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Organizational Behaviour

1

Production and Operation
Management

DIRECTORATE OF DISTANCE & CONTINUING EDUCATION
Utkal University, Bhubaneswar-7, Odisha
Email: helpline@ddceutkal
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in
Website: www
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ac
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Name of the Study Material: Human Resource Management
ISBN : ……………………………………
...
Ullas Chandra Das
Dr
...
S
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Acharya
Dr
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R
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R
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Das

Year of Print: 2019
No
...
Office: E-77, South Ext
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1E/14, Jhandewalan Extension, New Delhi 110055
Sales Office: 81, Shyamlal Marg, Daryaganj, Delhi-110002
+91-8800697053, +91-011-47520129
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Organizational Behaviour

3

DIRECTORATE OF DISTANCE & CONTINUING EDUCATION
UTKAL UNIVERSITY, VANI VIHAR
BHUBANESWAR-751007

From the Director’s Desk
The Directorate of Distance & Continuing Education, originally established as the University
Evening College way back in 1962 has travelled a long way in the last 52 years
...
Increasingly the Open and Distance Learning institutions are aspiring to provide
education for anyone, anytime and anywhere
...
Nearly one lakh students have passed
through the portals of this great temple of learning
...
There are also flashes when our students figure
in best ten in their honours subjects
...

They must be enthusiastic, full of energy and confident of their future
...
We are sure that students would go
beyond the courseware provided by us
...
Please remember that only a busy person has time for everything and a lazy
person has none
...
By choosing to pursue a course in distance mode, you have made a commitment for
self-improvement and acquiring higher educational qualification
...
Every student must go beyond the standard books and self-instructional course
material
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As only limited number of classes will be held, a student should
come to the personal contact programme well prepared
...
This can only happen if you read the course material before PCP
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It is very important that one should discuss the
contents of the course materials with other fellow learners
...

DIRECTOR

4

Introduction to Organizational Behaviour

Organizational Behaviour

5

PRODUCTION AND OPERATION MANAGEMENT
CONTENTS
Page No
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0 Objectives
1
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2 Production Management
1
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4 Production System
1
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6 Benefits of Production Management
1
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8 Decisions of Production Management
1
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10 Self Assessment Questions

1
...




Introduction of production management
...




Production system
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

Benefits of production management
...




Decisions of production management
...
1 INTRODUCTION
Product is the primary factor for all consumers in a market
...
If a consumer is not satisfied with the product it becomes meaningless for
the producer who produces the product
...
The production
function of a business is concerned with creation of either a product or a service required to satisfy
a consumer need in the market
...
So production management is a separate branch of management which deals with the
production of goods and services for the effective utilisation of consumers in the market
...
Production function refers to
creation of goods and services in order to satisfy human needs by converting resources into
outputs
...

Production function can be effective when it satisfy the (A) the consumer demand relating to
quality, quantity and price (B) permit the production activity in an economical manner so that
return in investment can be possible
...


1
...
It ensures accomplishment of twin
organisational objectives of production and satisfaction
...
Production
management is the process of effectively coordinating and controlling the factors of production
such as man, machine, material, money and management in order to get satisfaction out of the
product
...
While the input is transferred into output
various types of utility are created
...


Form Utility: When the input is changed in size, weight, colour, shape and form while
converting into output for the benefit of the customers in the market it has form utility
...


2
...
(Sugarcane to
the factory for sugar production)

3
...
(Potato &
Tomato in cold storage)

4
...
(
Doctors for the patient , lawyers for the clients, teachers for the students)

5
...
(Advertisement for
a product or service)

1
...


Production Planning and Development: It is related to the activity of evolution of new
product and design it according to the specification of department in order to satisfy large
number of consumers in the market
...


Production Administration: It deals with basic three activities that is (A) Production
planning, (B) production engineering,(C) production control
...
Production management system
directly depends on this scope
...


Implementation Function: It refers to the activity of execution of plan, policies and
decisions
...


4
...


1
...
Where input refers to utilisation of men, material, machine, money,

Introduction to Production Management
minute and methods
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Output is the product service which in other means the final product as
per specifications
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Manufacturing control system is the inventory
and plant location measures for an effective and in time production system
...

Production system includes all those operations by which the input can be converted into output
for a desired product or a service
...
Hence according to some authors production system is otherwise
known as operation system so as production management can be referred as operations
management
...
5 TYPES OF PRODUCTION
Production can be divided into three categories
...
Considering this type of production
can be:
1
...

Under this category production is running in a sequence
...
Time taken in each operation can be maintained by utilising update and
more machines in order to have steady flow of operation
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The merit of this production is in each production
operation there can be strict check and measure in input and output too
...

Example: Motor Car
...


Batch Production: Where there is less scope of flow production that is sequence of
production is not available in those production organisations batch production is more suitable
type of production
...
This is
called batch production
...
In order to smooth the production process different machines can be used for each
batch and the quality in each batch can be measured properly
...

Example: Pressing in one area, milling in other area, colour in other area etc
...


Unit Production: This is a type of production where there is a specific order from the
customer
...
This type of production undertaken by the organisation considering the demand of
the customers for that product
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Most of the production
organisation does not prefer unit production due to its cost and in most of the cases it is not a
regular production process
...


1
...


The Consumer: The benefit of production goes primarily to the customer
...
A good production management system helps the

9

Notes

10

Production and Operation Management
customer from higher productivity, better and reliable quality, reasonable price, satisfactory
service and timely delivery of goods and services
...


Notes
2
...
Higher remuneration, job security, stable employment opportunity, better
working condition as well as job satisfaction can be possible when there is more and more
production in a systematic manner
...
On the other hand high employee morale due to job satisfaction provides higher
output
...


