1. World Class
Manufacturing
1

2. Core text books.
1. Production & Operation
Management by S.N. Chary
2. World Class manufacturing
B.S Sahay
Reference Book : Operation Management
Jay Heizer & B.Render
8th Edn
National Manufacturing
Competitiveness council
report. 2009
2

3. World Class Manufacturing is a set of concepts,
principles, policies and techniques for managing
and operating a manufacturing company. It is
driven by the results achieved by the Japanese
manufacturing resurgence following World War II,
and adapts many of the ideas used by the
Japanese in automotive, electronics and steel
companies to gain a competitive edge. It primarily
focuses on continual improvement in quality, cost,
lead time, flexibility and customer service.
3

4. WORLD CLASS MANUFACTUING CONCEPT DRIVES :
QUALITY
LEAD
HIGH MORAL
& SAFETY
TIME
CONTINUAL REDUCTION
IMPROVEMENT
COST FLEXIBILITY
REDUCTION IN OPERATION & PROCESS

5. Framework for Continuous Improvement
Companies that are pursuing world-class status may follows four dominant
principles of which these companies may choose one or more.
1.Just-in-Time (JIT) - The JIT principle focuses on the elimination of waste, with
waste defined as anything other than the minimum amount of equipment,
materials, parts, space, and workers' time, that are absolutely essential to add
value to the product.
2. Total Quality Control (TQC) Under the TQC principle, everyone in the
organization must be involved in improving the product's quality to meet
customer needs. The emphasis is placed on defect prevention rather than
defect detection and development of an attitude of "do it right the first time."
3. Total Preventive Maintenance (TPM) - With the TPM principle, machines and
equipment are maintained so often and so thoroughly that they rarely ever
break down, jam, or misperform during a production run.
4. Computer Integrated Manufacturing (CIM) - CIM involves the integration of
the company's operations from design, production, and distribution to after-
sales service and support in the field through the use of computer and 5
information technologies."

6. Transition of manufacturing Sector
High
Acceptance issue WCM
Image & quality Global
Issue. Competitiveness
Lean manufacturing
Consumer
Uncontested market
Expectation
.Manufacturing
Traditional Process Excellence
Manufacturing for cost competitiveness
Practices & innovation
Low
Local Global
Competition 6

7. Time to Market is shortening : Rapid introduction of
new products puts pressure on manufacturing facilities
to profitably produce a larger variety in smaller
volumes. Manufacturing firms have to adopt to new
processes, new materials, new vendors, new shop
floor layouts, new ways of reducing cycle times,
new designs etc. to deliver these products .
The real challenge is therefore to improve substantially
on several dimensions viz : quality, technology, shop
floor practices, supply chain coordination, and new
product introduction over a short period of time.
7

8. Manufacturing shift
Mass Production lean Production Mass Customization
Scientific CAD/CAM ERP
management EDI/ TQM Lean SCM
Process KAIZAN Agile manufacturing
MRP Six Sigma Build to order
PERT/CPM SCM
Lean Cost Focus
manufacturing Quality focus
Customization
focus
8

9. MANTRA FOR GLOBAL COMPETITIVENESS IN
MANAUFACTURING FIRMS ARE :
•Product mix change
•Conformance to quality
•Volume change
•Product customization
•On time delivery
•Research on New product
development
•Quick design changes
•Price competitiveness
9

10. A Perspective of Indian Manufacturing sector
Extract of Report submitted to NMCC by IIM Bangalore
March 2009.
The Indian Manufacturing sector has traversed a diversified
path to industrial development within the country. While its
share in the GDP has declined over the years, its growth rate
in recent years has been impressive (a CAGR of close to 8
percent in the last eight years). Very few countries in the
world can boast of such a diversified industrial base of
significance: from textiles & apparel to steel, from chemicals
to machine tools, from consumer goods to avionics. And then
there is the automobile and the auto-component industry with
engineering & service design that has created an industrial
dynamics that only a few countries in the world have been
able to achieve. 10

11. Concerns of Indian manufacturing sector
Studies have indicated that the productivity of the manufacturing
industry in India is approximately 1/5th of the productivity in the
manufacturing industry of United States Of America. It is about ½ as
compared to the productivity levels in South Korea as well as Taiwan.
Labor productivity has escalated only to a small extent in case of India
in comparison to United States Of America, on the contrary, labor
productivity has increased manifold in Taiwan & Korea .
• While ' Indian Manufacturing Industry ' is competing in the global
marketplace and registering growth on YoY basis, in sector areas ,
large sections of ' Indian manufacturing' sector still suffers from
bottlenecks like –
1. Use of primitive technology or under utilization of technology.
2. Poor infrastructure.
3. Over staffed operations & high operation cost
4. Low flexibility in manufacturing process
5. Expensive financing and bureaucracy 11

12. New Competitive Challenges
Today, Indian firms are facing a very different competitive scenario as
compared to the past. They are facing competition from imports and from
MNCs in the domestic markets. Firms also have to compete as new
entrants in global markets. Earlier, firms would segregate these two
markets and serve them with different quality products and services,
compromising on quality in the home market. This is no longer possible.
Therefore, many strategies that may have worked in the past are not likely
to succeed in the future.
The cost structure of Indian manufacturing plants shows that materials
constitute 66 percent of total costs, direct labour 10 percent and
overheads 24 percent.
This implies that management initiatives to control manufacturing costs
need to be focussed to reduce material costs and overheads.
12

13. Efforts to control material related costs may need to address several
issues including rejects and rework on the shop floor, identifying
alternative materials, and better materials management and
sourcing.
The new competition is in terms of reduced cost, improved quality,
products with higher performance, a wider range of products, and
better service - all delivered simultaneously.
Indian firms have quite often followed an opportunistic approach to
growth as opposed to a capability driven approach that seeks to
strengthen key aspects of manufacturing
13

14. Traditional Manufacturing Process.
Causal Diagram.
14

15. Logistics were organized around the principle of mass
production.
Low cost was to be achieved through high volume. This led
firms to hold large inventories of incoming materials, work-in-
progress and finished products, just-in-case anything might
go wrong and interrupt the flow of production. Machinery was
designed to produce one type of products, and machine
changeovers were to minimum.
Quality procedures were designed so as not to get in the way
of production-flow. So quality inspection was placed at the
end of the production line, and faulty products were reworked
before delivery.
These principles of mass production were appropriate as long
as markets were stable and undemanding. As markets
became more heterogeneous and changeable, new principles
15
of production had to be established.

16. Principles of World Class Manufacturing : WCM is a process
driven approach where implementations usually involve the
following philosophies and techniques:
1. Make-to-order
2. Streamlined flow
3. Small lot sizes
4. Families of parts
5. Doing it right the first time
6. Cellular manufacturing
7. Total preventive maintenance
8. Quick changeover
16

17. 9. Zero Defects
10. Just-in-time
11. Variability reduction
12. High employee involvement
13. Cross functional teams
14. Multi-skilled employees
15. Visual signaling
16. Statistical process control
These sixteen practices helps an organization to achieve
a position of world class manufacturing.
17

18. World class manufacturing
18

19. WCM has following inherent advantage
•Logistics are designed so that flexibility can be ensured.
•Producing in small batches to satisfy varied and volatile
markets.
•Inventories are organized on a "just-in-time" basis, and
production flows through the plant as single units rather
than in large batches.
•Attention is paid to rapid changeover and simpler and
more flexible machinery is often used.
•Instead of checking quality at the end of the line, quality is
assured at each stage of the production process, so that no
defects are allowed to pass through the plant. 19

20. 20

21. 21

22. 22

23. Lean manufacturing Model ( TPS House )
Integrated SCM People & Team Work Self triggered stops
Just In Time Common Goal , Cross Process driven
Continuous flow Trained high morale Error proofing
Pull system In station quality
Quick change Continuous Improvement Control
over
Waste reduction
Problem solving
5 Why;s
Leveled production
Standard manufacturing process
Visual Management
23

24. Lean Manufacturing & Toyota Production System.
Lean manufacturing practices works on the premise of
eliminating waste and being flexible and open to
change . It is a team based approach to identifying and
eliminating waste (non-value adding activities) through
continuous improvement by flowing the product at the pull of
the customer in pursuit of perfection.
The Toyota Production System is a philosophy of
manufacturing that was created by the Toyota Corporation.
TPS, has become synonymous with Lean Manufacturing.
TPS defined three types of waste: “Muda“( non value-added
work), “Muri" (overburden) and “Mura“( unevenness). By
eliminating waste, overall quality can be improved and
production time as well as cost can be reduced. 24

