its degree of complexity.
20.4 THE STANDARD TIME
It is now possible to obtain a complete picture of the standard time for a straightforward manual job or operation, one which is considered to attract only the two allowances which have so far been discussed in detail: contingency allowance and relaxation allowance. The standard time for the job will be the sum of the standard times for all the elements of which it is made up, due regard being paid to the frequencies with which the elements recur, plus the contingency allowance (with its relaxation allowance increment). In other words-
STANDARD TIME is the total time in which a job should be completed at standard performance, The standard time may be represented graphically as shown in Figure 6.
In a case where the observed time is rated at less than standard pace, the rating factor will, of course, be shown inside the observed time. The contingencies and relaxation allowances, however, are still percentages of the basic time. The standard time is expressed in standard minutes or standard hours.
A. AN EXAMPLE
The observed time is recorded to be 15 minutes for a job done by a worker whose rating is 80. Following allowances are recommended by the management-
i) Personal needs allowance - 5% of basic time
ii) Basic fatigue allowance - 2% of basic time
iii) Contingency work allowance - 1% of basic time
iv) Contingency delay allowance - 2% of basic time
Determine basic time, work content and standard time for the job.
From the relationship,
Basic Time = Observed Time * Rating / Standard Rating
Basic time for the job in the above example is calculated as,
Basic Time = 15* 80/100 = 12 minutes
So, recommended allowances can be determined as follows-
i) Personal needs allowance = (5/100) * 12 = 3/5 minutes
= 36 seconds
ii) Basic fatigue allowance = (2/100) * 12 = 6/25 minutes
= 14.4 seconds
iii) Contingency work allowance = (1/100) * 12 = 3/25 minutes
= 7.2 seconds
iv) Contingency delay allowance = (2/100) * 12 = 6/25 minutes
= 14.4 seconds.
Work content = Basic time + Relaxation allowance + Contingency work
allowance
= Basic time + Personal needs allowance + Basic fatigue
allowance + Contingency work allowance
= 12 minutes + 36seconds +14.4 seconds + 7.2 seconds
= 12 minutes, 57.6 seconds
Standard time = Work content + Contingency delay allowance
= 12 minutes 57.6 seconds + 14.4 seconds
= 13 minutes 12 seconds.
20.5 WORK SAMPLING TECHNIQUE
A. BASIC CONCEPTS AND DEFINITION
Work sampling is a work measurement technique in which a large number of instantaneous observations are made at random intervals over a specified period of time of a group of workers, machines and process. Each observation records the state of the system observed, the percentage of observations recorded for a particular activity or delay over the specified period is a measure of the percentage of time during which that activity or delay occurs. This estimate resembles to the actual situation if the specified time interval is taken to be very long. Work sampling is defined as – “Work Sampling is a method of finding the percentage occurrence of a certain activity by statistical sampling and random observations.”
B. PROCEDURE
The work sampling procedure can be divided into the following three phases.
a) Prepare for work sampling
Statement of the main objective of the study.
Obtain the approval of the supervisor of the department in which work sampling is to be performed.
Establish quantitative measure of activity.
Selection of training of personnel.
Making a detail plan for taking observations.
b) Performing work sampling.
(i) Describing and classifying the elements to be studied in details.
(ii) Design the observation form.
(iii) Determine the number of days or shifts required for the study.
(iv) Develop properly randomized times of observations.
(v) Observing activity and recording data.
(vi) Summarising the data at the end of each day.
c) Evaluating and presenting results of work sampling.
(i) Evaluate the validity and reliability of data.
(ii) Presenting and analyzing data.
(iii) Planning for future studies.
20.6 CONDUCTING THE WORK SAMPLING STUDY
It is important in the outset that we decide on the objective of work sampling. The simplest objective is that of determining whether a given machine is idle or working, our observations then aim at detecting one of two possibilities only:
Observations
Machine working machine idle
We can, however, extend this simple model to try and find out the cause of the stoppage of the machine.
Observation
Machine working Machine idle
Waiting Waiting Personnel
For for needs of
Repairs supplies workers
Percentage of time spent on each activity while the machine is working.
Observation
Machine working Machine idle
Cutting Boring Filling
We may also be interested in the percentage time spent by a worker or groups of workers on a given element of work. If a certain job consists of ten different elements, by observing a worker at the defined points in time we can record on which element he is working and therefore arrive at a percentage distribution of the time he has been spending on each element.
The objectives to be reached by the study will therefore determine the design of the recording sheet used in work sampling, as can be seen from Figure 7,8, and 9.
Date : Observer Study No.
Number of observations : 75 Total Percentage
Machine running
62 82.7
Machine idle
13 17.3
Fig. 7 Example of a Simple work Sampling Record Sheet
Date : Observer Study No.
Number of observations : 75 Total Percentage
Machine running
6.2 82.7
Machine Idle Repairs
2 2.7
Supplies
6 8.0
Personal
1 1.3
Idle
4 5.3
Fig. 8 Work Sampling record sheet showing machine utilization and distribution of idle time
Date : Observer Study No.
Number of observations : 75
Elements of work
1 2 3 4 5 6 7 8 9 10
Worker No.1
Worker No.2
Worker No.3
Worker No.4
Fig. 9 Work Sampling record sheet Showing distribution of time on ten elements of work performed by a group of four workers
20.7 MAKING THE OBSERVATIONS
In making the observations it is essential from the outset that the work study man is clear in his own mind about what he wants to achieve and why. He should avoid ambiguity when classifying activities.
The observation itself should be made at the same point relative to each machine. The work study man should not note what is happening at the machines ahead of him, as this tends to falsify the study.
The recording itself as can be seen consists simply of making a stroke in front of the appropriate activity on the record sheet at the proper and predetermined time. No stop watches are used.
The analysis of the results can be calculated readily on the record sheet. It is possible to find out the percentage of effective time compared with that of delays, to analyse the reasons for ineffective time and to ascertain the percentage time spent by a worker, groups of workers or a machine on a given work element. These provide useful information in a simple and reasonably quick way.
20.8 USES OF WORK SAMPLING
It is a relatively simple technique that can be used advantageously in a wide variety of situations, such as manufacturing, servicing and office operations. It is a relatively low cost method and one that is less controversial than stop watch time study. The information derived from work sampling can be used to compare the efficiency of two departments, to provide for a more equitable distribution of work in a group and to provide the management with an appreciation of the percentage of and reasons behind ineffective time. Some of the uses of work sampling can be stated as follows:
To aid in determination of time standards and delay allowances.
To aim in the measurement of overall performances.
To determine the nature and extend of cycles and peak load variations in observable activity.
To study the time utilization by supervisors and establishing goals for supervision.
To aid in job evaluation.
To assist in engineering economy studies.
To aid in man power planning.
For appraisal of safety performance.
For appraisal of organizational efficiency.
20.9 SUMMARY
Time study is defined as a work measurement technique for recording the time and rates of working for the elements of a specified job carried out under specified conditions, and for analyzing the data so as to obtain the time necessary for carrying out the job at a defined level of performance.
20.10 ASSIGNMENT QUESTIONS
Discuss the Basic steps in time study.
20.11 REVIEW QUESTIONS
What factors affect a decision to make a macro motion (or) micromotion analysis?
Why is it so difficult for all industries to agree on a universal conception of normal performance?
How does the practice of including allowances as part of the standard time for an operation promote “effective motivation”?