The Investor: Maximum return on investment is the objective of each and every investor
...
More productivity ensures
higher value in market in terms of security and asset value which is one of the benefits for the
investors
...


The Supplier: Most of the large, small and medium companies depend on the suppliers in
terms of raw material, machine components, and allied services during the course of
production
...
A good
production management system ensures that intercommunication and mutual confidence
among the producer and supplier can be better
...


5
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More timely production of goods and services in better quality ensures community
satisfaction which leads to the society will benefit out of that
...
Economic prosperity leads to social prosperity and social prosperity
leads to all round development in the society
...
7 RESPONSIBILTY OF A PRODUCTION MANAGER
Generally a production manger is in charge of a production organisation
...
The responsibilities are mentioned below:
1
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It is meant f or
the customers in the market
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A product should be qualitative, low price, reliable, easy availability, smooth delivery, easy
handling, after sales service and have good and long performance
...


2
...
While dealing with the plant it includes building, equipments, machinery and the
other related aspects of the plant
...
While dealing with the plant the production manager should be cautious
about the maintenance of the machinery and equipments, safety in installation of machinery,
operational efficiency of the equipments and environmental protection
...


Process: It includes the manufacturing process
...
A finished product can be available with input
converted into semi finished product and a semi finished product can be converted into
finished product
...
In this process it is the duty of the
production manager is look into the type of production, the number of process it needs, layout
of the product, safety in each operation and the cost involved in each operation
...


Programs: It includes the production schedule
...
The schedule of production can be decided in advance so that the production

Introduction to Production Management
process will continue smoothly
...

5
...
The people aspect
of a production manager is the skill, knowledge and expertise of the workmen, intelligence of
the managerial personnel which is crucial and critical for a qualitative product
...

Both labour and managerial people must be effective in delivering the product in time so that
the financial viability of the production organisation can be sustainable
...

(b) To ensure the exact date and time of delivery of the product of the consumers in the market
...

(d) To ensure the desired quality of the product by taking into liking and disliking of the
customers in the market
...

(f) To maintain desirable level of raw material so that the production process will not hamper
...

(h) To look into maximum return on profit for the organisation
...

(j) To ensure environmental protection in production of the product
...

(l) To maintain good relation with the competitors in the market in terms of quality of the
product
...
8 DECISIONS OF PRODUCTION MANAGEMENT
The decisions of a production management system have been classified into three basic categories
...


Strategic Decisions: When a decision related to long term importance of a production
organisation it is called as strategic decision
...
This type of
decision is concerned for a long range production strategy relating to product and production
process so that maximum product can be available in minimum time period with a low cost of
production
...

(b) Decision to change the production process of the product
...

(d) Establishment of new facility in production unit for the future
...


Operating Decisions: When the decisions are made to meet the day to day operations of the
production unit in order to meet the demands of consumers in the market it is regarded as
operating decision
...
Some of the operational decisions are:

Notes

(a) Decision to maintain desired level of raw material for each production process
...

(c) Deployment of skilled and unskilled labour force for the production purpose in each unit
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(e) Decision for the terms and conditions of payment of finished product
...


Control Decision: This is a managerial decision of production unit
...
When some measures are taken for the use of men, machine, material and
money for an effective use of resources so that the cost of production can be minimum at a
particular time period
...
Some of the control
decisions are:
(a) Decide the action to be taken for the failures of a particular department
...

(c) Decision for a changed quality control measure in order to improve the quality of the
product according to the demand of the consumers
...

(e) Steps to be taken in order to increase quality of the product so that the cost of the product
can be competitive in market
...
The primary aim of the above decisions is to
produce maximum product with a minimum cost in order to increase profitability
...
9 SUMMARY
Production and operations management can be defined as conversion of input into output
according to demand of the consumers in the market
...
Production function refers to creation of various
utility in order to satisfy large number of consumers in the market
...
There
are different type of production which can be utilised by the production unit in order to have
quantitative and qualitative production
...
The duties and responsibilities of a production manager is to look after
plant, product, process, program and people so that the product can be available in time in a
desirable cost
...
The decisions
are strategic decisions, operational decisions and controlled decisions which can help the
production manager in order to produce qualitative product with a low cost
...
10 SELF ASSESSMENT QUESTIONS
Short Type Questions
1
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2
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What do you mean by place utility?

4
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5
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6
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7
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8
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9
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10
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Essay Type Questions
1
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2
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3
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4
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Do you
agree? Justify your statement
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Narrate the different types of decisions taken by a production manager
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0 Objectives
2
...
1
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2 Objectives of Production Planning and Control
2
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4 Functions/scope of production planning & Control
2
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6 Factors Affecting Production Planning and Control
2
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8 Making the Production Plan
2
...
10 Manufacturing Planning and Control System
2
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12 Summary
2
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14 References

2
...




Identify the functions of Production Planning and Control (PPC)
...




Understand the role of PPC in manufacturing Industry
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2
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e
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Production is an organized activity of converting raw materials into useful
products
...
It has to
see that production process is properly decided in advance and it is carried out as per the plan
...
This conversion
process involves a number of steps such as deciding what to produce, how to produce, when to
produce, etc
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Merely deciding about the task is
not sufficient
...
Production
Manager will have to see that the things proceed as per the plans
...
Both planning and control of production are
necessary to produce better quality goods at reasonable prices and in a most systematic manner
...
It may be said to be a technique of forecasting ahead every

Production Planning and Control
step in the long process of production, taking them at a right time and in the right degree and
trying to complete the operations at maximum efficiency
...
Control facilitates the task of manufacturing and
sees that everything goes as per the plans
...
Carson: “Production planning and control involves generally the organization and
planning of the manufacturing process
...
The ultimate objective is the organization of the supply and
movement of materials and labour, machine utilization and related activities, in order to bring
about the desired manufacturing results in terms of quantity, time and place
...
Lundy: “Basically, the production control function involves the co-ordination and
integration of the factors of production for optimum efficiency
...
The job can be done formally in which case elaborate charting and filing techniques are
used; or it can be done informally, with individuals’ thoughts and retention there of supplanting
tangible aids
...
Koepke: “Production planning and control is the coordination of a series of functions
according to a plan which will economically utilize the plant facilities and regulate the orderly
movement of goods through the entire manufacturing cycle, from the procurement of all materials
to the shipping of finished goods at a predetermined rate
...
1
...