25. TPS defined three types of waste known as 3 M’s of
TPS.
“Muda“( non value-added work),
“Muri" (overburden)
“Mura“( unevenness).
By eliminating waste, overall quality can be improved
and production time as well as cost can be reduced.
25

26. Toyota Production System ( TPS) & 3 M’s
The Toyota seven wastes are as follows:
The TPS identifies seven wastes specifically and collectively
called as “wastes”.
1. Over-production
2. Motion (of operator or machine)
3. Waiting (of operator or machine)
4. Conveyance,
5. Processing itself
6 .Inventory (raw material)
7. Correction (rework and scrap).
Lean manufacturing aims to improve the manufacturing
process by eliminating seven wastes in all their forms.
26

27. 27

28. 28

29. TPS approach to reduce waste.
1. Reduce setup times - Employees at Toyota were made
responsible for their own setups thus reducing the
wastefulness of this process .
2. Small-lot production - The process of economically
producing a variety of things in small quantities rather than
producing things in large batches.
3. Employee involvement and empowerment - Employee are
divided into teams and even those in supervisory positions
work along side other employees on the production line as
part of the team.
4. Quality at the source - Product defects are identified and
corrected as soon as they occur or at the source.
29

30. 5. Equipment maintenance - Operators of the equipment
are also assigned to take care of their maintenance since
these should be the individuals who know the equipment
best.
6. Pull production - The work performed at each stage of
the process is dictated solely by demand for materials
from the immediate next stage (also known as "Just in
Time").
7. Supplier involvement - Suppliers are treated as partners
and are also trained in the TPS methods.
30

31. Factors affecting Lean Manufacturing
31

32. Theory of Constraints
Eli Goldratt is the creator of the Theory of Constraints (TOC)
Theory of Constraints (TOC) is an overall management
philosophy that aims to achieve goal of a system by
eliminating bottle neck in the process.
TOC focuses on critcal areas which influence the system’s
efficency and productivity.
1) The management thinking processes and their implication
to execution and human behavior .
2) The constraints in critical business activity & its implication
to processes flow in the service operation.
The constraints can be broadly classified as either an internal
constraint or a market constraint ( suppler constraint) .
32

33. Theory of Constraints is based on the premise that the rate of
revenue generation is limited by constraining process (i.e. a
bottleneck).
Only by increasing throughput (flow) at the bottleneck process or
elminating the bottleneck , can overall throughput be increased.
The key steps to overcome constraint are:
1. Articulate the goal of the organization.
2. Identify the constraint (the thing that prevents the organization
from obtaining more of the goal.
33

34. 3. Decide how to exploit the constraint.
Subordinate all other processes to above decision (align
all other processes to the decision made above)
The primary methodology used to overcome constraints
is refered as Drum-Buffer-Rope (DBR) approach.
34

35. 1. The drum is the physical constraint of the plant: the work
center or machine or operation that limits the ability of the
entire system to produce more. The rest of the plant follows
the beat of the drum.
2.The buffer protects the drum, so that it always has work
flowing to it. Buffers in DBR methodology advocates time as
the unit of measure, rather than quantity of material. This
makes the priority system operate strictly based on the time .
3. The rope is the work release mechanism for the plant.
( Trigger ). It Pulls work into the system just when required
rather than earlier than a buffer time which creates high
work-in-process and slows down the entire system.
35

36. Marching to the Drum Beat of the Drummer
Constraint linked to Inventory available to Buffer time
Market demand Overcome the constraint
Drum Beat Proactive
Virtual stock Process
Of the plant
buffer
36

37. Traditional system calls for buffers at several points in
the system. Simplified DBR requires only a single
buffer at shipping point.
Drum - The constraints, linked to market demand, is the
drumbeat for the entire plant.
Buffer - Time/inventory that ensures that the constraint
is protected from disturbances occurring in the system.
Rope - Material release is "tied" to the rate of the
constraint.
37

38. The Simplified- Drum, Buffer Rope ( S-DBR)
provide the basis for building a production
schedule that is highly immune to disruption,
avoids creating excess inventory, and uses
small batches to minimize overall lead time.
Thus S-DBR is used to mitigate and often
prevent those disruption which happens in
Production process.
38

39. Lean Manufacturing Model
Integrated SCM Self triggered stops
People & Team Work
Just In Time Process driven
Common Goal , Cross
Continuous flow Error proofing
Trained high morale
Pull system In station quality
Quick change Control
over Continuous Improvement
Waste reduction
Problem solving
5 Why;s
Leveled production
Standard manufacturing process
Visual Management
39

40. 7 Essential principles of Lean manufacturing
1. Pull Inventory Control. Work moves based on
the needs of the downstream operation starting
from the customer need.
2. Automation: Equipment intelligently recognizes
& eliminates process variation with human like
intervention. Technology support from ERP,
CAD/CAM etc
3. JIT Inventory : WIP & supplies arrive at the
process location as they are needed.
40

41. 5. Visual control. : Management by sight of
equipment & process Variation.
6. Standardized work process & procedures. All
activities are defined in advance &
characterizes by process consistency.
7. Pursuit of perfection. There is no end to the
process of reducing , waste , time cost &
mistake.
8. Continuous work flow : Alignment of
machines are such that it drives continuous
work flow without interruption.
41

42. A flexible manufacturing system (FMS) is a group of numerically-controlled
machine tools, interconnected by a central control system. The various
machining cells are interconnected, via loading and unloading stations, by
an automated transport system. Operational flexibility is enhanced by the
ability to execute all manufacturing tasks on numerous product designs in
small quantities and with faster delivery.
It has been described as an automated job shop and as a miniature
automated factory. It is an automated production system that produces one
or more families of parts in a flexible manner. Automation and flexibility
presents the possibility of producing nonstandard parts to create a
competitive advantage.

43. Flexible Manufacturing
System
Batch Production
or
Job production
Dedicated machinery or General-purpose tools
Cost savings but Costly, and may not
lacks flexibility reach full capacity

44. FMS is limited to firms involved in batch production or job shop
environments. Normally, batch producers have two kinds of equipment
from which to choose: dedicated machinery or general-purpose tools.
Dedicated machinery results in cost savings but lacks flexibility. General
purpose machines such as lathes, milling machines, or drill presses are all
costly, and may not reach full capacity.
Flexible manufacturing systems provide the batch manufacturer with another
option that can make batch manufacturing just as efficient and productive as
mass production.
Two kinds of manufacturing systems fall within the FMS spectrum. These
are assembly systems, which assemble components into final products and
forming systems, which actually form components or final products.
A generic FMS is said to consist of the following components:
A set of work stations containing machine tools that do not require significant
set-up time or change-over between successive jobs. Typically, these
machines perform milling, boring, drilling, tapping, reaming, turning, and
grooving operations.

45. An automated and flexible material-handling system ( Guided vehicle )
permits jobs to move between any pair of machines so that any job routing
can be done more efficiently .
A network of supervisory computers that perform some or all of the
following tasks:
1. Directs the routing of jobs through the system
2. Tracks the status of all jobs in progress so it is known where each job is
to go next.
3. Passes the instructions for the processing of each operation to each
station and ensures that the right tools are available for the job.
4. Provides essential monitoring of the correct performance of operations
and signals problems requiring attention.
5. Storage, locally at the work stations, and/or centrally at the system level.
The jobs to be processed by the system. In operating an FMS, the worker
enters the job to be run at the supervisory computer, which then downloads
the part programs to the cell control or NC controller.

46. Benefits
•Less waste
•fewer workstations
•quicker changes of tools, dies, and stamping machinery
•reduced downtime
•better control over quality
•reduced labor
•more efficient use of machinery
•work-in-process inventory reduced
•increased capacity
•increased production flexibility

47. LIMITATIONS OF FMS
It can handle a relatively-narrow range of part
varieties, so it must be used for similar parts (family
of parts) that require similar processing.
Due to increased complexity and cost, an FMS also
requires a longer planning and development period
than traditional manufacturing equipment.
Equipment utilization for the FMS always is not as
high as one would expect.