What measures can be taken to assure representative work samples?
20.12 REFERENCE BOOKS
Smith, S.B., (1989) Computer Based Production and Inventory Control, Prentice Hall, N.J.
LESSON – 21
DYNAMIC PURCHASING
21.1 INTRODUCTION
Purchasing is the function which controls the buying of materials, finished parts and supplies in a factory. The function of purchase department in any organization is to find sources of supply, obtaining quotations and placing purchase orders. Issuing delivery schedules to suppliers and progressing the supply of goods etc., The quality standards required are laid down as part of the function of product specification.
21.2 OBJECTIVE
This unit is dealing with dynamic purchasing: purchasing function, selection of materials and vendors, purchasing organisation, concept of value analysis store keeping and ware housing management, cost control and cost reduction programmes.
Contents
21.1 Introduction
21.2 Objective
21.3 Purchasing Function
21.4 Selection of Materials and Vendors
21.5 Selection of Possible Vendors
21.6 Comparison of Quotations
21.7 The Purchase Order
21.8 Summary
21.9 Assignment Questions
21.10 Review Questions
21.11 Reference Books
21.3 PURCHASING FUNCTION
For an organization, purchasing is a window to the outside world. The prime function of purchasing, is that of being sensitive to the external supply market situation and also of feeding back this information to the other functions of the organization. However, it is usually, understood to be to get the right quantity of material of the right quality at the right time, at the right place, from the right source and at the right cost. Quite often it is not understood, by even top management, that a considerable profit potential exists in the purchasing activity. In fact, it has been quoted that 20-30% of a company’s profits can come from savings generated in the purchasing department. There is more potential in reducing the purchasing cost as compared to increasing the sales turnover. Moreover, the increased savings in purchasing require only one or two purchasing executives doing a proper study and analysis of the external market. Whereas an increase in sales volume, usually, means an increased capital outlay on equipment an increased sales and marketing expense through increased advertising and promotional expenses, and much more leg work by the salesmen. All this means more efforts, expenses and risks. Compare this with the efforts required in generating equal profit contribution from the purchasing department and one will realize that the latter does not require such enhanced management effort and risk. A point to be noted is that the cost of materials in the production cost of an item, on an average, in the Indian industry takes a lion’s share of almost 65%. For some industries this component could be still high.
Purchasing has important links with most of the organizational functions. The production planning and control or materials department might have a say in the inventory of raw materials and bought out parts, but the purchasing executive has a first hand knowledge of the market situation for the supply of these items. For instance, (a ) Is there going to be any shortage of materials in the near future? (b) How will the shortage escalate the prices? (c) Are there any good substitutes available? (d) Will there be an industrial relations problem in the important supplier’s company and how will this affect the company’s production? (e) Which supplier can supply better quality material and better quality component parts at the same or less price? All such information regarding the outside market is of much importance to the production, marketing, finance and other departments. If a company buys component parts which are incorporated into its own products, the purchasing manager will have to play a role which can perhaps, be described as external manufacturing manager.
Increasing the sales does not always result in increasing profit. Sometimes increase in sales may mean a decrease in profits because with an increase in volume, the cost of input material may also rise. This is where the purchasing department’s feedback information is useful. It can apprise the management of what an increase in sales activity will entail. The marketing/ sales and purchasing departments have to work hand – in hand in order to take care of such situations. Purchasing is as much in contact with the external market, whereas the purchase department may be looking at the supply market. But essentially, both are looking at the external environment and therefore, exchanging of notes between the two departments is important to the organization. In cases where the inventory control or production planning and control departments set certain inventory levels for raw materials, these norms for stocking levels are for average situations. When external market is other than usual, the purchasing executive’s feel of the supply market should provide valuable input to PPC or inventory control. The normal stocking levels and service levels do not mean much in such situations. Purchasing can also provide valuable information regarding substitutes which may be cheaper and functionally better or at least as good. The purchasing department may also spot certain extraordinary opportunities to get the raw material at a low cost.
The point that is being made is that an organization can make use of the valuable market information provided by the purchasing department, and use the purchasing department not merely as a department processing purchase requisitions but as a vital link between the external environment and the organization. A purchasing manager should provide this link consistently.
Some of the important objectives of purchase department are:
• To ensure that proper quantities of proper materials are made available for a smooth functioning of the production department.
• To procure the materials at reasonably low costs to the company
• To ensure that the desired quality of materials are supplied.
• To select the proper sources of supply in order to – ensure price, quality etc.
• To keep abreast of the various substitute materials available in the supply market, their prices and utility to the organization and to pass such information or discuss such formation with the various other departments of the company such as design, production, sales, finance etc.
• To do a study or research on the possible substitutes for the raw materials and bought out component parts, for this, the technique of value analysis will be useful.
• In order to ensure the continuity of the quantity and quality of the supply of raw materials, to develop new vendors and develop good relations with existing vendors. Vendor relations, vendor monitoring or vendor evaluation and development of new vendors is an integral part of the purchase department job.
• To develop good procedures and systems for the purchasing department, so that the various purchasing objectives do not remain personalized but become institutionalized.
• To co-ordinate with other functional departments of the organization and achieve as much continuity of information flow and integration between different departments as possible. For this purpose, it becomes essential for the purchasing executives to keep in touch with the various functions of the company such as design, production, sales, finance etc.
A Purchasing executive should be one of the most knowledgeable managers in the company who should understand design, engineering, production, marketing and other related functions in sufficient detail. Purchasing executive’s role is not restricted to procuring the requisitioned goods at a low price and at proper time, but is also to be knowledgeable and informed about not only what is being bought, but also about why it is being bought. So the role of a purchasing manager is that of being well informed about the internal operations of the company as also about the external supply market and to combine these two in procuring materials at the right quantity, quality, time and cost so that the organization as a whole benefits on a sustained basis.
However, the purchasing manager is not always the final decision-making authority regarding the quality, quantity, time or cost of the materials. It may be so in some organisations, and not so in many others. The integrated approach towards the management of supply of materials by being sensitive to the internal and external environment and being one of a team of decision-makers for the input materials. The purchasing manager should serve as a link for the various departments and external environment. He should be an advisor, informer to the to the various departments in the organization and a consolidator of objectives inside and outside the organization. Often this is misunderstood to mean that the purchasing executive should have an authority over all the segments of the function of procuring the input materials. Such authority may not exist in most of the cases. A purchasing executive has to produce results by advising and coordinating his activities with that of various other internal departments and external market.
21.4 SELECTION OF MATERIALS AND VENDORS
In order to reduce the cost of the product, materials of lower or different quality which will not affect the utility of the product are selected. Common examples of such substitution of materials are use of steel or window frames instead of timber frames, use of aluminum instead of copper in electric transmission lines. This process of substitution is based on the principle that, if a cheaper material can work satisfactorily then there is no use in using costly material. Some times another alternative is desired to be found e.g. in the radio valve industry many parts made from expensive nickel can bee manufactured with nickel-plated mild steel. Similarly copper plated mild steel can be used in place of pure copper.
The most important job of purchasing department is to give suggestions about the source of various materials availability and its specifications to the extent possible so as to select suitable material by the design and production departments. In this process one can use his best knowledge about various materials that are available in the market considering the scarcity of those materials etc. The purchasing executive can go for market forecast, value analysis etc. in selecting the material for purchase keeping design and production requirements in mind.