It is the planning and control of manufacturing process in an enterprise
...
? —are decided and acted upon for getting good results
...


All types of inputs like materials, men, machines are efficiently used for maintaining
efficiency of the manufacturing process
...


Various factors of production are integrated to use them efficiently and economically
...


The manufacturing process is organized in such a way that none of the work centre is either
overworked or under worked
...


5
...


2
...
Whatever is planned needs to be controlled
...

The following points will bring out the objectives of production planning and production control:

Production Planning
1
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2
...


3
...


4
...


5
...


6
...


15

Notes

16

Production and Operation Management

Notes

Production Control
1
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2
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3
...


4
...


5
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2
...


Planning Phase

2
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Control Phase

Planning Phase
Planning is an exercise of intelligent anticipation in order to establish how an objective can be
achieved or a need fulfilled in restrictive circumstances
...


Prior planning

2
...


Prior Planning
Prior planning means pre-production planning
...

Modules
The modules of prior planning are as follows:
1
...
At the
design stage, one has to take several aspects of design like, design for selling, design for
manufacturing and design for usage
...


Forecasting is an estimate of demand, which will happen in future
...
Given the
sales forecast, the factory capacity, the aggregate inventory levels and size of the work force,
the manager must decide at what rate of production to operate the plant over an intermediate
planning horizon
...


Aggregate planning aims to find out a product wise planning over the intermediate planning
horizon
...


Material requirement planning is a technique for determining the quantity and timing for the
acquisition of dependent items needed to satisfy the master production schedule
...
Tools
planning, Loading, Scheduling etc
...


Process planning and routing is a complete determination of the specific technological process
steps and their sequence to produce products at the desired quality, quantity and cost
...
Routing in particular

Production Planning and Control
prescribes the flow of work in the plant and it is related to the considerations of layout,
temporary locations for raw materials and components and materials handling systems
...


A material planning is a process which determines the requirements of various raw
materials/subassemblies by considering the trade-off between various cost components like,
carrying cost, ordering cost, shortage cost, and so forth
...


Tools’ planning determines the requirements of various tools by taking process specification
(surface finish, length of the job, overall depth of cut etc
...
) and equipment
specifications (speed range, feed range, depth of cut range etc
...


Loading is the process of assigning jobs to several machines such that there is a load balance
among the machines
...


5
...
This fixes the starting as well as the finishing time for each job
...
Dispatching is the transition from planning phase
to action phase
...
The tasks
which are included in dispatching are job order, store issue order, tool order, time ticket,
inspection order, move order etc
...
Stores
issue order gives instruction to stores to issue materials for manufacturing the product as per
product specifications
...
Time ticket is nothing but a card which is designed
to note down the actual time taken at various processes
...


Control Phase
The control phase has the following two major modules:
1
...
Also, it helps to make comparison with the present level of performance
...
, are collected and analyzed for the purpose of
progress reporting
...


Corrective Action: The tasks under corrective action primarily make provisions for an
unexpected event
...
Due to unforeseen reasons such as, machine breakdown, labour
absenteeism, too much rejection due to poor material quality etc
...
Under such condition, it is better to reschedule the whole
product mix so that we get a clear picture of the situation to progress further
...
4 FUNCTIONS/SCOPE OF PRODUCTION PLANNING & CONTROL
The following points explains the scope of Production Planning and Control
1
...
Inventory control & regular supply of materials should be guaranteed
...


Manpower: It is important to carry out manpower planning to maintain operational &
managerial staff possessing requisite skills & expertise
...


Methods: It is always desirable to consider all the available alternatives & select the best
method of processing
...


Machines & equipments: The choices of manufacturing methods depend on available
production facilities & utilization of plant, machines equipments
...


Routing: The routing function specifies what work is to be done where & when it is to be
performed
...


Estimating: it involves establishing performance standard of each work after duly analyzing
operation sheets
...


7
...
Machine loading generates accurate information on work standard,
scrap allowances, machine-time requirements & machine capacities
...


8
...


9
...


10
...

11
...

12
...


2
...
This objective can be approached if the amount of work scheduled for the factory
or department is equal or slightly greater than the production cycle
...
Optimum operation of the plant is attained only if
the original plan has been carefully prepared to utilize the manufacturing facilities fully and
effectively
...
Changes in market conditions, manufacturing
methods, etc
...


2
...


Market Forecast: It will indicate future trends in demand for manufactured products
...


2
...
Variation or
changes in sales order will drastically affect production planning and control
...


Standard Process Sheet: It is prepared by process engineering group or process owner and it
is the source of basic data which may include type of machine to be used, time required for
processing, etc
...
g
...


4
...


Production Planning and Control
5
...
The best known methods are Critical Path
Method (CPM) and Program Evaluation and Review Technique (PERT)
...
Schedules should reflect the temporal relationships
between activities and the capacity limitations of a set of shared resources
...
The high re-planning frequency in order to overcome the uncertainty induces the system
nervousness
...