48. Lack of technical literacy, management
incompetence, and poor implementation of the FMS
process.
If products change ( variation is high ) rapidly, and
performance of the firm is measured on the ability to
introduce new products fast than minimizing cost, in
such scenario, scale is no longer the main concern
and size is no longer a barrier to entry.

49. Traditional FMS
The traditional flexible manufacturing system (FMS) is based on
numerically controlled machines in addition to other value-added,
automatic, material handling facilities. A degree of flexibility within FMS
serves to satisfy demands for a relatively diverse range of products with
a small to medium batch size production.

50. Flexible Manufacturing System
Mass production
Mass Customization

51. When customer orders come through more randomly with different delivery
dates, product mix changes irregularly and drastically, or the product
diversification increases, downstream processes require randomly
customized parts on flexible schedules to be supplied to their matching
predecessor processes on short notice, extra inventory, equipment, and
labor are needed to meet order variations. In such a case , traditional
FMS is challenged to meet these rapid changes with minimum production
cost and satisfaction. This leads to a new concept called Mass
Customization . A process which delivers sufficient flexibility and rapid
response capability to deal with complex manufacturing situations.
Mass customization system demands a higher degree of flexibility than
traditional FMS. It is highly desirable that each component demonstrates
prompt response capability in managing demand changes in a FMS with
parallel considerations in product costs, quality and reliability to form
the flexibility in an agile mass manufacturing system,

52. Agile Mass Customized Manufacturing System
Manufacturing process focused on the ability to flexibly and rapidly
respond to changing market conditions. As product life cycles get
shortened significantly , manufacturers have found that they can no
longer capture market share and gain higher profits by producing large
volumes of a standard product for a mass market. Success in
manufacturing requires the adoption of methods in customer-acquisition
and order-fulfillment processes that can manage anticipated change
with precision while providing a fast and flexible response to
unanticipated changes .

53. Goal of MCM is to produce and deliver customized products rapidly
while keeping costs at the mass-production level.
MCM implementation strategies can be divided into three different
categories according to the different stages when customization is
introduced in the value-chain:
(1) form MCM, (2) optional MCM, (3) core MCM
Form MCM is the simplest MCM implementation strategy, where
customization is introduced at the delivery stage.
Optional MCM allows customization to take place at the
manufacturing stage. The essential point of this implementation
strategy is to provide a large number of pre-designed, standard options to
customers. It produces the configured products. Customers can only
select options from a predetermined list and request them to be
assembled. ( Dell manufacturing Model )
Core customization integrates customers with the design process.

54. Mass Customized Manufacturing ( MCM )
Steps for mass customization lie in two areas:
1. Design For Mass Customization （ DFMC ）
2 Mass Customization Manufacturing (MCM) system.
DFMC emphasizes decoupling of the design and manufacturing process
to reduce costs. In developing MCM, it is important to take DFMC into
consideration in order to reduce the setup time and other volume-related
costs drivers. Modification of product shape and size are limited to
guarantee that fabrication can be performed on the same production line.
Product design for mass customization ( DFMC) calls for Parameterized
products: Parameterized products possess a series of attributes called
parameters. These parameters allow customers to change the actual
design of the product, for example, by creating new sizes, or modifying
performance characteristics. Each parameter can be chosen by
customers within a certain scope, and the scope itself can also be
defined as one of the parameters

55. Success in mass customization manufacturing( MCM) is achieved by
swiftly reconfiguring operations, processes, and business relationships
with respect to customers’ individual needs and dynamic manufacturing
requirements.
MCM system is characterized by four challenging characteristics:
Degrees of flexibility,
Production capability adjustments,
Modularization methods
Dynamic network-control system structure
Modularization methods : Modularization methods in traditional
manufacturing systems are often product-oriented, where modules are
grouped in teams with intercross functions . In an MCM system,
categorization of modules is based on their functionalities: the greater
the diversity of module classifications, the better the system’s potential to
satisfy different customized demands

56. Dynamic-network-control system structure: Control system
structures in FMS are often constructed in a hierarchical mode.
Modules assigned at various closely interactive layers result in the
limitation of the capability for system reconfiguration, reliability,
and system expandability.
Because of the complexity in ever-changing manufacturing
requirements and flexible process routing, fixed and centralized
control is almost impossible in a MCM system.
Dynamic and flexible network utilizations in MCM functional
modules can maximize the strength of each empowered resource,
and hence, the overall risk and costs are reduced. The dynamic
network connections among functional modules are characterized
as :
Instantaneous: Accessing valid resources and reconfiguring functional
modules should be instantaneous.
Low cost: Besides the initial capital investment, it is better to reduce the
recurring system costs.

57. Seamless: A set of system mechanisms needs to be established to ensure
seamless data exchange among customized orders, suppliers, services,
and production controls.
Frictionless: There should be no resource conflicts when a new network is
created. Success in this feature promotes better cost controls and dynamic
network operations.

58. Integrated design and simulation system to enable MCM

59. Evolving of Supply Chain practices for competitive
advantage
2001: CPFR
1996: ECR
1992: VMI/Co-Managed
1986: Quick Response (QR)
1960s: Just-In-Time/Total Quality

60. The goal of JIT in manufacturing organization is to continuously
reduce the cost associated with requirement material resource.
Its objective is to achieve cost efficiency through zero
inventory. The goal of JIT process is to reduce excess working
capital held-up on account of material & minimal inventory at WIP
.
The constraints of managing RM inventory are due to :
•Unpredictable quality of supply of material
•Inability to hold tolerances.
•Shortcoming in lead time. ( Erratic delivery )
•Short supply of quantity of material
•Inaccurate forecasting
•Non standard materials being used ( Increased variety )
•Last minute product changes.

61. Steps for implementing JIT in an organization.
1. Do detailed analysis of inventory requirement of all types at
every stage of production process.
2. Estimate the market fluctuations on account of price, supply ,
quality demand etc.
3. Identify reliable source of suppliers who are capable of
supplying material as when required.
4. Take supplier in to confidence & sensitize them the
importance of JIT inventory & build healthy business
relationship with suppliers to have high commitment &
ownership . Use Value engineering approach.

62. 5. Conduct periodic vendor appraisal & follow vendor
rating system of evaluation .
6. Give instant feed back on the supply & suggest
improvement steps.
7. Sign rate contract .
8. Use IT enabled ordering system , ERP .

63. Inventory Control Techniques
Inventory control techniques are used to prevent :
1 financial leakage due o excessive stock & poor
demand , 2 2shortage of inventory
3. Inventory Obsolescence
Plan safety stock for critical & essential items
Build selective control on fast & slow moving
inventory .
Various Inventory control technique used are :
ABC : Always Better Control
VED : Vital Essential & Desirable
SDE : Scarce Difficulty & Easy
FNSD Fast moving , Normal , Slow moving , Dead

64. ABC Classification
100
CLASS C
90 Low annual consumption value
CLASS B
Usage %
Moderate annual Consumption value
70
(Inventory
Value )
CLASS A
High annual consumption value items
0 10 30 100
% items

65. VED analysis : Vital : Without which production process
will come to halt.
Essential : Non availability of such item will affect
the efficiency .
Desirable : It is good if it is available , however
alternate option can be done.
SDE : Scarce ( Short supply )
Difficult ( Imported components )
easily ( Short lead time )

66. Purchase Inventory review system :
Review process is administered on the basis of Fixed
order quantity ( Q system ) and fixed period quantity
system . ( P system )
In Q system , whenever the stock level reaches the RoL
, order is placed for a fixed quantity of material .
RoL is calculated as a sum of demand during the lead
time & variation in demand during lead time ( safety
stock ) and average demand during delivery delays.
( reserve stock )
In p system , stock position is reviewed after every fixed
period & order is placed according to stock position &
demand .

67. Value Engineering or Value Analysis
It is a technique of cost reduction and cost
prevention. It focuses on building necessary
functions at minimum cost with out
compromising on quality, reliability ,performance
& appearance. It helps in identifying unnecessary
costs associated with any material , part
components or service by analysis of function
and efficiently eliminating them with out
impairing the quality functional reliability or its
capacity to provide service. It is a preventive
process.