While selecting suitable material one has to consider the type of production facilities that the organization is having and the level of skill required but the human force and the process capabilities (Technology knowhow) etc., are the major factors that one should take into account while purchasing the required materials i.e., it is an integrated approach of the requirement of the whole organization.
An important objective in purchasing is that of maintaining good relations with vendors. A good vendor is an asset to the company, and therefore, just as customer good-will is considered important, a good relationship with the vendor should also be treated likewise. A vendor who supplies the proper quality material in proper amounts in proper time is not very easy to find. Moreover, there are many situations where materials are required in a hurry. There are situations where materials are in shortage in the supply market. In all such situations, good relationships with the vendors pay dividends. This may entail, personal relationship, professional relationship: by helping the vendor in times of stress and strain with financial aid, technical aid, by providing management skills if necessary and maintaining a healthy professional relationship by fair negotiations, fair evaluations and fair compensation. A continuous programe of developing new vendors and of selecting new vendors should be in existence in any organisation. When selecting vendors the following are the some of the important aspects the buyer should look for:
a) The production capabilities of the vendor:
Capacity to manufacture the required product in desired quantities.
Possibility of future expansion in capacity
The understanding or the knowledge of the vendor regarding the buying company and its needs.
b) The financial soundness of the company:
The vendor company’s capital structure
Whether it belongs to a larger group of companies, private or public company
The profitability record of the company in the past
Expansion plans of the company in the future
c) Technical capabilities, regarding quality:
Whether the available machines are capable of the required quality of material? What are the future plans of vendor?
Whether there are enough technical skills (skilled manpower) available with the vendor?
Whether there is proper research, design and development facility available with the vendor?
What is the record of the vendor in filling the orders of other buying companies in the same business?
What has been the consistency in the quality produced by the vendor?
Whether the vendor has appropriate storage and warehouse facilities to retain the quality of the produced product?
Whether proper quality control procedures are being followed in the vendor company?
d) Other considerations:
What are the working conditions in the vendor company?
How are the industrial relations in the vendor company?
Whether there is any possibility of disruptions of the supply of materials in terms of quantity and/or quality due to human relations problem in the vendor company?
The next job of purchasing department is to buy the company’s requirement from the suppliers (From the vendors list of the company). For this purpose the following procedure may be followed:
Select a short list of suitable firms
Send enquiries to each asking for prices and confirmation that delivery requirements can be met.
Compare the quotations received in reply and choose a supplier.
Send a purchase order to the chosen supplier.
21.5 SELECTION OF POSSIBLE VENDORS
The job of selecting the short list of possible is one which in most companies is left to the experience of the buyer. A better method is to maintain a register of approved suppliers, all of whom are visited and assessed for technical ability, capacity, financial strength and so on. If this is kept up to date by regular visits and performance records a great deal can be done to eliminate the costly delays which arise when an inefficient supplier is chosen for an order. Figure6.1 shows typical form used to assess the suppliers. It includes financial checks, a record of visits, brief details of any disputes and particulars of failure to deliver to schedule etc. Once a year all cards are examined and the suppliers are rated at a special meeting for the purpose. All suppliers given a C rating or lower are then either replaced or given a special visit by the chief buyer and re-checked at frequent intervals.
Company: Tel: Midd. 5376
XYZ Co. Ltd
Middle Way. Middle town Midnapore Rating: Date : By Code (Financial) Reference Date: B2
10.1194
B.P.
A3
S
10.10.94 B1
10.11.95
B.P.
A3
B
11.10.94
Type of Company Private Goods Sold: Special Instruments Competition Little
Date :
6.9.94
7.3.95 Ref
T 703
BK 305 Inspection Visits
Technically competent and well equipped. “One man show” K Nair, Chief Engineer, Reservations reminder of Management.
Progress visit re replacement thermometers (we below) Reports bad spirit general after strike.
Date :
3.2.95
10.3.95
21.3.95 Ref:
BK 206
BK. 305
BK 319 Disputes and Delivery failures
Supplies stopped two weeks to 1.2.95 due to strike.
Delivery 50 wrong type thermometers in error. Engine dispatch held up 10 days waiting replacements.
Charged special cases allegedly handed to our carrier. They have no receipt. Carrier denies receiving. They have refused credit note.
Fig. 6.1 Suppliers Rating Record Card
A. THE ENQUIRY
Having chosen a number of suitable suppliers, an enquiry form is prepared and copies are sent to each of the possibles. Great care has to be taken in framing the enquiry to ensure that there is no ambiguity and that all are quoting for the same job, for example:
How and when deliveries will be accepted?
If any special finishing processes are required?
What acceptance test will be used?
What special packing is required and how the goods are to be delivered (standard boxes, pallets etc)?
Who is responsible for delivery to the factory and for payment for transport?
Who is responsible for providing tooling, who will own it when it is made and whether it is to be charged separately or included in unit price?
The terms of shipment (FOB,FOR) etc.
Some of these points can be covered by the drawings and by general conditions of order which can be printed on the back of the enquiry form but others with particular reference to individual items will have to be individually recorded on the face of the enquiry form. Slightly different information will be required for each of type of buying and the forms should be specially designed to meet the particular needs of the company using them.
21.6 COMPARISON OF QUOTATIONS
Provided that the enquiry form is sent only to approved suppliers-suppliers who are known to be capable of doing the work satisfactorily and providing that the conditions governing the order are carefully and exactly stated so that there is no question of differences in standard then the choice between quotations must rest on price. It is usual to compare the different quotations on a comparison sheet and, is shown in figure 6.2. This illustrates one difficulty in comparison, which arises when the supplier is asked to quote separate prices for tooling and for parts. When this occurs, it is often difficult to decide whether to accept a low tooling cost, and high unit cost or vice versa. The best way of making the decision in these cases is to specify a write-off quantity for the tooling, find tooling cost per piece by dividing the tooling cost in each case by the write-off quantity and then add this additional cost to the quoted cost per piece. In practice there may be wide spread between the prices quoted by different suppliers. Apart from occasional mistakes and misunderstandings, there are two principal reasons for this:
QUOTATIONS COMPARISON SHEET Description:
Gonernor Housing Casting Reference:
X73/201
Enquiry Ref:
XK7023 Date :
10.2.95 Start Delivery 12.4.95 Sanction Quantity 1000 Write-off Quantity 2000 Quantity 1000
Supplier Quoted per Unit Quoted Tooling Rs. Tooling Per Unit Gross Price Unit Delivery Remarks
1
2
3
4
5 A. Seeni Ltd.
B .Brown Ltd.
C. Leena Ltd.
D. Sircor Ltd.
E. Ramu Ltd. 295
31
32
46
30 130
90
110
160
135 13.5
11
11
17
11 173
35
153
213
176 O.K
O.K
O.K
O.K
O.K
Order here
Fig. 6.2 Quotation Comparison Sheet
A supplier who is already fully employed will normally quote high rather than risk offending a customer by refusing to quote.
A supplier whose load is light or unbalanced will often find it more profitable to take on work at a little over marginal cost rather than dismiss labour and close down part of the plant.
To overcome the problem of loose price, some companies estimate target prices or price limits for all items before sending out enquiries and query any prices which are widely out in comparison with the targets.