The following critical points can be considered in Master Production Schedule:


Frequent changes in MPS result in due-date changes in open orders, quantity and timing for
planned order of end products
...




Unexpected changes in MPS effect that materials, needed for a particular order may not be
available
...


The following questions can be considered while scheduling MPS:


How to make initial MPS that is as feasible as possible?



How to limit the number of re-planning activities?



How to be reactive to disturbances in materials flow?



How to provide planners with accurate information about material resources available which
often lead to bloated inventory and in accurately promised delivery dates to the customers?

2
...




Capacity is the capability of manufacturing to produce goods and services (deliverables)
...


2
...
The production plan sets the general
levels of production and inventories over the planning horizon
...
The plan must extend far
enough in the future to plan for the labour, equipment, facilities, and material needed to
accomplish it
...
Manufacturing is concerned more with the

19

Notes

20

Production and Operation Management

Notes

demand for the specific kinds of capacity needed to make the products than with the demand
for the product
...
It means having the resources available
to satisfy demand
...
The demand for goods must be translated into the
demand for capacity
...
Usually the following can be
varied to adjust capacity:
People can be hired and laid off, overtime and short time can be worked, and shifts can be
added or removed
...
Work can be subcontracted or extra equipment leased
...

(d) Three or four basic strategies can be used in developing a production plan:


Chase (demand matching) strategy – producing the amount demanded at any given time
...




Production levelling – continually producing an amount equal to the average demand
...
Production levelling means the company will use its
resources at a level rate and produce the same amount each day it is operating
...
The disadvantage is that inventory builds up during periods of low
demand
...
Costs associated with excess capacity are
avoided, and because production is levelled, there are no costs associated with changing
production levels
...




Hybrid strategy – is a combination of the other three strategies
...


(e) The objective in developing a production plan is to minimize the costs of carrying inventory,
changing production levels, and stocking out (not supplying the customer what is wanted
when it is wanted)
...

(f) Make-to-Stock Production Plan: Products are made and put into inventory before an order is
received
...
Make to stock when demand is fairly
constant and predictable, there are few product options, delivery times demanded by the
marketplace are much shorter than the time needed to make the product, and product has a
long shelf life
...

(h) Make-to-Order Production Plan: Wait until an order is received from a customer before
starting to make the goods
...
The backlog will be for delivery in the future

Production Planning and Control
and does not represent orders that are late or past due
...

(i) Assemble to order: Where several product options exist and where the customer is not willing
to wait until the product is made, manufacturers produce and stock standard component parts
...
Since the
components are stocked, the firm needs only time to assemble before delivering the product
...
To make a production plan, one will need a
forecast by period for the planning horizon, an opening backlog of customer orders and
desired ending backlog
...

(k) Resource Planning: Once the preliminary production plan is established, it must be compared
to the existing resources of the company
...

(l) Resource bill shows the quantity of critical resources (materials, labor, and “bottleneck”
operations) needed to make one average unit of the product group
...
9 PROCESS PLANNING
Well, one can say it is the process of planning for manufacturing and the realization of a product
according to a product specification
...
Basically it
should describe the product in great detail
...
This product specification is needed because you may want to send it to
manufacturing companies that should produce parts of the product
...

The process plan is basically a plan of how your parts will be produced, what machines to use and
in what order, to achieve the correct tolerances etc
...
Process planning is often seen as the interface
between design and manufacturing stages
...
If you only produce a small
quantity of the final product you perhaps can put down very much detail and perhaps create very
fine tolerances on the components since you have time to do it, basically you can check and
recheck the important components until they are perfect
...


2
...
Each level varies in
purpose, time span (planning horizon), level of detail, and planning cycle (frequency)
...
It is based on long-range forecasts and provides a framework that sets the goals
and objectives for further planning by marketing, finance, engineering and
production/operations
...
It is concerned with general market and
production requirements
...




Production Plan: Given the objectives set by the strategic business plan, production
management is concerned with the quantities of each product group or family that must be
produced in each period, the desired inventory levels, the resources of equipment, labour, and
material needed in each period, and the availability of the resources needed
...
The planning horizon is
usually six to 18 months and is reviewed perhaps each month or quarter
...
It
breaks down the production plan to show, for each period, the quantity of each end item to be
made
...
The level of detail for the MPS is higher than for
the production plan
...
Master scheduling
describes the process of developing a master production schedule; the term master production
schedule is the end result of the process
...




Material Requirements Plan (MRP): is a plan for the production and purchase of the
components and/or services used in making the items in the MPS
...
The level of detail is high
...




Purchasing and Production Activity Control (PAC): represents the implementation and
control phase (execution phase)
...
PAC is responsible for planning and controlling the
flow of work through the factory
...




Capacity Management: At each level in the manufacturing planning and control system, the
priority plan must be tested against the available resources and capacity of the manufacturing
system
...
If the capacity cannot be
made available when needed then the plans must be changed
...
SOP is a cross-functional
business plan that involves sales and marketing, product development, operations, and senior
management
...
The SOP is the
forum in which the production plan is developed and a dynamic process in which the
company plans are updated on a regular basis, at least monthly
...
5 and the
benefits listed above
...
This fully integrated planning and control
system is called a manufacturing resource planning, or MRP II, system
...




Enterprise Resource Planning (ERP): is an accounting oriented information system for
identifying and planning the enterprise---wide resources needed to make, ship, and account
for customer orders
...


Production Planning and Control

2
...
Production
system is basically concerned with taking inputs of capital, labour, order, materials and using the
first two to transform material to satisfy orders
...
Without
planning nothing is completed within the required time
...

Production Planning and Control (PPC) department in any industry has to do all planned
responsibility
...
So every textile and
apparel company should have a self-sufficient and high-performance department called
“Production Planning & Control”
...