68. When to apply VE
1. Raw material cost increases suddenly .
2. Vendors are unreliable & organization is highly
dependent on a few select vendor .
3. Cost of manufacturing is disproportionate to
volume of production .
Value analysis is done w.r.t cost associated at:
• Cost Value (Labour , Material & overhead).
• Use Value
• Esteem Value ( Look & finish )
• Performance Value ( Reliability , Safety , Service &
Maintenance )

69. Value = Performance ( Utility)
Cost
Vendor analysis is done to minimize the cost incurred due
to a supplier Inefficiency or inability .
Vendor cost to be considered are :
•Opportunity loss due to poor quality ( High rejection cost )
•leading to machine & labour idle time.
•High re-work cost
•Inconsistent lead time
•Inability to meet the demand of the manufacturer
•Poor Credit terms

70. Value engineering procedure:
Constantly evaluate the inventory costs associated &
benchmark against the best in practice.
As & when the cost of manufacturing increases
disproportionately, identify an alternate source for contract
manufacturing & monitor the quality & standards.
Use more standard parts which can be sourced easily
Develop more suppliers ( at least 4 to5 for one part.) &
minimize dependency on one supplier.
Audit the supplier’s work premise & rate them on the
performance .
Conduct quarterly vendor meet & share the highlights &
concerns .

71. Manufacturing Requirement Planning

72. MRP MRP1 ERP
Material requirement planning Manufacturing resource Enterprise resource
in manufacturing organization. Planning in manufacturing Planning
organization
Inventory planning Production planning Business planning
& control & control
Material planning Material, Machine Man Machine
Method Man Material, Method
& Money
The essence of the progress was based on seamless integration and analysis of
information on various resources required by a manager to make an effective
decision.

73. MRP vs. ERP — Manufacturing management systems have
evolved in stages over the past three plus decades, from a simple
means of calculating materials requirements to the automation of
an entire enterprise.
As frequent changes in sales forecasts happened entailing
continual readjustments in production, as well as inflexible fixed
system parameters, MRP (Material Requirement Planning)
evolved into a new concept : Manufacturing Resource Planning
(or MRPII ) and finally the generic concept Enterprise Resource
Planning (ERP)
Prior to the concept of ERP systems, a manufacturing organization
faced tremendous difficulty in planning & controlling of resources
like people , finance WIP inventory at plant , machine status etc
due to lack of integrated & updated information about resources.

75. Advantage of ERP in a manufacturing organization.
Integration among different functional areas to ensure
proper communication, productivity and efficiency
Integration of Design engineering & collaboration.
(CAD & CAM )
Order tracking, from acceptance through fulfillment
The revenue cycle, from invoice through cash receipt
Managing inter-dependencies of complex processes
BOM .
Tracking the three-way match between purchase orders
(what was ordered), inventory receipts (what arrived),
and costing (what the vendor invoiced)
The accounting for all of these tasks: tracking the
revenue , cost and profit at a granular level.

76. Disadvantages
Customization of the ERP software is limited.
Re-engineering of business processes to fit the "industry
standard" prescribed by the ERP system may lead to a
loss of competitive advantage.
ERP systems can be very expensive (This has led to a
new category of "ERP light" solutions)
ERPs are often seen as too rigid and too difficult to adapt
to the specific workflow and business process of some
companies, cited as one of the main causes of their failure.
Many of the integrated links need high accuracy in other
applications to work effectively. A company can achieve
minimum standards, then over time "dirty data" will reduce
the reliability of some applications.

77. The Next Competitive Advantage:
Collaborative Commerce
2004: Collaborative
Commerce
2001: CPFR
1996: ECR
1992: VMI/Co-Managed
1986: Quick Response (QR)
1960s: Just-In-Time/Total Quality

78. Software solution for collaborative
commerce
i2
manugistics
leveraged Intelligence
SAP/R3
LOGILITY
VOYAGER
SOLUTIONS
Eqos

79. The CPFR® ( Collaborative planning , forecasting
& replenishment
A shared process of creation between two or more
parties with diverse skills and knowledge delivering
a unified approach that provides the optimal
framework for customer satisfaction.
Voluntary Inter Industry Commercial Standards (VICS)
•A set of guidelines supported and published
by the Voluntary Inter industry Commerce
Standards (VICS) Association ,Trading partners
to share their plans for future events, and then
use an exception-based process to deal with
changes or deviations from plans.

80. CPFR is a business practice that combines the
intelligence of multiple trading partners in the planning and
fulfillment of customer demand.
CPFR is a strategy for improving supply chain efficiency
and effectiveness by making demand transparency, drive
the execution of the supply chain participants to maximize
value for the end-customer.
Fundamentally, the aim of CPFR is to convert the supply
chain from a disjointed, ineffective and inefficient “push”
system to a coordinated “pull” system based upon end
customer demand.

83. CPFR Process Model.
The driving premise of CPFR is that all supply chain participants develop a
synchronized forecast. Every participant in a CPFR process — supplier,
manufacturer, distributor, retailer — can view and amend forecast data to
optimize the process from end to end. Essentially, CPFR puts an end to
guesswork in forecasting. It means that manufacturers and retailers share
their plans, with detailed knowledge of each others’ assumptions and
constraints.
The target objectives for CPFR process include the following:
• Increased in-stock at shelf
• Reduce average transit inventory
• Increased sales
• Reduce operating expense
• Reduce cost of goods
• Reduced lead time/cycle time
• Decreased account receivables
• Reduced forecast error +/- 10%
(Source: University of Denver Supply Chain Round table: “CPFR Overview.” Value
Chain Collaboration Associates, Inc

84. The CPFR® Process Model Seller
FRONT END AGREEMENT Collaborative
Planning
JOINT BUSINESS PLAN
CREATE SALES FORECAST Collaborative
IDENTIFY EXCEPTIONS Forecasting
RESOLVE EXCEPTIONS
CREATE ORDER FORECAST
Buyer
IDENTIFY EXCEPTIONS
RESOLVE EXCEPTIONS
GENERATE ORDER

85. Phase I — Planning
This phase relates to people, processes, and developing of trust. Partners must
break down cultural barriers and company-centric perceptions so they can view
the bigger picture. Partners have to share a unified vision to make the process
work. First, partners must define their relationships and identify what processes
need to be changed to allow stronger collaboration. Next, “trigger” points for
alerts must be identified and assignment charts developed that designate who
responds to the alerts and in what time frame. Overall,
suppliers may have to change compensation plans and move away from “push”
plans, so that shared forecasts can “pull” information through the processes.
Specific benchmarks and key performance indicators (KPIs) must then be
established to determine the efficacy of the shared plan.
The two major steps in this plan are :
1. Developing a front-end agreement
2. Creating a joint business plan.

86. Phase II — Forecasting
Collaborative forecast of end-user demand continues through all aspects of supply
chain planning, providing support for both long-term and day-to-day decisions.
Analysis like “what-if ” , forecasting planners can quickly and easily determine the
financial and operational effects of any action throughout the supply chain.
In Phase II, an organization creates the sales forecast, which then feeds into the
order forecast. A large quantity of information rapidly permeates the entire
process. A single, collaborative forecast is created with dynamic capability to
address the complexities in the business environment.
Using advanced demand planner ( software modules ) , organizations can build
multi-dimensional models, which may include product hierarchies, geographies,
channels, and specific customers. Causal variables such as pricing, promotions, and
new store openings can also be completely integrated. In addition, historical data can be
combined with near real-time variations in the channel to get the most accurate forecast.

87. Phase III — Executing
During 3rd phase of CPFR , front-end planning and forecasting come
together with supply chain execution. Using Order Promising software
module , companies can instantly determine where orders can best be
satisfied — from inventory at any location, planned production orders, or
purchase receipts. When there is a promotion (such as a new store
opening or product launch), Order Promising allows companies to quote
future delivery dates or other key information related to the event. Order
Promising provides the real-time information essential to good customer
service.
Manufacturing, warehousing, order fulfillment, and transportation plans
are completely synchronized into an integrated package to monitor and
ensure on-time execution of the order delivery process.