21.7 THE PURCHASE ORDER
Having chosen a supplier, the next operation is to send a purchase order. A typical order form is illustrated in figure 6.3 and it will be seen that the order is set of five forms . The remaining four are two copy orders-one for the buying office and another for the goods receiving department-a purchase delivery record card and an acknowledgement of order form. The acknowledgement of order is sent with the purchase order and carries a request that it should be signed and returned immediately. The significance of the acknowledgement of order is that it completes a contract in which the conditions of order with certain reservations are those listed on the buyer’s purchase order. A purchase contract is in being when there has been an offer and an acceptance in broadly the same terms. If no acknowledgement of order is received then the only offer is the supplier’s quotation and the acceptance is the purchase order. If as often happens the conditions on these two forms are widely different, then it may be more difficult later to enforce the contract. Some companies make it a condition of order that the acknowledgement of order be returned within a set period.
21.8 SUMMARY
This lesson covered with dynamic purchasing, purchasing function, selection of materials and vendors etc.
Purchasing is the function with controls the buying of materials, finished parts and supplies in a factory. The function of purchase department in any organization is to find source of supply, obtaining quotations and placing orders, issuing delivery schedules to suppliers and progressing the supply of goods etc. the quality standards required are laid down as part of the function of product specification.
21.9 ASSIGNMENT QUESTIONS
Discuss the selection of materials and vendors.
21.10 REVIEW QUESTIONS
Discuss the possible suppliers
21.11 REFERENCE BOOKS
Gopala Krishnan, (1990) Purchasing and Materials Management, TMH, New Delhi.
LESSON-22
PURCHASE ORGANISATION
Contents
22.1 Introduction
22.2 Speculative Buying
22.3 Concept of Value Analysis
22.3.1 Information Phase
22.3.2 Functional Phase
22.3.3 Brain Storming Phase
22.3.4 Evaluation Phase
22.3.5 Implementation Phase
22.4 Summary
22.5 Assignment Questions
22.6 Reference Books
22.1 INTRODUCTION
Purchase organisation or follow-up is the function of seeing that deliveries are made by the required dates. In a small number of companies this follow-up work is controlled by the production control progress section, independently of the buying office. It is doubtful, however, if this divided responsibility ever gives the best results and here it will be considered as a buying function. Purchase organisation can be considered in two parts: (i) Pre-delivery follow-up and (ii) Shortage chasing.
1. PRE-DELIVERY FOLLOW-UP is concerned with ensuring that the supplier does not forget the due-date and that ample warning is obtained of any likely delays. Typical methods used are:
A remainder card, letter or phone call at a set period before due-date.
Regular visits-particularly to new suppliers- to review progress
Delivery confirmation cards to be returned by the supplier with confirmation that delivery will be made by the promised date.
Some companies do very little of this pre-delivery follow-up on the grounds that it is the supplier’s responsibility to deliver on time and bad psychology to give the impression that you expect him to fall and are taking the responsibility for reminding him when orders are due.
2. SHORTAGE CHASING, on the other hand, is universally accepted as a necessary and vital art of purchase organisation. Methods vary but the purpose should always be the same i.e., to obtain the shortage material as soon as possible and to create a feeling at the supplier’s works that it is less trouble to deliver on time to this particular company that to have them progressing shortages. In the long run the second of these purposes is the most important and in some successful companies the follow-up, after the immediate shortage has been cleared is considered as the most important part of the exercise. The failure to deliver on time is not forgotten until undertakings have been made by the supplier that he will take steps to prevent a re-occurrence.
3. GOODS RECEIVING: Goods receiving at the factory is another function which is not always controlled by the purchasing division. There are, however, advantages in combining the two, and in making the one authority responsible for the whole operation of getting the supplies cleared into the factory and passed to production. Here goods receiving will be considered as against a purchasing function. The first step in receiving is to take delivery from the carrier. Normally, this entails signing the carrier note/consignment note and care should be taken to see that the signature given does not accept the goods without question. In some companies it is the practice to stamp all carrier notes with some such imprint as subject to inspection and then sign under the impression. The next step is to enter full details of each consignment on a goods received note which is shown in figure. 6.4 to give a record of all goods received in the factory and provide a method of checking the supplier’s Invoice. The goods received note is first checked against the advice note or consignment note from the supplier and the supplier is notified of any discrepancies. Next the goods are inspected and the supplier is notified of any rejects. Customs vary in different industries but in the engineering industry, for example, the rejects are normally held for a period and the supplier is given the option of viewing them at the customer’s works of having them returned for examination. Details of any rejects are entered on the goods received note, which is sent to the accounts department.
GOODS RECEIVED NOTE
From : Smith, Jones & Co., Bangalore G.R.No. 59
Date : 5 Mar. 19………
Goods Quantity Packages Order No. For Office Use
Rate Rs. Rs. Ps.
Carrier BR Received by A.Mani Goods Inspection Report Correct B.Krish
Purchase Requisition No. 284 Noted on Progress chart 5/621 Bin No.72 Stores Ledger 212 Invoice No. 360 A/cs. Ref. P.J. 84
Fig. 6.4 Goods Received Note
Finally the accepted material is passed in to stock. A copy of the goods received note can be used as a stores inward note to advise the stores of the quantity they are receiving. The final check of the supplier’s in voices against the goods received not is generally carried out by the accounts department as a guard against overcharging by the supplier and against fraud inside the factory.
22.2 SPECULATIVE BUYING
The purchasing function can be summarised as
Production control department decides what is required, in what quantities deliveries are to be made, and when.
Higher management fix a sanction quantity which is the largest quantity for which the buyer may commit the company.
Working inside these limitations, the buyer makes the best bargain possible.
This is not, however, the only system used in practice and systems must, now, be considered in which the buyer is allowed to choose how much to buy and when he will buy it, provide only that he keeps the company supplied.
This type of buying is often used in industries such as the woolen where the value of the raw materials varies considerably from one period of the year to the next. Many buyers in this type of situation, carefully record the variations in price and attempt to forecast future price changes, so that they can buy large quantities when prices are low and changes, so that they can buy large quantities when prices are low and small consignments when they are high. Apart from being hazardous because the forecasts can never be exact, the results achieved are very difficult to assess. Even the result than could have been obtained by regular purchases at the current ruling prices and some other investment for the capital released from stock.
There may be occasions be occasions when it is possible to use speculative buying with success, but as a general rule speculative buying has much the same value, as a system of investing capital, as has the backing of horses. It is sometimes argued that widely spread speculative buying serves a useful purchase in stabilizing prices. It is more probable, however, that the speculation itself is largely responsible for the variations in price.
22.3 CONCEPT OF VALUE ANALYSIS
Value analysis is an approach to cost reduction developed by General Electric in the 1940s. It incorporates other cost reduction techniques, but the distinguishing the feature of value analysis is that it focuses on providing a function at minimum cost. For example, one part in a product may be a screw fastening two other parts together. Traditional cost reduction techniques applied to the screw would only consider ways of making the screw at lower cost. However, value analysis would also consider alternate ways of performing the function of holding part, or perhaps they could be designed to fit together without the need of a fastener. Could a standard fastener be substituted for the custom-designed screw at lower cost?
Value analysis/Value Engineering is very useful tool in purchase management. It is a systematic method of thinking about substitutes. It basically consists of studying in detail the value of the material. The value could be due to the functional characteristics (performance) of the product or due to other considerations of value such as the esteem value. In purchasing we largely do not encounter the latter king of value. The idea behind value, analysis is to find a substitute giving the same functional value yet costing the same or less. In general the value analysis/value engineering can be divided in to the following phases:
22.3.1 INFORMATION PHASE
Here all the relevant information regarding raw material and the finished product in which it is incorporated, such as the cost, the manufacturing method, the performance characteristics etc., is gathered. The more detailed the information gathered in this initial phase, the better will be the value analysis. Here one may ask questions in detail, such as what, where, when, how and why (for each of them).