Taking orders from marketing division
...


Analyzing the orders & feeling the requirements of customer
...


Planning for production
...


Cost analysis & lead time
...
It may change according to the type of order
...
Then some steps are
omitted from the planning procedure
...


Taking orders from marketing division: Order collect from the buyer with the details
information (Art work, technical sheet) is the first and principle task in textile and apparel
industry
...


2
...
This section analyzes the orders according to buyers, Order
Quantity, type of orders (i
...
type of fabric, colour to be dyed etc
...
, Cost of
garments per dozen, Determination of production time and delivery date
...
to use, no of M/C
...
This section plans for
required quantity of fabric need to be dyed
...


3
...
Every functions of
production are includes in planning
...
The quality objectives are defined at
organizational and functional levels in measurable term
...

The Quality Objectives of an industry is defined to develop the following areas:

4
...




To implement the required systems
...




To maintain infrastructural tasks accurately
...




To obtain a production-line with minimal errors & corrective actions
...
Cost Analysis
worksheet will help you to determine how to price your products
...


23

Notes

24

Production and Operation Management

Notes

2
...
Though no production control function can be entirely eliminated, the least control
that results in effective operation of the factory is the best control
...
The objective is not an
elaborate and detailed system of controls and records, but rather, the optimum operation of the
plant for maximum profits
...


2
...


Define production planning system
...


What is production planning and control?

3
...


Explain the benefits of production planning and control to a manufacturer
...


Explain how society is benefited out of production planning and control
...


Explain various stages of production planning and control
...


Describe the functions of production planning and control
...


Explain various factors affecting production planning and control
...


Narrate the different types of decisions taken by a production manager while formulating a
production plan
...


Describe the role of production planning and control in a manufacturing unit
...
14 REFERENCES


D
...
Towill, “The Seamless Supply Chain”, International Journal of Technology
Management, Volume 13, 1997
...
E
...
Favetto, “Understanding the complexity of Master Production Scheduling
Optimization”, Proceedings of the 18th ICPR, Salerno, Italy, 2005
...
D
...
Guide, R
...


Project Management

UNIT 3

PROJECT MANAGEMENT

Structure
3
...
1 Introduction
3
...
3 Approaches
3
...
5 Types of Project Management
3
...
6
...
6
...
6
...
6
...
6
...
6
...
6
...
6
...
6
...
6
...
6
...
6
...
7 Innovation Management
3
...
1
Function and Intention of Innovation Management
3
...
2
Classifications in Innovation Management
3
...
3
The 8 Phases of an Innovation Management Process
3
...
4
Uses of Innovation Management
3
...
9 Self Assessment Questions

3
...




Identify the functions of Production Planning and Control (PPC)
...




Understand the role of PPC in manufacturing Industry
...


3
...
Two forefathers of project management are
Henry Gantt, called the father of planning and control techniques, who is famous for his use of the

25

Notes

26

Production and Operation Management

Notes

Gantt chart as a project management tool and Henri Fayol for his creation of the five management
functions that form the foundation of the body of knowledge associated with project and program
management
...
His work is the forerunner to modern project management tools including
work breakdown structure (WBS) and resource allocation
...
- all are examples of projects
...
2 MEANING OF PROJECT MANAGEMENT
A project is an organized endeavour to accomplish a specified non-repetitive task
...


Project Life Cycle
A project passes through a life cycle that depends on the size and complexity of the project
...

1
...

The organization is requested to propose a plan to perform a project for a customer
...


Project Initiation: Initiation is the second phase of the project lifecycle
...
Project managers typically use two evaluation
tools to decide whether or not to pursue a project:
Business Case Document: This document justifies the need for the project, and it includes an
estimate of potential financial benefits
...
It balances the requirements of the project with available
resources
...


Project Planning: Once the project receives the green light, it needs a solid plan to guide the
team, as well as keep them on time and on budget
...
The project
plan gives the team direction for producing quality outputs, handling risk, creating
acceptance, communicating benefits to stakeholders and managing suppliers
...


4
...
Execution is all about building deliverables that satisfy the customer
...

Execution relies heavily on the planning phase
...


5
...
As teams execute their project plan, they
must constantly monitor their own progress
...

This constant vigilance helps keep the project moving ahead smoothly
...


Project Closure: Teams close a project when they deliver the finished project to the customer,
communicating completion to stakeholders and releasing resources to other projects
...

Although project management may seem overwhelming at times, breaking it down into these
five distinct cycles can help your team manage even the most complex projects and use time
and resources more wisely
...


Integration

2
...


Time

4
...


Quality

6
...


Human resources

8
...


Risk management

10
...
But project management brings a unique focus
shaped by the goals, resources and schedule of each project
...
3 APPROACHES
There are a number of approaches to organizing and completing project activities, including:
phased, lean, iterative, and incremental
...




Process, the overall approach to all activities and project governance
...




Power, Projects are which describes all lines of authority, decision-makers, organisations,
policies for implementation and the likes
...


Phased Approach
The phased (or staged) approach breaks down and manages the work through a series of distinct
steps to be completed, and is often referred to as "traditional or "waterfall"
...
For example, when working on a brick-and-mortar
design and construction, projects will typically progress through stages like pre-planning,
conceptual design, schematic design, design development, construction drawings (or contract
documents), and construction administration
...

Project planning generally consists of


determining the project management methodology to follow (e
...
whether the plan will be
defined wholly up front, iteratively, or in rolling waves);



developing the scope statement;



selecting the planning team;



identifying deliverables and creating the product and work breakdown structures;



identifying the activities needed to complete those deliverables and networking the activities
in their logical sequence;



estimating the resource requirements for the activities;



estimating time and cost for activities;



developing the schedule;



developing the budget;



risk planning;



developing quality assurance measures;



Gaining formal approval to begin work
...