88. Collaborative commerce in Retail
Process view of Supply Chain in collaborative
commerce .
SUPPLIER SUPPLY CHAIN
Supply chain design
Demand forecasting
PLAN
Inventory planning SOURCE Retail Store
CUSTOMER
DELIVER
Distribution planning
Allocation
Transportation Planning
Order Fulfillment
Delivery scheduling Visibility, Event Management
CATEGORY
& coordination & Track & Trace
Management
 Warehouse Management Reverse Logistics
Procurement  Inventory Management Trade Management
In sourcing/out sourcing  Transportation
management
Relationship
Management

90. Managing Manufacturing Lead time ( MLT ) is an essential
task in any organization to deliver the goods as per the
customer order lead time.
MLT depends on the nature of manufacturing process. The
four types of manufacturing process are :
ETO ( Engineer to Order)
MTO ( Manufacture to Order )
ATO ( Assemble to Order )
MTS (Made to Stock )
Design Procure Manufacture Assemble Ship ETO
Lead Time
90

91. Types of Production System
91

92. Production Process.
Standardization Non standardization
Variation
Flow (Mass) Batch Job Project/ Turn
Production production production key production
MTS ETO
Standard parts & Non standard low volume
High Volume
Plant location
Plant Layout
Production process
92

93. Mass or Flow production
Flow or mass production employs special types of machines specially
designed for mass scale productions . It involves decomposition of the
production task in to minute details & are grouped them according to the
norms of production.
An assembly line consisting of workstations in a sequence meant to do a
portion of the work , feed the parts and components machined to
assembly line .Material moves continuously at a uniform average rate
through the sequence of workstations .
When to deploy mass production .
•When production quantities are large & variations are small .
•Demand for a single product is very high .
•It must justify economy of scale.
93

94. Advantages of Flow production :
•Smooth flow of material from one station to next in a logical
order.
•Result in small WIP inventory due to well connected process.
•Effective production time can be short if the processes in the
production is not in efficient .
•Low labour skill is required and can be automated easily .
•Low labour training is required.
•Material movement is less & less WIP inventory storage
space required.
94

95. Disadvantages :
1.Complete line stoppage if a machine breakdown.
2.High preventive maintenance cost
3.Plant layout is dictated by the product . Any change in the product design
will call for a major change in plant layout .
4.Line balancing is essential in the assembly line to attain line efficiency .
( Grouping of task to ensure that sum of the time of the work elements
performed at a work station ( station time ) does not exceed the cycle time
LE = STi ST = Station time for i station
K x ( CT) K = total no of work station
CT= cycle time
5.Low degree of manual supervision .
95

96. Batch production
Batch production : When a variety of products to be made & volumes
are not large , batch production is followed.
•It uses general purpose machines or flexible machine system which
can be used to produce variety of products.
•Material flow is more complex than mass production.
•Plant Layout is designed keeping in mind the variety & their flow
pattern .
•Production cycle time are larger as compared to mass production.
•Production scheduling follows a particular sequence in which jobs
should be done at the work center.
•Optimal batch size determination for economy is essential.
96

97. Manufacturing Economic batch Quantity
Items are produced & consumed simultaneously for a portion
of the cycle time. The rate of consumption is uniform through
out the year & cost of production remains same irrespective of
production lot .
I max = t p x ( P-D)
Q
Q = Pxtp , tp = Q/P
P = production rate
D D= consumption rate
P P – D = inventory build up rate
Q = Inventory at t1
tp
Cycle 2 DXCs P
EBQ = Ci ( P-D )
97

98. I max = t p x ( P-D)
= Q/P x ( P-D)
= Q x (1- D/P)
Av annual Inv = Q/2 x ( 1- D/P)
Av Annual Inv Cost = Q/2 x (1- D/P) Ci
Annual set up cost = D/Q x C s
Q/2 x(1-D/P) Ci = D/Q x Cs
Q2 =
2 x D x Cs
(P-D )Ci
P
Economic 2x Dx C x P
Q= s
Batch Qty C i P-D
98

99. A manufacturing unit has annual demand of 10000 valves.
Each valve costs Rs 32. The product engineering
department estimates the setup cost as Rs 55 & holding
cost as 12.5 % of the valve. The production rate is uniform
at 120 valve/day. Production happens for 250 days in a
year.
Calculate optimal batch size & total inventory cost on the basis of optimal policy.
Find the number of set ups on the basis of optimal batch .
Ci= 12.5% of 32 = Rs 4 , D= 10000/250 = 40 units /day
EBQ = 2 x 10000 x 55 ( 120/120-40) = 642 valves.
4
(10000/642)x 55 + 642/2 ( 120-40/120) x 4
856.8 + 856.35 = Rs 1713.15 /yr
No of setups = 10000/ 642= 16 Approx
99

100. Disadvantages :
Longer and irregular flow lines result in expensive material handling
process.
Larger WIP inventory High grade skilled workers & operators are
required.
Total production time required is relatively larger.
Job Production :
In job production, similar machines are used to produce variety of
jobs of smaller quantity . As nature of demand is unpredictable, &
each job order being unique, it requires varying processing time &
distinct routing process through a number of machines in the factory.
Job shop consists of general purpose machine clubbed in different
production centers.
Each job requires a unique scheduling as there are n jobs to be
100
processed by m machines so as to meet the due date.

101. •Managing total processing time ( make Span)
•Minimizing idle machine time
•The make span depends on number of jobs to be processed & number of
machine available, their due date, job shop layout , the manner in which the
jobs arrive at the factory.
•Planning for the job shop involves deciding the order of priority for the jobs
waiting to be processed in a queue to achieve the desired objective.
•Attaining Shortest processing time( SPT sequencing rule ) is key to job work.
•It helps to minimize lateness of the job . ( Job completion time - Due date)
•Other approaches are first come first serve ( FCFS)
•Prioritize the job with earliest due date.
101

102. Managing Large & complex production work
Project Work ).
A large complex task comprising of multiple activities to
be performed from manufacturing to delivery, installation
& commissioning requires tight scheduling coordination
& monitoring of activities from start to end for timely
completion of work to avoid monetary loss & high
customer satisfaction.
Cost ,Time & Performance are the basis of such project
activity.
Interrelationships between the activities need to be
understood by the operation team.
Erection of a manufacturing plant. Manufacturing of
ships , airbus etc.
102

103. •It requires a specific layout ( project layout ) to handle each
part of the project.
•Heavy machinery and material handling equipments are
required to manage the projects.
•Tight control and monitoring of resource are the essence of
the project.
•All such production activities are done using project
techniques called CPM ( Critical Path Method ) & PERT
( Project Evaluation & Review Technique)
CPM deals with project management involving deterministic
time estimates .
When activity durations of the project are not deterministic &
probabilistic, PERT is used. 103

104. 104

105. PLANT LAYOUT
Plant layout is a floor plan of the physical facilities used for
ease in production system. It is an spatial arrangement of
physical facilities to increase the productivity in the shop
floor.
An economic layout decision helps to achieve long run
efficiency in operation . It creates competitive
advantageous in terms of capacity, processes , flexibility,
cost and quality of work life
105

106. If the operational system suffers from :
1. Poor on-time performance
2. Long production lead-times
3. High WIP and/or finished goods inventory
4. High overtime
5. Lots of expediting and rescheduling
6. Wandering or stationary bottlenecks
7. Reluctance to take on new business
. . . then it implies that organization's
production layout has constraints.
106

107. Layout decisions .
.
Key benefits are : Higher utilization of people , equipment
and space, Improved flow of information , & material
Improved Employee morale & safer working condition,
Minimize material handling cost .
Types of layout are :
• Fixed position layout
• Process layout,
• Work cell layout, ( Group Layout )
• Product layout.
107

108. Fully automated Plant layout
WIP Inventory
108

109. Assembly Line in a Car Factory
109

110. 110

111. 111

112. Product layout : Machines & auxiliary service are
located according to the processing sequence of the
product . This is also called line layout. Material
flows in a uniform rate & operations are carried out
in a balanced way.
RM Sawing Turing bending drilling Grinding
FG Packing Quality Inspection Painting
approval
112

113. 113

114. Advantages product layout
1.Simple production Planning & control .
2.For high volume standard outputs, machine & work force
utilization is high.
3.Operator skill can be relatively low as he is trained for one kind
of operation.
1. Limitation : Breakdown of one machine will cause stoppage of
work in down /up stream level.
2. Last minute change in product design will require major
alteration in layout .
3. Heavy investment is required in material handling equipments
, machinery etc.
114