22.3.2 FUNCTIONAL PHASE
At this phase, the functions that the material performs are listed in terms of basic function and secondary functions. It is advised that the functions be described in two words- a verb and a noun- as far as possible. This is to avoid long winding descriptions of the functions. After having listed the functions, each of these functions is given the value points or the weightages in terms of its importance or desirability. If the value or worth, is expressed in terms of 0-100 points, then the total for all the functions of a material should add to 100 points. Alongside, we also mention the cost incurred or price paid for each of the functions. Placing the cost and the value points side by side immediately reveals those areas of the material where much money is spent for little value. These high cost-to worth functions are the focus of our attention in suggesting a substitute design of a bought-out part or a substitute material. If the value of a function is small, then that function can be dropped altogether in the substitute product.
22.3.3 BRAIN STORMING PHASE
Having done the analysis of the functions and costs of the material, now it is ready to think of various alternative possibilities for the material. The main idea, here, is to encourage creativity. Many of the suggestions may seem like wild guesses. Still, these are recorded even if all suggestions are not feasible. The idea is to break away from rigid thinking and encourage creativity. Some systems of brain-storming start idea-generation from such widely differing triggers as politics and geography and develop them further so as to apply to the problem at hand (alternate design). For such idea-generation, a heterogeneous group is preferred.
22.3.4 EVALUATION PHASE
Each of the idea is evaluated again in terms of a functional analysis, i.e., by finding the various functions that the substitute can perform-to what extent and at what cost for each of those functions. Such an analysis will indicate a few of the alternatives which might offer similar functional value as the earlier material, but at a reduced cost. We may even find some substitutes with enhanced important functional values.
22.3.5 IMPLEMENTATION PHASE
In this phase, the selected substitutes, or new ideas are discussed with the appropriate departments for their implementability. It is possible that some will be screened out and only one or two ideas might be implementable. Such a systematic analysis of the functional values of input material along with their cost structure will help the purchasing executive in finding alternative materials of equal functional value or better value while reducing the procurement costs. Value analysis, of course, should be done as team work since it involves a lot of creative and interdisciplinary thinking.
The term value analysis has been used when the activity is centered in purchasing and value engineering when centered in engineering. Today this is, usually, a cooperative activity with purchasing, working with design engineering, manufacturing engineering and quality control. The main reason purchasing is involved is that it is in a position to tap the expertise existing in the supplier companies. Suppliers may have recommendations regarding new materials or production processes that would not otherwise come to the attention of the engineers in the buying company. Getting vendors to contribute their expertise is most effective during the design phase for new products.
22.4 SUMMARY
Purchasing organization or follow-up is the function of seeing that deliveries are made by the required dates. In a small number of companies this follow-up work is controlled by the production control progress section. Independently of the buying office. It is doubtful however, if the divided responsibility ever gives the best results and here it will be considered as a buying function. Purchase organization can the considered in two parts (i) Pre delivery follow-up and (ii) Shortage Chasing.
This lesson discussed with concept of value analysis.
22.5 ASSIGNMENT QUESTIONS
Discuss the concept of value analysis.
22.7 REFERENCE BOOKS
Chary S.N., (1988), Operations Management, TMH, New Delhi.
LESSON – 23
STORE-KEEPING AND WAREHOUSE MANAGEMENT
Contents
23.1 Introduction
23.2 Location and Layout
23.3 Receiving and Inspection
23.4 Issues
23.5 Stock Records
23.6 Stores Accounting
23.7 Stores Arrangement
23.8 Stock Taking
23.9 Summary
23.10 Assignment Questions
23.11 Review Questions
23.12 Reference Books
23.1 INTRODUCTION
Apart from inventory control, production etc., a good system of storekeeping is important in any system. It has to be realised that only materials that are on hand can be put to use. And it is assumed that inventory records agree with the physical stocks of materials in the stores. If, however, it is found that they do not agree, records must be adjusted after periodical physical verification of stores. Needless to mention that no amount of inventory control will work successfully if accurate records are not maintained and much of its value will be lost if stores are badly kept and handled. Therefore, certain amount of care is always necessary to ensure good storekeeping. The essential facilities should be responsible for all stores under their charge. Proper classification and codification of stores based on standard nomenclature are essential prerequisites for the smooth operation of stores. The methods of classification should correspond with those used for purpose of inventory control, although actual arrangement of the stocks need not follow this method, which will largely depend upon the nature of the item, its accessibility and frequency of issue.
All issues from stores should be priced. There are several methods, choice of which lies with the top-management. One method is to charge average unit price. A second method is to value the stock at standard cost, supplied generally by cost-accounting section. The third method is First-in, First-out (FIFO) method. Fourth one is Last-in, Last-out (LILO). Still another method is ‘Cost or marketprice’ method, whichever is lower. However, their choice has little bearing on the actual storeroom operation. As such, evaluation of their merits or demerits is thought a digression for our purpose. Suffice it to say that control of physical materials is as much a part of materials management, as any system of stock or inventory control.
The principal functions of warehousing are
Receiving: Material is accepted from manufacturing from vendors, or from customers. This is matched against receiving papers, counted, and possibly inspected for quality. Items may be marked or tagged to facilitate later identification.
Put away: Items are sorted by storage area, transported to those areas, and put away in racks or other storage equipment.
Storage: Items are held and protected in storage until they are needed.
Order picking: Items listed on orders received from manufacturing or customers are withdrawn from their storage locations.
Marshaling: The items constituting an order are assembled and checked. Where several orders are to be transported together on one truck or wagon, these orders are grouped.
Shipping: Manufacturing orders are transported by fork-lift truck or other conveyance to the gateway production department for the order. For customer orders, they are packaged, moved to the appropriate dock and loaded on a waiting vehicle. In some cases, orders are staged, awaiting availability of a truck or wagon.
Physical inventory: Items held in storage must be counted to verify the accuracy of the inventory records. This may be done periodically such as annually or continuously called cycle counting.
Reporting : All receipts, issues and adjustments due to physical inventories must be reported so that the inventory records are kept current.
Processing : In some warehouses, particularly distribution warehouses remote from the manufacturing plant, some processing such as painting or adding options may be performed. The objective is to delay that final product differentiation as long as possible.
Stores management, looking after the items and controlling their flow. This is the component of the stores management with which the production department relates directly on a day-to-day or perhaps hour-to-hour basis. The important functions of this is on the (i) incoming and (ii) outgoing and (iii) remaining items of materials. A good MIS is the heart of stores management. The various operations related to stores management are: Receiving and inspection, Issue and dispatch, Stock-records, Stores accounting, Stock-taking and checking, Stores preservation and Stores arrangement.
The success of purchase department largely depend on the effective execution in warehousing. Warehousing must provide timely put away stocks and picking of orders, secure storage and accurate inventories and all at minimum cost.
In the industrial sector, service by stores boils down to an optimization exercise, wherein limited available resources have to be disbursed equitably. The problem arises from the materials that are held in stock in an expenditure in the form of capital cost, storage losses, pilferage, obsolescence, insurance, handling, documentation etc. This calls form striking a balance between the storage costs and the level of service that can be maintained, and hence the concept, stores is money, should be understood by everyone in the organization.