For new product development projects, conceptual design of the operation of the final product
may be performed concurrent with the project planning activities, and may help to inform the
planning team when identifying deliverables and planning activities
...
In order to maintain budget,
scope, effectiveness and pace a project must have physical documents pertaining to each specific
task
...
To go along with that, documentation provides information regarding what has already been
completed for that project
...
In most cases, documentation is the most
successful way to monitor and control the specific phases of a project
...
If
performed correctly documentation can be the backbone to a project's success
...
The key benefit is that project
performance is observed and measured regularly to identify variances from the project
management plan
...
) against the project management plan
and the project performance baseline (where we should be);



Identifying corrective actions to address issues and risks properly (How can we get on track
again);



Influencing the factors that could circumvent integrated change control so only approved
changes are implemented
...

Project maintenance is an ongoing process, and it includes


Continuing support of end-users



Correction of errors



Updates to the product over time

Monitoring and Controlling Cycle
In this stage, auditors should pay attention to how effectively and quickly user problems are
resolved
...
It is important not to lose sight of the initial goals and targets of the projects
...
Successful project management identifies these components, and tracks and monitors
progress so as to stay within time and budget frames already outlined at the commencement of the
project
...

Administrative activities include the archiving of the files and documenting lessons learned
...



Contract closure: Complete and settle each contract (including the resolution of any open
items) and close each contract applicable to the project or project phase
...
This is a vital phase of the project
for the project team to learn from experiences and apply to future projects
...


3
...
It implements verification and controlling function during the
processing of a project in order to reinforce the defined performance and formal goals
...
The following methods of project controlling can be applied:


investment analysis



cost–benefit analysis



value benefit analysis



expert surveys



simulation calculations



risk-profile analysis



surcharge calculations



cost trend analysis



target/actual-comparison

Project control is that element of a project that keeps it on track, on-time and within
budget
...
Projects
may be audited or reviewed while the project is in progress
...
An examination may
include a comparison of approved project management processes with how the project is actually
being managed
...
If project control is not
implemented correctly, the cost to the business should be clarified in terms of errors and fixes
...
In addition, auditors should consider how important the projects are to
the financial statements, how reliant the stakeholders are on controls, and how many controls
existing
...
The process of development and the quality of the final product may also be
assessed if needed or requested
...
An auditor can serve
as a controls consultant as part of the development team or as an independent auditor as part of an
audit
...
These help assure systems are
developed successfully
...

A good formal systems development plan outlines:


A strategy to align development with the organization's broader objectives



Standards for new systems



Project management policies for timing and budgeting



Procedures describing the process



Evaluation of quality of change

Characteristics of Projects
There are five important characteristics of a project
...


It should always have a specific start and end dates
...


They are performed and completed by a group of people
...


The output is delivery on unique product or service
...


They are temporary in nature
...


It is progressively elaborated
...


Project Complexity
Complexity and its nature play an important role in the area of project management
...
As it is considered
that project complexity and project performance are closely related, it is important to define and
measure complexity of the project for project management to be effective
...




Level 2 Project – develop and improve compliance to a business process with targeted
completion time from 3 months to 1 year
...


31

Notes

32

Production and Operation Management

Notes



Level 4 Project – develop, change and improve a functional system with targeted completion
time from 2 to 5 years
...




Level 6 Project – develop, change and improve a whole single value chain of a company with
targeted completion time from 10 to 20 years
...


Benefits from measuring Project Complexity are to improve project people feasibility by:


Match the level of a project’s complexity with effective targeted completion time of a project



Match the level of a project’s complexity with the respective capability level of the project
manager



Match the level of a project task’s complexity with the respective capability of the project
members

Project Managers
A project manager is a professional in the field of project management
...
People are the key to any successful project
...
Project managers
can have the responsibility of the planning, execution, controlling, and closing of any project
typically relating to the construction industry, engineering, architecture, computing, and
telecommunications
...

A project manager needs to understand the order of execution of a project to schedule the project
correctly as well as the time necessary to accomplish each individual task within the project
...
Project
Managers tend to have multiple years’ experience in their field
...
A project
manager normally reports directly to someone of higher stature on the completion and success of
the project
...
The ability to adapt to
the various internal procedures of the contracting party, and to form close links with the nominated
representatives, is essential in ensuring that the key issues of cost, time, quality and above all,
client satisfaction, can be realized
...
5 TYPES OF PROJECT MANAGEMENT
Project management can apply to any project, but it is often tailored to accommodate the specific
needs of different and highly specialized industries
...
The information technology industry
has also evolved to develop its own form of project management that is referred to as IT project
management and which specializes in the delivery of technical assets and services that are required
to pass through various lifecycle phases such as planning, design, development, testing, and
deployment
...
Localization project management includes many standard project
management practices even though many consider this type of management to be a very different
discipline
...
Successful projects are
completed on schedule, within budget, and according to previously agreed quality standards
...
This allows project plans to become very
thorough and highly repeatable, with the specific intent to increase quality, lower delivery costs,
and lower time to deliver project results
...


Iterative and Incremental Project Management
In critical studies of project management it has been noted that phased approaches are not well
suited for projects which are large-scale and multi-company, with undefined, ambiguous, or fastchanging requirements, or those with high degrees of risk, dependency, and fast-changing
technologies
...
This becomes especially true as
software development is often the realization of a new or novel product
...
Several models of iterative and incremental project management have evolved,
including agile project management, dynamic systems development method, extreme project
management, and Innovation Engineering
...

The goal is to increase the flow of projects in an organization (throughput)
...
To exploit the constraint, tasks on the critical chain are given priority
over all other activities
...