115. Process layout : Deals with low volume high variety
production activity ( intermittent production ) . The product
manufactured undergoes different sequence of operation. It
provides flexibility in equipment and labour assignments .
The break down of one machine will not halt the processes.
It is good for wide variety of product production in different
size. RM
Sub
Job Process Assembly Dispatch
Heat Sawing &
Treatment Shearing
Grinding
Turning
Milling Drilling
Bending Wielding 115
shop

116. Process layout
1. A high degree of flexibility in terms of task allocation
to machines exists.
2. Relatively low investment in machines .
3. Operators are multi skilled.
4. Handles diversity in task better.
Limitation
1. High care in PP&C required.
2. WIP inventory will be large.
3. High grades of skilled work force will be required.
4. Material handling cost will be high
116

117. Manufacturing system based on Cellular layout
A manufacturing system wherein the equipment and
workstations are arranged in an efficient sequence that
allows a continuous and smooth movement of inventories
and materials to produce products from start to finish in a
single process flow, while incurring minimal transport or
waiting time .
In order to set up a single process flow (or single product
flow) line, it is necessary to locate all the different equipment
needed to manufacture the product together in the same
production area. This calls for a improved production layout.
117

118. A work cell is defined as a collection of
equipment and workstations arranged in a
single area that allows a product or group of
similar products to be processed completely
from start to finish.
It is, in essence, a self-contained mini-
production line that caters to a group of
products that undergo the same production
process. Cellular manufacturing involves the
use of work 'cells.
118

119. Work cell layout : A combination of product & process
layout. It provides the benefits of both layout to the
business. Work cell
Unit 1 Unit II
Job A
Job B
Assembly line Unit iii
Unit V Unit IV
119

120. Work Cell layout will provide standardization &
rationalization of products , good estimates , effective
machine operation , high productivity , reduce set up time,
less down time , better through put etc.
Work cell / Group layout will not be feasible for all kinds of
operations. However the layout can meet the requirements
of batch production system . When the product mix
manufactured is very dissimilar it will not be advisable to
have group layout.
120

121. Benefits of Cellular layout
1. Cellular layout helps to eliminate over production and
reduce waste.
2. Cellular manufacturing helps reduce waste by reducing
defects that result from processing and product
changeovers. Since products or components move
through a cell one piece at a time, operators can quickly
identify and address defects.
3. Allowing operators to stop production when defects occur
prevents wasted material and time.
121

122. 4. In a conventional queue process, it is difficult to
identify and respond to defects until the entire batch is
produced or numerous pieces are processed.
5.Reducing defects has several benefits such as :
•Fewer defects decreases the number of products that
must be scrapped.
•Fewer defects also means that the raw materials,
energy, and resulting waste associated with the scrap
are eliminated.
•Fewer defects decreases the amount of energy, raw
material, and waste used or generated to fix defective
products that can be re-worked.
122

123. 6.Cellular layouts typically require less floor space for equal
levels of production. Reductions in square footage can
reduce energy use for heating, air conditioning and lighting.
It can also reduce the resource consumption and waste
associated with maintaining the unneeded space (e.g.,
fluorescent bulbs, cleaning supplies).
7.Cellular manufacturing layouts and automation can free
workers to focus more closely on equipment maintenance
and pollution prevention, reducing the likelihood of spills and
accidents.
123

124. Fixed position layout : The space required is
very large , meant for large bulky products .
Heavy engineering equipments. Ship yard , Air
repair base. Equipment and people are fixed to
an operation area.
Ship Repair base
Boiler manufacturing
124

125. Layout Design tools.
A) Manual Method : 1.Travel chart
2. Systematic Layout planning
B) Computerized Method. ( Using algorithms )
1Automated Layout Design Algorithm ( ALDEP)
2.Computerized Relationship Layout Planning
(CORELAP)
3.Computerized Relative Allocation of Facilities
Technique.( CRAFT)
125

126. Plant layout variables
1.Flow of material 2.Process flow
Relationship of 1&2
Space Space
Requirement Available
Practical Constraints
Develop layout alternatives
126

127. Production Planning & control function
Staff function Line function
Production Physical
Sales & Planning & Production
Marketing Control work
•Planning, coordinating and controlling
fulfillment or OTD cycle.
•Plan & control material , material cost & Vendor
•Plan & control machine schedule, maintenance
&productivity.
•Plan & control plant productivity, safety , hygiene
•Production incentive etc. 127
•Set quality standard .

128. Production Planning & Control
Production Planning and Control (PPC) is a process that
comprises of managing the performance of critical
functions during planning as well as control of production
activity to deliver quality output within the stipulated time
frame at minimum cost of production.
128

129. Production Planning & Control
Production planning function is responsible for planning of
resources like Material , Machine , Manpower , Method &
Money for production activity. Production planning
function deals with two levels of planning :
Prior Planning : All activities such as product development
& design , production cost estimation , vendor
identification , sourcing mechanism , Material planning ,
Order writing etc.
Active planning includes Process scheduling , & routing,
work force allocation , machine scheduling , Capacity
scheduling, Finite capacity scheduling , Tool planning
Material handling & movement etc. 129

130. PP&C function is responsible for managing the overall
cycle time during production process since
Cycle time is directly related to production rate .
CT ( Cycle Time ) = Productive time / Demand per
period
If the output per day from a manufacturing shop is 24
cylinders operatign in a single shift ,
= 8 X60/24 = 20 Min is cycle time for one cylinder.
Since the actual time available would be less than the ideal
time ie 8hrs on account of various delays viz operator
efficiency , break etc, set up , the effective cycle time
would be less than 20 min .
As demand increases & lead time need to be minimized
to be competitive in the market , PP&C has to manage
Effective cycle time.
130

131. OTD cycle time = production time + delivery time (MTS)
= order time + Production time + delivery time ( MTO)
= order time + Supplier lead time + integration time
+ delivery time ( ATO )
= Order time + Supplier lead time ( ETO)
+ subcontractor’s lead time
+ Production time
+ Delivery time
+ Installation &commissioning time
PP&C owns the prime responsibility in a manufacturing organization to ensure that
OTD cycle is in accordance with the realistic customer’s acceptation of delivery time.
131

132. Responsibilities of PP&C function
1.Material Planning
•Forecasting inventory
•Preparing material budget
•Make or buy decision analysis
•Estimating individual requirements of parts ( BOM )
•Raising material indent
•2.Inventory Control
•ABC analysis
•SDE& VED inventory analysis
•Fix Economic Batch Order
•Building safety stock & re-order level.
3.Subcontract Activity
Vendor evaluation ( value engineering )
Monitor out source activity
Outsource to subcontractors
Make vendor inspection schedules
Handling & movement of materials
Disposal of scrap inventory 132

133. 4.Maintenance Planning & Scheduling
•Preventive & corrective maintenance schedule
•Spares planning
5 Machine scheduling
• Job Scheduling
• Work Scheduling ( Loading )
• Progress reporting
•Productivity study ( Method study )
6. Quality control
•Inspection schedule
•TQM
•Kaizan
•Kanban
7 .Work & Job Design
•Method study
•Productivity norms
•Work environment
133

134. RM demand estimation Inform sales Sales dept.
According to sales order the expected delivery schedule
Raise Develop Aggregate
work Master
order
Production plan Production
Schedule
Create Capacity Monitor
MRP/ requirement Schedule
& take corrective
BOM plan Action Execution
Machine &
operator
schedule
Material Requirement Planning process : When a production system
operates through dependent demand , technique used to determine
the requirement of RM for production is called MRP. 134

135. Material requirement planning MRP process.
Explode
Demand into Analyze
bill of material ( BOM) Make or Buy
decision
Demand
aggregation Check Inventory
Stock
(Stocking Policy ) Make Buy
N Y
Raise Stock
Raise production . Raise subcontract
Purchase availability
work order contract
Indent
135

136. EOQ Assumption : Demand Constant & No lead time
Q
Q/2
ROP
Time
Lead time
D Lt = Av demand x LT
Stock level = EOQ + DLt ( When supplier lead time not
constant )
Stock level = EOQ + Dlt + variation in demand ( when
136
demand fluctuates )

137. Make or Buy decision .
Criteria of make : 1. Finished goods can be made cheaper by the firm.
2.Quality standardization can not be met by out side
party. ( strict quality control. )
3.Supply of the parts are unsteady ( Long lead time)
4.Capacity of production can be used for
manufacturing some other part. ( Fixed cost)
Buy : 1.Heavy investment in the facility
2.Parts are standard and available easily.
3.Demand of the components are seasonal .
4.Patent of some legal implications exists.
5.Cost of buying is less than manufacturing.
137