23.2 LOCATION AND LAYOUT
The normal practice is to locate the stores near the user departments, in order to minimize the handling. The materials manager or the stores personnel are rarely consulted in location or layout of stores. The following are the some of the important issues concerned with the location of stores:
Should be located nearest to the user with the central store keeping high value and items common to more than one department.
Should be easy to identify the material.
Easy storage and retrieval.
Proper preservation to protect from rain, sun, humidity, natural deterioration etc.
Easy accessibility to different modes of transportation.
Flexibility for future expansion.
Clear and adequate lighting, better working environment.
Safe working conditions and better provision for fighting facilities to minimize accidents.
Provision be made for toilets, smoking area, routine maintenance of stores equipments, safe electrical wirings etc.
Balancing should be done in the cost of investment, cost of supplying inputs, cost of manufacturing, cost of handling and cost of transporting to the customer in locating the stores.
Suitable division of available area for various purposes.
Items handled frequently must be located to minimize the distance traveled.
Regulations of factory act and other regulatory measures should be followed by keeping the premises clean by using disinfectants and by providing adequate drainage facilities with proper ventilation.
Sufficient care should be taken to utilize the stores area as cubic space and not be calculating square area.
The aisle widths have to designed on the basis of handling equipments, like fork-lift and clearly marked. Utilization of heights has to be decided on the basis of ease of storage, retrieval, type of package, load characteristics, flooring, roofing, handling, pressures on beams and columns, provision of moving ladders, exhaust arrangements and installation of fire prevention systems.
In block stacking method, the unit loads are stacked one over the other and the stack heights will have to reduced, if random access is needed, this method cannot be applied, if strictly first-in first-out method has to be used for issue.
The use of racks, bins, shelves and pigeon holes, is a common method of storage, where wooden or metallic structures are divided into compartments, in order to keep items individually.
The racks are usually arranged either along the walls or back-to-back and can reach up to roof top and the opening can be suitably arranged for keeping the sizes of the item. Sometimes revolving racks with castor wheels are also used.
Normally bins are used to hold loose items and the compartments can be multi-tier or single tier to suit the needs. For small items, compartments/trays can be used.
Small, but costly items are kept locked to prevent theft and pilferage.
Cap storage cover and plinth is adopted by food corporations, where the foodgrains are kept in the open wooden orates under polythene cover. This protects the grain from sun and rain and is made rodent proof.
To facilitate loading and unloading, trucks and wagons are parked against the walls, most of the transport companies use an iron framework and a wooden plank at an inclined plane but care should be taken for sufficient maneuvering.
The normal loading condition for a warehouse should be maintained.
Doors should be built as large as possible, in order to facilitate handling. Columns in the stores must be at least 30 ft. apart. Storage of bulk commodities can create plenty of wastage of space.
The access to storage issue areas must be restricted and confined only to authorized stores personnel, in order to prevent pilferage, theft, accident, etc., and all workers must be trained in using fire fighting equipments.
23.3 RECEIVING AN INSPECTION
The important duties are:
Checking supplies for quantity and quality.
Preparing documents; for posting to stock-records and stores accounts accordingly, and for providing evidence of receipt.
In order to help the stores personnel in the checking function, the stores may be advised about the items requisitioned. A copy of the purchase order would generally suffice. The supplier may also, for non-routine and high value items, send in advance an advice note giving details of goods being shipped, quantity, mode of transport, date of despatch etc. The items, when they arrive, may also be accompanied by the supplier’s packing information and the carrier’s consignment note. On the basis of the checking of the consignment, a goods received note (GRN) is made by the store-keeper. Since this document will be used for settling bills, it should contain all the details such as: supplier, his advice note number, purchase order number, date and time received, mode of transport, vehicle number, description of the item, code number, number and type of packages, shortage discovered if any, damage to the goods if any, excess items if any, and inspected by who. A separate damage/ shortage report or a rejection report also needs to be prepared.
Since receiving and inspection operations control the entry point, proper information to and documentation by the stores person is important.
23.4 ISSUES
Since this is the outflow point, the authorization for issue should be proper, carrying details such as code number, description, job number or cost code number for which required, quantity required, quantity issued, person authorizing, date of issue and value of items issued. For all items such individual document is not always necessary, e.g. issues for assemblies or a production batch-where only the number of assemblies or the particular production programme may be sufficient for the stores to supply all the necessary materials.
23.5 STOCK RECORDS
The purpose of record-keeping is to facilitate materials control by bringing information on actual stocks position, consumption rates and order and supply position up to-date along with the proper pricing and evaluation of the usage and of the balance of stock. Whether the system is manual or mechanized or combination of both, the important managerial control information should be provided by this stock-records system. The management should get information regarding:
daily operations of the stores, issues, receipts, direct deliveries etc.
stock at each location
allocation of stocks for certain project or jobs.
review and provisioning of stock
order performance giving the details on quantity ordered, supplier, delivery promised, progress, when delivery received etc.
stocks consumption history and changes in consumption rates and
money value of the movement/consumption of stocks and balances on hand.
23.6 STORES ACCOUNTING
This information system is necessary in order to :
Know and show the value of stock in the balance-sheet and to help in production cost control. The alternative methods of costing the issues are-cost price, average price, market price and standard price.
Cost pricing uses actual purchase price paid (up to the delivery point) of the items when accounting for receipt and issual of these items. Whereas, average pricing averages the price of the item and uses this average price figure while computing the issues and stock balances. Market, pricing involves pricing all material issues (or stocks) at the prevailing market price at the time of issues. It is not very easy to get information on current market prices. Moreover, in a fluctuating price situation, the method of market pricing for issues results in faulty accounting of the stock balances. Standard pricing avoids the latter problem by having a pre-determined price fixed on the basis of the knowledge of market prices and trends. For balance sheet purpose, the stock balance needs to be shown at either the market price or the cost price whichever is lower. However, for internal costing purposes, any methods may be used. However, for internal costing purposes, any method may be used. Due to its obvious advantages, standard pricing is widely used with a variation account to take care of the difference between the actual purchase price and the standard price.
Stores accounting is an important feedback information, for the production and other materials-using departments to assess their own efficiency in material usage. It is also important from the view point of the valuation of the stock-balance and movement at any point of time. From management control angle this has a number of uses.
23.7 STORES ARRANGEMENT
Proper arrangement and documentation of the storage space and storage facilities is helpful in getting materials for production on time as requisitioned from the stores. The arrangement of the racks, shelves, bins and spaces for movement of material-handling equipment should facilitate quick location, drawl and transporting of the desired materials. The important features of a good stores arrangement are:
Correct knowledge of which particular items exist where,
Easy accessibility of the items,
Easy movement of the materials-handling equipment and men,
Reduced spoilage of the materials in stores,
Proper utilization of the available stores space etc.