Product-based Planning
Product-based planning is a structured approach to project management, based on identifying all
of the products (project deliverables) that contribute to achieving the project objectives
...


Process-based Management
The incorporation of process-based management has been driven by the use of maturity models
such as the OPM3 and the CMMI (capability maturity model integration; and ISO/IEC
15504 (SPICE – software process improvement and capability estimation)
...


Project Production Management
Project production management is the application of operations management to the delivery of
capital projects
...


Benefits Realization Management
Benefits realization management (BRM) enhances normal project management techniques through
a focus on outcomes (benefits) of a project rather than products or outputs, and then measuring the

33

Notes

34

Production and Operation Management

Notes

degree to which that is happening to keep a project on track
...
In addition, BRM practices aim to ensure the alignment
between project outcomes and business strategies
...


Earned Value Management
Earned value management (EVM) extends project management with techniques to improve
project monitoring
...
Earned Schedule is an extension to the theory and practice of EVM
...
They are two
different things
...

The project management is said to be successful if the given project is completed within the
agreed upon time, met the agreed upon scope and within the agreed upon budget
...

The United States Department of Defense states; "Cost, Schedule, Performance, and Risk," are the
four elements through which Department of Defense acquisition professionals make trade-offs and
track program status
...
Risk management applies proactive
identification of future problems and understanding of their consequences allowing predictive
decisions about projects
...
The WBS may be
hardware-, product-, service-, or process-oriented A WBS can be developed by starting with the
end objective and successively subdividing it into manageable components in terms of duration,
size, and responsibility (e
...
, systems, subsystems, components, tasks, sub-tasks, and work
packages), which include all steps necessary to achieve the objective
...
The work breakdown structure can be displayed in two
forms, as a table with subdivision of tasks or as an organizational chart whose lowest nodes are
referred to as "work packages"
...
For example, a WBS is used when the project is scheduled, so that the use
of work packages can be recorded and tracked
...
This is the first project management
ISO
...
Risk management is 1 of the 10 knowledge areas of
either ISO 21500 or PMBoK5 concept of project management
...




Capability Maturity Model from the Software Engineering Institute
...




A Guide to the Project Management Body of Knowledge from the Project Management
Institute (PMI)



HERMES method, Swiss general project management method, selected for use in
Luxembourg and international organizations
...




PRINCE2 (Projects in Controlled Environments)
...




Total Cost Management Framework, AACE International's Methodology for Integrated
Portfolio, Program and Project Management
...




The logical framework approach, which is popular in international development
organizations
...
Partner, Manager, Director and
Executive
...
PPM is usually performed by a dedicated team of managers
organized by within a Project Management Office (PMO), usually based within the organization
...
Depending on the sophistication of the software,
functionality may include estimation and planning, scheduling, cost control and budget
management, resource allocation, collaboration software, communication, decision-making,
workflow, risk, quality, documentation and/or administration systems
...
It is noted that managing a
virtual project is fundamentally different from managing traditional projects, combining concerns
of telecommuting and global collaboration (culture, time zones, language)
...
6 ROLE TECHNIQUE
Basically, CPM (Critical Path Method) and PERT (Programme Evaluation Review Technique) are
project management techniques, which have been created out of the need of Western industrial
and military establishments to plan, schedule and control complex projects
...
6
...


35

Notes

36

Production and Operation Management

Notes

CPM was the discovery of M
...
Walker of E
...
Du Pont de Nemours & Co
...
E
...
The computation was designed for the UNIVAC-I computer
...
In
March 1959, the method was applied to maintenance shut-down at the Du Pont works in
Louisville, Kentucky
...

PERT was devised in 1958 for the POLARIS missile program by the Program Evaluation Branch
of the Special Projects office of the U
...
Navy, helped by the Lockheed Missile Systems division
and the Consultant firm of Booz-Allen & Hamilton
...


Definition of PERT
PERT is an acronym for Program (Project) Evaluation and Review Technique, in which planning,
scheduling, organizing, coordinating and controlling of uncertain activities take place
...
It
was developed in the late 1950s
...

PERT uses time as a variable which represents the planned resource application along with
performance specification
...
After that proper sequence is ascertained, and a network is constructed
...


Definition of CPM
Developed in the late 1950’s, Critical Path Method or CPM is an algorithm used for planning,
scheduling, coordination and control of activities in a project
...
CPM is used to compute the earliest and latest possible start time for
each activity
...
The reason behind the identification of critical activities is that, if
any activity is delayed, it will cause the whole process to suffer
...

In this method, first of all, a list is prepared consisting of all the activities needed to complete a
project, followed by the computation of time required to complete each activity
...
Here, ‘path’ is defined as a sequence of activities
in a network
...


3
...
2 PERT vs CPM
The most important differences between PERT and CPM are provided below:
1
...
CPM is a statistical technique of
project management in which planning, scheduling, organizing, coordination and control of
well-defined activities takes place
...


PERT is a technique of planning and control of time
...


While PERT is evolved as research and development project, CPM evolved as construction
project
...


PERT is set according to events while CPM is aligned towards activities
...


A deterministic model is used in CPM
...


6
...
e
...
On the other hand, there is only one estimate in CPM
...


PERT technique is best suited for a high precision time estimate, whereas CPM is appropriate
for a reasonable time estimate
...


PERT deals with unpredictable activities, but CPM deals with predictable activities
...


PERT is used where the nature of the job is non-repetitive
...


10
...

11
...

12
...
The crashing concept is not applicable to PERT
...
6
...