138. A firm has extra capacity which can be used for production of gears, which
they have been buying form the market at Rs 300 per unit. If the firm makes
gears , it incurs the following cost.
Mat cost Rs 90/unit.
Lab cost 120/unit
Overhead Rs 30/unit . The annual fixed cost of production estimated is Rs
240,000. Projected demand for next 24 months is 4000 units.
Will it be profitable for the firm to manufacturer?
The same capacity can be utilized for producing agri-equipment. In such case
there will be a saving of s 90,000. What should be the decision.
Making /Buying gears
VC/unit = ( Rs 90 + 120+ 30) = Rs 240
Total VC = 4000 X 240 = 9,60,000
Fixed cost = 2,40,000
Total cost = 12,00,000
Purchase cost = ( 4000 x Rs 300/unit ) = 12,00,000
Fixed cost = 2,40,000
Total cost = 14,40,000
Make gears Make Gears and Agri Equipment 138
Rs 12,00,000 12,00,000 – 90,000 = 11,10,000

139. There are two processes to manufacture a particular product in a firm .
Alternatively , they can also buy it from local market. The cost associated
areas follows. The annual demand for the product is 10000 units. When
would it be feasible for the firm to use process A & B .
Cost ( Rs ) process A Processes B Buy
FC/ Year 1,00,000 3,00,000 -----
VC/ unit 75 70 -----
Buy price / unit 80
Cost of Process A = 1,00,000 + 75 x 10000 = Rs 8,50,000
Cost of process B = 3,00,000 + 70 x 10000 = Rs 10,00,000
Cost of buying = 80 x 10000 = 8,00,000
Le t Q be the vol of production.
For Process A 100000 + 75 Q =< 80 Q
100000 =< 5 Q
20000 units
TC A >= TC B
100000 +75Q >= 300000 + 70Q
Q>= 40000
When demand exceeds 20000 units , use process A & beyond 40000, use process B
139

140. Determining Economic production quantity ( batch size )
As volume reduces , the total cost of production becomes unviable
unless
the optimum batch quantity is not produced.
Total cost comprises of two conflicting costs Setup cost ( favors large
batch size )
and inventory holding cost ( favors small batch size )
There are three possible situations
Demand rate > production rate ( shortage will occur )
Demand rate = production rate ( N need of holding inventory )
Demand rate < production rate ( Inventory stock will go
on increasing )
140

141. Cost trade off.
When orders are placed more frequently, the ordering cost is high but
carrying cost lost is low , on the other hand if less frequent orders are placed
ordering cost will be low but carrying cost will be high.
Total cost
Cost
Carrying cost
Total
cost
Ordering cost
Order
Qty 141

142. An item has yearly consumption of 1000 units . The cost related to
sourcing & Making are as under: Decide which option would be better
for the organization.
Source Make
Item cost /unit Rs 6.00 Rs 5.9
Ordering cost 10.00 --
Set up cost -- 50.00
Annual ICC/item 1.32 1.3
Production rate ---- 6000
BUY : EOQ = 123 units
TC = 1000 x 6 + 1000 x 10 + 123 X1.32
_______ _________
123 2
= 6162.48
Make : EBQ = 304 units .
TC = 6229.14
142

143. Inventory Control Techniques
Inventory control techniques are used to prevent :
1 financial leakage due o excessive stock & poor
demand , 2 2shortage of inventory
3. Inventory Obsolescence
Plan safety stock for critical & essential items
Build selective control on fast & slow moving
inventory .
Various Inventory control technique used are :
ABC : Always Better Control
VED : Vital Essential & Desirable
SDE : Scarce Difficulty & Easy
FNSD Fast moving , Normal , Slow moving , Dead 143

144. ABC Classification
100
CLASS C
90 Low annual consumption value
CLASS B
Usage %
Moderate annual Consumption value
70
(Inventory
Value )
CLASS A
High annual consumption value items
0 10 30 100
% items
144

145. VED analysis : Vital : Without which production process
will come to halt.
Essential : Non availability of such item will affect
the efficiency .
Desirable : It is good if it is available , however
alternate option can be done.
SDE : Scarce ( Short supply )
Difficult ( Imported components )
easily ( Short lead time )
145

146. Purchase Inventory review system :
Review process is administered on the basis of Fixed
order quantity ( Q system ) and fixed period quantity
system . ( P system )
In Q system , whenever the stock level reaches the RoL
, order is placed for a fixed quantity of material .
RoL is calculated as a sum of demand during the lead
time & variation in demand during lead time ( safety
stock ) and average demand during delivery delays.
( reserve stock )
In p system , stock position is reviewed after every fixed
period & order is placed according to stock position .
146

147. The goal of JIT in manufacturing organization is to
continuously reduce the cost associated with requirement
material resource. Its objective is to achieve zero ( minimal )
inventory through out the supply chain, hence implement
good material control. The goal of JIT process is to reduce
excess working capital held-up on account of material ,
minimal inventory at WIP .
The constraints for implementing JIT are :
•Unpredictable quality of supply of material
•Inability to hold tolerances.
•Shortcoming in lead time. ( Erratic delivery )
•Short supply of quantity of material
•Inaccurate forecasting
•Non standard materials being used ( Increased variety )
147
•Last minute product changes.

148. Steps for implementing JIT in an organization.
1.Symptoms : Identify the symptoms leading to inventory issue.
Frequent Stock out
2.Causes : Poor demand forecast & inconsistent supply
Schedule by supplier .
3.Remedy
Pull inventory system .
•Do detailed analysis of inventory requirement of all types at
every stage of production process.
•Estimate the market fluctuations on account of price, supply ,
quality demand etc.
•Identify reliable source of suppliers who are capable of
supplying material as when required.
148

149. •Take supplier in to confidence & sensitize them the
importance of JIT inventory & build healthy business
relationship with suppliers to have high commitment &
ownership . Use Value engineering approach.
•Conduct periodic vendor appraisal & follow vendor
rating system of evaluation .
•Give instant feed back on the supply & suggest
improvement steps.
•Sign rate contract .
• Use IT enabled ordering system , ERP .
149

150. Value Engineering or Value Analysis
It is a technique of cost reduction and cost
prevention. It focuses on building necessary
functions at minimum cost with out
compromising on quality, reliability ,performance
& appearance. It helps in identifying unnecessary
costs associated with any material , part
components or service by analysis of function
and efficiently eliminating them with out
impairing the quality functional reliability or its
capacity to provide service. It is a preventive
process.
150

151. When to apply VE
1. Raw material cost increases suddenly .
2. Vendors are unreliable & organization is highly
dependent on a few select vendor .
3. Cost of manufacturing is disproportionate to
volume of production .
Value analysis is done w.r.t cost associated at:
• Cost Value (Labour , Material & overhead).
• Use Value
• Esteem Value ( Look & finish )
• Performance Value ( Reliability , Safety , Service &
Maintenance ) 151

152. Value = Performance ( Utility)
Cost
Vendor analysis is done to minimize the cost incurred due
to a supplier Inefficiency or inability .
Vendor cost to be considered are :
•Opportunity loss due to poor quality ( High rejection cost )
•leading to machine & labour idle time.
•High re-work cost
•Inconsistent lead time
•Inability to meet the demand of the manufacturer
•Poor Credit terms
152

153. Value engineering procedure:
Constantly evaluate the inventory costs associated &
benchmark against the best in practice.
As & when the cost of manufacturing increases
disproportionately, identify an alternate source for contract
manufacturing & monitor the quality & standards.
Use more standard parts which can be sourced easily
Develop more suppliers ( atleast 4 to5 for one part.) &
minimize dependency on one supplier.
Audit the supplier’s work premise & rate them on the
performance .
Conduct quarterly vendor meet & share the highlights &
concerns . 153

154. MRP vs. ERP — Manufacturing management systems have
evolved in stages over the past three plus decades, from a simple
means of calculating materials requirements to the automation of
an entire enterprise.
As frequent changes in sales forecasts happened entailing
continual readjustments in production, as well as inflexible fixed
system parameters, MRP (Material Requirement Planning)
evolved into a new concept : Manufacturing Resource Planning
(or MRPII ) and finally the generic concept Enterprise Resource
Planning (ERP)
Prior to the concept of ERP systems, a manufacturing organization
faced tremendous difficulty in planning & controlling of resources
like people , finance WIP inventory at plant , machine status etc
due to lack of integrated & updated information about resources.
154