The store should be so arranged that different types of materials such as tubular sheet, heavy materials, bulky materials, small size materials, breakable materials etc., can be stored in distinct areas. Bars, tubes and lengthy items may be stored in specially designed antler racks. The bundle of tubes is held horizontally on the projection or antler. In order to save floor space and use of vertical space in some cases these long items are stacked vertically. However, the latter type of stacking is not amenable to handling by machines. For plates and sheets of metal the best form of keep them on the floor itself. While making the arrangement for gangways, aisles, doors, inlets and exits, ceilings and floors, care should be taken that the material handling equipment used for this purpose is kept in mind. The main aisle should be wide enough to allow two people with hand-trucks. Fork lift operation, different dimensions may have to be used for the space between two rows of racks. The location of the material should be appropriately numbered so that locating a location would be easy. Care should be taken to store the same material at the same location and to document the material location.
23.8 STOCK-TAKING
This is essential in order to verify the stock-records with the actual count. Lacunae in stock record-keeping and control are thus brought out as also any frauds or other losses. Stock-taking is either continuous or periodic. The latter is done once in a year, generally, and the stores then have to be closed for the days of stock-taking. The former is done throughout the field at least once in a year. Advantages of continuous stock-taking are that:
the normal business of the stores can go on as usual, and
more importantly, the discrepancies do not come out all at once as in the annual stock-taking, so there is time to investigate discrepancies thoroughly. However, continuous stock-taking can be done only if complete detailed stock records are kept shoeing receipts, issues and balances. Stores management is the vital and direct link between the production and materials functions. Therefore it is necessary that adequate attention is paid to the management of stores.
Over the past three decades, there has been a revolutionary change in warehousing based on the use of computer-based information systems and automated storage and handling equipment paralleling similar developments in production. Today there is a wide variety of automated equipment and systems for warehouse management to choose from where automated systems have been carefully planned and implemented, there have been large gains in productivity and space utilization, improvements in inventory accuracy and reductions in damage to goods and in operating costs.
23.9 SUMMARY
A part of inventory control, production etc. a good system of store keeping is important in any system. It has to be realized that only materials that are on hand can be put to use. The methods of classification should correspond with those used for purpose of inventory control, although actual arrangements of the stocks need not follow this method. This lesson covered with location and layout.
23.10 ASSIGNMENT QUESTIONS
State the location and layout
23.11 REVIEW QUESTIONS
Explain Stores Accounting.
23.12 REFERENCE BOOKS
Banga T.R. and Sharma S.R., (1986) Industrial Organisation and Engineering Economics, Khanna Publishers, New Delhi.
LESSON – 24
COST CONTROL & COST REDUCTION PROGRAMMES
Contents
24.1 Introduction
24.2 Control on Prime Cost
24.3 Control on Overheads
24.4 Control on Indirect Materials and Tools
24.5 Analyse Costs and Usage
24.6 Check Purchasing Practice
24.7 Use Value Analysis
24.8 Standardize Materials
24.9 Update Old Ideas
24.10 Negotiations
24.11 Learning Curve Concept
24.12 Price Forecasting
24.13 Make or Buy.
24.14 Summary
24.15 Assignment Questions
24.16 Review Questions
24.17 Reference Books
24.1 INTRODUCTION
Cost control means the procedures and measures by which the cost of carrying out an activity is kept under check. The aim of cost control is two-fold.
To see that cost do not exceeds beyond a certain level.
Thereafter, as a further step, it must adopt such measures and procedures by which the cost is further reduced.
The important elements of cost are material, labour and expenses. If we make complete check on each and every element of cost then it can be kept in control. If a businessman does not have any check and a scientific way of calculating the total cost of the products produced then he may not earn exact profits, and even he may run into losses. Therefore, to earn good profits, it is essential to keep control over each and every element of cost, such as:
Control on prime cost
Control on overheads and
Control on indirect materials and tools
24.2 CONTROL ON PRIME COST
This cost has got a great role in the total cost of a product. It consists of direct material and direct labour cost. Direct material cost is the most important item of expenditure and it needs careful and correct recording. To keep control on it, the following factors must be considered:
An efficient system of store-keeping is need.
To see that always right quantities of materials are consumed with less wastage.
Over – stocking should be avoided.
As far as possible there should be minimum handling and steps must be taken to reduce handling charges.
It should be predetermined, if waste and scrap materials can be used for some other work (by products).
It is necessary to express labour charges in terms of time
Labour rates should be fixed accurately with the help of time and motion study.
A right system of time recording can be introduced to calculate the time taken by each worker.
Suitable inspection and supervision methods should be introduced.
A suitable method of wage payment should be selected and introduced.
24.3 CONTROL ON OVERHEAD
For efficient run, it is very essential to have strict control on the overheads. Prime cost of product does not vary much from industry to industry for the same product. It is the overhead charges which are much responsible. If these are minimized, cost can be controlled to a large extent. For this purpose following steps could be followed:
A set procedure for determining the total overhead charges of different departments should be followed and charges of each department should be compared whether they are in excess or not.
Key control on the indirect labor force.
Simplification and set procedure for accounts and all administrative work is required to be done.
As far as possible less work should be got done during extra hours.
24.4 CONTROL ON INDIRECT MATERIALS AND TOOLS
This can be kept under control by allowing a fixed amount for each shop and should be revised at regular intervals according to the needs.
As standard cost is a tool to keep control over the total cost, therefore, total cost should always be compared with it and short-coming and defects are to be found out.
As the cost of the product consists of material, labour and overheads, it is necessary to bring down the expenditure on these elements.
There is a growing trend to linking buying companies with suppliers through electronic data systems. The advantages include faster communications, reduced paper work and greater accuracy etc. Value analysis seeks to find lower-cost ways of performing the functions of purchased items. Purchasing contributes to this process by tapping the expertise of the personnel in supplier companies regarding new materials, processes and design concepts.
The amount of wasted materials and supplies in any industry is of atmost concern in modern production system. For instance, if cost materials and supplies is only 20% of sales, saving a quarter of this may double the profits. This can be achieved by carefully observing the under mentioned steps:
Analyse cost and usage
Check purchasing practices
Use value analysis
Standardize materials
Update old ideas
24.5 ANALYZE COSTS AND USAGE
Look at the total use of materials and supplies in the organization. An item wise value list of a particular month’s usage will highlight the most significant items that have the greatest saving potential. When you spot what seems like excessive use of materials or supplies in a given operation, watch the operation and find out the causes. You may ask yourself such questions as:
Where is the material used and for what?
Is the use reasonable? If not now can it be reduced?
Is the job worth the amount of material? Why is one person using more raw material for a product than another? And why is a tool wearing out too fast?
A. AN EXAMPLE
In making a study one concern found that its paint spraying shop used 700 to 800 litres of paint per day but on Mondays 1000 litres. It turned out that paint was normally sprayed on hot agitator and heater were turned off on Sundays and turned on again on Monday mornings. But the heater get cold over the week end and took about 5 hours to get up the proper temperature. In that time, the painters has to use extra paint to get it to cover. The company found that the savings of 15000 litres of paint in a year is more than the cost of having the heater go on earlier.
In the same way use of machinery and tools can be first analysed. In one plant, for instance, a machine tool was changed every 4 hours. When the foreman found that most of these tools had to be changed every two hours, he looked around for the reason, and found that the tools that were wearing out had not been properly ground and hence did not hold up as well. Then the situation was improved. When you have made as many savings as possible from your list of major expense items, give attention to smaller items.
24.6 CHECK PURCHASING PRACTICE
The purchasing department is one of the main sources of ideas for saving materials and supplies. They are in constant touch with the supply market, where they hear and read about new developments. If the department keep them informed of interests and needs, they may come up with good suggestions. The following may be used in purchase procedure:
Before you contact to buy a specially designed component, make certain a readily available unit is not on the market. For example, a saving of 40% were realized when a standard one is substituted for a more expensive one originally specified.
Make sure you know what you want. Much of the price the supplier charges is hidden in your specifications. Review these specifications to determine, if you have over-specified.
Check items you buy to spot too stringent specifications. Relaxing item requirements may expand supply sources and cut procurement costs.
Buy and store liquids in bulk to cut costs and handling. Make use of quantity discounts, Economic purchase quantity concept (Inventory control policies) etc.
Cash in a consolidated purchasing. It saves a lot of money and time purchases should be grouped by size, type and gauge of material.
Cut inventories of little used supplies. So that free space, cut record keeping costs etc.
Group buying often reduces paper work.
Before ordering any new supplies, stores should be checked, to confirm that particular one is needed.
Review purchases of often ordered items with grouping requirements in mind. Suppliers should be asked to submit rates on the basis of a six month or one year usage figure, supplies to be delivered as required. It will allow the advantage like reduction in storage floor space, simplified records, less purchasing time, discounted quantities, simpler receiving and inspection procedure.
Before purchasing new items, screen the existing stock to see if available items can be modified for less cost to meet the needs.
24.7 USE VALUE ANALYSIS
This is a technique that analyses the user’s wants from a product. The aim is to have most qualified technicians in the business to solve the problems systematically, to suggest alternate materials, newer processes and more simplified designs.
Value analysis is a methodical approach to each product that uncovers and removes existing manufacturing expenses by changing the nature of product instead of the nature of the system.
A. AN EXAMPLE
A backing company formerly used 50 kg. bags to store flour. Substitution of 100 kg. bags made a saving of Rs.2 lakhs per annum. It should be noted that a value analysis programme must be carefully introduced to prevent danger of downgrading quality and to prevent changes for the sake of changes.
24.8 STANDARDISE MATERIALS
Standardisation although is a value analysis technique but it is so important that it is separately listed. The basic idea of standardization is to find items that can be substituted for higher cost items; yet still do a good job. By standardizing, purchasing can be done in lumpsome at a discounted rate. By keeping a large stock of the goods, shortages can be prevented. We can also avoid overstocking of goods, which are not used very much. When considering standardization get advice from various sections of the organisation, such as engineering, design, production, purchasing, inventory control etc., so that standardization could be plant-wide.
24.9 UPDATE OLD IDEAS
Good ideas dormant in most companies, pigeonholed in desk drawers and file cabinets. A manager may be too busy to consider the idea when presented; the ideas timing may be off; or the financial climate is not in favor. Shelved ideas add upto lost opportunities, frustrated suggestors and think time down the drain. Many concerns make a regular practice of reviving old ideas and making them pay off.
24.10 NEGOTIATIONS
Negotiations are a part of the buyer’s routine task. Although much of this belongs to the behavioural sciences, a great deal of the success of negotiation, hinges upon a good preparation by the purchasing executive before starting any negotiation. Whether the negotiation is for cost, quality, or quantity, much homework needs to be done by the purchasing executive prior to the negotiation. He should have detailed cost data and technical data regarding his organisation and regarding the supplier companies. He should have information regarding the economic trends in the region or in the country as also the technological and other trends. Backed by such detailed data the purchaser in order to not only argue effectively for the buying company, but also to understand the supplying company’s difficulties and problems so that during the negotiations the buyer does not rub the vendor the wrong way and thus spoil and established relationship. Many effective buyers backed by purchasing research, are in a position to suggest ways of reducing costs, improving quality, delivery or other performance to the vendor company and this is appreciated by the supplying company.
24.11 LEARNING CURVE CONCEPT
The ‘Learning curve’ concept can be of some help in negotiations. When a task is done more and more number of times, the time to complete the task also gradually reduces with increased attempt at it. Similarly, when the number of units produced increases, the direct labour hours required per unit decrease, for a variety of reasons.
24.12 PRICE FORECASTING
Cost aspects are useful when dealing with the supplier on a one-to-one basis. However, there are very many situations, particularly regarding raw materials, where the material is subject to a multitude of economic factors which influence the price of the material. It becomes necessary on the part of the purchasing executive to take cognizance of and understand the price movements. Price forecasting, based upon the time-series methods of computing trends, business cycles and seasonality’s, or based upon the understanding of the influence of various economic/business parameters should be of some interest to the purchasing executive who would like to keep the costs low. The objective is to keep the costs of purchases reasonably low, and if the prices of the materials do run away, then to ensure the availability of supply of the material for the current and near future requirements.
24.13 MAKE OR BUY
The purchase function would be incomplete if we did not make a mention of make /buy analysis. To put it briefly, a company should buy a component instead of making it:
if it a costs less to buy rather than to manufacture the component internally.
If the return on the necessary investment to be made to manufacture the component is not attractive enough.
If the company does not have the requisite skilled manpower to make the component.
If it feels that manufacturing internally will mean additional labour problem.
If adequate managerial manpower is not available to take charge of this extra work of manufacture.
If the component to be manufactured shows much seasonal demand or upswings and downswings of demand resulting in a considerable risk of maintaining inventories of it; also it the raw material for the component faces much seasonal fluctuations, which makes the manufacture of the product more risky for the buying company.
If there is no difficulty in transporting the component from the supplier to the buying company.
If the process of making the product is confindential or is patented.
If the same component is not needed year-in and year-out and there is much risk of technological obsolescence discouraging investment in capital equipment to manufacture the component internally.
Make or Buy is a strategic decision, and therefore, much short-term as well as long-term thinking about various cost and other aspects needs to be done, Thus, the role of the purchasing executive is as challenging as it is demanding because it requires an understanding of various functions within the company, a sensitivity to feel the market, the rigour to do a detailed analysis of the market forces now and later, the capacity to be a tough yet human bargainer and negotiator, and excellent interpersonal skills to integrate conflicting viewpoints of a number of people with different objectives.
24.14 SUMMARY
Cost control means the procedures and measures by which the cost of carrying out an activity is kept under check. The aim of cost control is two-fold.
i) To see that cost do not exceeds beyond a certain level. There after, as a further step, it must adopt such measures and procedures by which the cost is further reduced.
This lesson covered with control on prime cost and control on overheads and control on indirect materials and tools.
24.15 ASSIGNMENT QUESTIONS
State the price forecasting.
24.16 REVIEW QUESTIONS
Discuss the advantages and disadvantages of centralized versus decentralized purchasing.
Explain the concept of value analysis
Briefly explain the store systems and procedure.
What are the different cost reduction programmes?
24.17 REFERENCE BOOKS
Burbidge, J.L. ‘Introduction to production planning and control; 1967.
Chary, S.N. ‘production and operations management’, TMH New Delhi, 1988.
Corje, D.K: ‘Production control in engineering,’ Edward Arnold,1977.
Smith, S.B: ‘Computer based production and inventory control,’ Prentice Hall, N.J. 1989.
Banga, T.R. & Sharma, S.C. ‘Mechanical estimating and costing,’ Khanna publishers, New Delhi. 1986
Banga, T.R. & Sharma, S,R, Industrial organization and engineering economics,’ Khanna publishers, New Delhi. 1986.
Datta, A.K,; ‘Materials management procedures, text and cases,’ PHI, 1992.
Gopalakrishnan, P., ‘Purchasing and materials management,’ TMH, New Delhi, 1990.
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