155. MRP MRP1 ERP
Material requirement planning Manufacturing resource Enterprise resource
in manufacturing organization. Planning in manufacturing Planning
organization
Inventory planning Production planning Business planning
& control & control
Material planning Material, Machine Man Machine
Method Man Material, Method
& Money
The essence of the progress was based on seamless integration and analysis of
information on various resources required by a manager to make an effective
decision.
155

156. Advantage of ERP in a manufacturing organization.
Integration among different functional areas to ensure
proper communication, productivity and efficiency
Integration of Design engineering & collaboration.
(CAD & CAM )
Order tracking, from acceptance through fulfillment
The revenue cycle, from invoice through cash receipt
Managing inter-dependencies of complex processes
BOM .
Tracking the three-way match between purchase orders
(what was ordered), inventory receipts (what arrived),
and costing (what the vendor invoiced)
The accounting for all of these tasks: tracking the
revenue , cost and profit at a granular level. 156

157. Disadvantages
Customization of the ERP software is limited.
Re-engineering of business processes to fit the "industry
standard" prescribed by the ERP system may lead to a
loss of competitive advantage.
ERP systems can be very expensive (This has led to a
new category of "ERP light" solutions)
ERPs are often seen as too rigid and too difficult to adapt
to the specific workflow and business process of some
companies, cited as one of the main causes of their failure.
Many of the integrated links need high accuracy in other
applications to work effectively. A company can achieve
minimum standards, then over time "dirty data" will reduce
the reliability of some applications.
157

158. 158

159. Production Control .
It involves work scheduling Reporting & corrective action.
Production Planning  Work order  Scheduling
Corrective Action Reporting
Objective : Manufacture & deliver the work order within the
committed time within the resource constraints provided.
•Effective utilization of time .
•Eliminate stress during the production activity
•Cent percent plant capacity utilization
•Minimize cost on waste like overtime, scrap , down time etc.
•Proactive reporting of issues at shop floor , like absenteeism of
workers , non availability of material on account of rejection ,
unplanned breakdown , daily reporting of production status as per
the target plan.
159

160. Scheduling: It deals with working out of optimal time
required to perform each operation and also the time
necessary to perform the entire series as routed,
making allowances for all factors concerned. It mainly
concerns with time element and priorities of a job. The
pattern of scheduling differs from one job to another .
Master Schedule: Weekly or monthly Schedule prepared by
breaking -down of the production requirement for each
product for a definite time period. By having this as a running
record of total production requirements, production manager
is in better position to shift the production from one product
to another as per the changed production requirements. This
forms a base for all subsequent scheduling activities.
160

161. Master schedule Chart
Master schedule chart communicates the following
information related to production schedule.
1. Operator schedule : This schedule informs the shop
manager about the operator detail who is supposed
be reporting for the work in a given shift.
2. Machine schedule : This schedule informs the shop
manager about the type of machine to be used for
doing a job in a given time.
161

162. Reporting of the production progress in the plant.
•Load chart
•Gantt Chart
•Process Chart
162

163. Gantt chart
Work order
Product A
Work order
Product B
Work order
Product C
163

164. Date & shift
Type of 19.03 19.03 19.03 20.03 20.03 20.03 21.03
Work S1 S2 S3 S1 S2 S3 S1
Sawing
M/c Type: A
Bending
M/c Type: B
Grinding
M/c Type: C
Wielding
M/c Type: D
164

165. A master schedule is followed by operator schedule
which fixes total time required to do a piece of work
with a given machine or which shows the time
required to do each detailed operation of a given job
with a given machine or process.
165

166. 1 a ) Machine scheduling : A process created for effective
utilization of machine in the shop floor on the basis of actual
available time for processing .
It involves Set up time required .
Startup time
Routine maintenance time ( Cooling time, Tool
trail )
Operator efficiency
Total Machine Hr – Delay = Actual Hrs
1 b ) Process scheduling : A method of establishing most
economic & shortest path for production .
Process scheduling requires an understanding the flow of
the work process & create a process sheet or route sheet to
optimize the time.
166

167. Process sheet : It gives the optimum method to do a job ,
thereby fixing the sequence of the operation , link the
ancillary or parallel process to be accomplished . It gives the
details & specification of the machines tools , operator to be
deployed for the job. Delays on account of set up
maintenance etc is communicated to the operator.
Routing: Under this, the operations, their path and
sequence are established.
To perform these operations, the proper class of machines
and personnel required are also worked out. The main aim
of routing is to determine the best and cheapest sequence
of operations and to ensure that this sequence is strictly
followed.
167

168. Preparing process sheet (Routing procedure) involves
following activities.
(1) An analysis of the article to determine what to make and
what to buy.
(2) To determine the quality and type of material
(3) Determining the manufacturing operations and their
sequence.
(4) A determination of lot sizes
(5) Determination of scrap factors
(6) An analysis of cost of the article
(7) Organization of production control forms.
168

169. Process sheet includes the following details of a process.
• Part name to be machined & its engineering drawing &
specification .
•Sequence of the operation to be performed .
•Specify the the machine & tools to be used. ( cutting
tools ,jigs, fixtures )
•Operating machine details like Speed , ,load , cooling time
set up time )
•Operating skill required
•Productivity norm
•Maintenance schedule of the machine
•Subsequent operations
169

170. Process scheduling differs depending upon the nature of
production .
Continuous or mass production : It is done by industrial
engineers at the plant layout stage. It is difficult to alter the plan
& incurs heavy expenditure.
Batch production : In this case a master process sheet is created
& is communicated to the shop floor . As & when the product line
changes it is altered.
Job order. In this case the process sheet is created more often as
the nature of operation varies .
Process schedule acts as a standard operating manual for
process engineers to refer incase of any emergency or accidents.
170

171. Managing project based manufacturing work.
A large complex manufacturing task comprising of
multiple activities to be performed from design to
manufacture, deliver, installation & commissioning
requires tight scheduling coordination & monitoring of
activities from start to end for timely completion of work
to avoid monetary loss & have high customer
satisfaction.
Tight cost control ,Timely completion of work &
Performance are the basis of such manufacturing
project.
An understanding of Interrelationships between the
activities of task is essential by the operation team.
171

172. Steps involved in managing manufacturing projects.
•Project planning ( Drawing the network )
•Time estimation of the project ( Network analysis . Identifying activity
time and critical path)
•Scheduling : ( identifying the amount of slack in the activities and in
the project )
•Time- cost trade off : ( Arriving at a time where the overall cost of
executing the project is minimum with out compromising on any
activity.
•Resource allocation : ( Checking the feasibility for doing each activity
at most optimistic schedule )
172

173. Guide lines for managing project based network
manufacturing work.
• Break the task in to detailed activities.
• Identify the start & end of each activity. (Node ).
• Estimate the time required to perform each activity.
• Establish dummy activities to show logical
relationship between the activities .
• All activities of the network should terminate in to final
destination .
• Establish relationship between activities such as
173
preceding , concurrent , succeeding etc.

174. Critical Path of a Project : Critical path of a project network is
the longest path in the network . It is identified by listing all
possible path of the network & selecting the path having
maximum sum of the critical activity time.
Total Floats of the project: Total time that a project completion
time of an activity can be delayed without affecting the actual
project completion time.
Free Floats : Total time that an activity can be delayed with out
affecting earliest start time. Of immediate successor activity .
When time of the activities are given in three different time
estimates like a = Pessimistic time
m= Most likely time
b = Optimistic Time
mean time has to be calculated. 174

175. Optimistic time is the time when the execution goes
extremely good.
Pessimistic time is when the execution goes very badly.
Most likely time is when execution is with in normal
expectation.
µ = Mean time = ( a+ 4m+b) / 6
² ²
(Variance ) = [(b-a)/6]
175

176. Following activities are involved in doing a production work. Activity
time & relation ship is indicated. Draw a network
Sr no Activity Time Predecessor
1 A 2 days _
2 B 5 A B E F
C
3 C 3 A A
D
4 D 4 A
5 E 6 B,C,
6 F 7 E,D
176

177. 177