Far more than the technical benefits, it was found that PERT/CPM provided a focus around which
managers could brain-storm and put their ideas together
...
Most important, it became a useful tool for evaluating the performance
of individuals and teams
...
CPM/PERT can answer the following important questions:
How long will the entire project take to be completed? What are the risks involved?
Which are the critical activities or tasks in the project which could delay the entire project if they
were not completed on time?
Is the project on schedule, behind schedule or ahead of schedule?
If the project has to be finished earlier than planned, what is the best way to do this at the least
cost?

3
...
4 The Framework for PERT and CPM
Essentially, there are six steps which are common to both the techniques
...


Define the Project and all of it’s significant activities or tasks
...


2
...
Decide which activities must precede and
which must follow others
...


Draw the "Network" connecting all the activities
...
Dummy arrows are used where required to avoid giving the same numbering to two
activities
...


Assign time and/or cost estimates to each activity

5
...
This is called the critical path
...


Use the Network to help plan, schedule, monitor and control the project
...
If these "critical" activities could be
identified and assigned to responsible persons, management resources could be optimally used by
concentrating on the few activities which determine the fate of the entire project
...

Five useful questions to ask when preparing an activity network are:


Is this a Start Activity?



Is this a Finish Activity?



What Activity Precedes this?



What Activity Follows this?



What Activity is Concurrent with this?

Some activities are serially linked
...
In certain cases, the activities are concurrent, because they are independent of each
other and can start simultaneously
...
When work is delegated like this,
the need for constant feedback and co-ordination becomes an important senior management preoccupation
...
6
...
Each
activity is preceded and succeeded by an event, represented as a circle and numbered
...
Activity 1-3 gives us an Earliest Start of 3 weeks at Event 3
...
Along this route, the
Earliest Start would be 4 + 0 = 4
...

So the Earliest Start at event 3 is 4
...
Along Activity 2-4, the Earliest Start at Event 4 would be 10 wks, but along Activity
3-4, the Earliest Start at Event 4 would be 11 wks
...

We have now found the longest path through the network
...
This is the Critical Path
...
6
...


Project Management

39

Notes

At Event 3 there is only one activity, Activity 3-4 in the backward pass, and we find that the value
is 11-7 = 4 weeks
...
We find that
the backward pass through 2-4 gives us a value of 11-6 = 5 while 2-3 gives us 4-0 = 4
...


3
...
7 Tabulation & Analysis of Activities
We are now ready to tabulate the various events and calculate the Earliest and Latest Start and
Finish times
...

Duration
(Weeks)

Earliest Start

Earliest Finish

Latest Start

Latest Finish

Total Float

1-2

4

0

4

0

4

0

2-3

0

4

4

4

4

0

3-4

7

4

11

4

11

0

1-3

3

0

3

1

4

1

2-4

6

4

10

5

11

1

Event



The Earliest Start is the value in the rectangle near the tail of each activity



The Earliest Finish is = Earliest Start + Duration



The Latest Finish is the value in the diamond at the head of each activity



The Latest Start is = Latest Finish – Duration

There are two important types of Float or Slack
...

TOTAL FLOAT is the spare time available when all preceding activities occur at the earliest
possible times and all succeeding activities occur at the latest possible times
...

When an activity has zero Total float, Free float will also be zero
...
We shall not go into these situations at present for the
sake of simplicity and be concerned only with Total Float for the time being
...

There are various other types of float (Independent, Early Free, Early Interfering, Late Free, Late
Interfering), and float can also be negative
...
Having computed the
various parameters of each activity, we are now ready to go into the scheduling phase, using a type
of bar chart known as the Gantt Chart
...
1
A Social Project manager is faced with a project with the following activities:
Activity-ID

Description

Duration

1-2

Social Work Team to live in Village

5 Weeks

1-3

Social Research Team to do survey

12 Weeks

3-4

Analyze results of survey

2-4

Establish Mother & Child Health Program

14 Weeks

3-5

Establish Rural Credit Programme

15 Weeks

4-5

Carry out Immunizations of Under Fives

5 Weeks

4 Weeks



Draw the arrow diagram, using the helpful numbering of the activities, which suggests the
following logic:



Unless the Social Work team lives in the village, the Mother and Child Health Programme
cannot be started due to ignorance and superstition of the villagers



The Analysis of the survey can obviously be done only after the survey is complete
...
6
...
In other words, the cause-effect logic is well known
...
However, in Research & Development projects, or in Social Projects which
are defined as “Process Projects”, where learning is an important outcome, the cause-effect
relationship is not so well established
...

For each activity, three time estimates are taken


The Most Optimistic



The Most Likely



The Most Pessimistic

Project Management

41

The Duration of an activity is calculated using the following formula:
te 

t0  4tm  t p
6

Where te is the Expected time, to is the Optimistic time, tm is the most probable activity time and
tp is the Pessimistic time
...
It is enough to know that the weights
are based on an approximation of the Beta distribution
...


3
...
9 PERT Calculations for the Social Project
In our Social Project, the Project Manager is now not so certain that each activity will be
completed on the basis of the single estimate he gave
...


In Activity 1-3, the time estimates are 3, 12 and 21
...
d
...
We
calculate the PERT event times and other details as below for each activity:
Event

to

tm

tp

te

ES

EF

LS

LF

TF

s
...


Var
...
6
...
d
...
Before that we
should be aware of two of the most important assumptions made by PERT
...

Activities are independent, and the time required to complete one activity has no bearing on the
completion times of it’s successor activities in the network
...


3
...
11 Expected Length of a Project
PERT assumes that the expected length of a project (or a sequence of independent activities) is
simply the sum of their separate expected lengths
...
Similarly the variance of a sum of independent
activity times is equal to the sum of their individual variances
...

The square root VT gives us the standard deviation of the project length
...
The
higher the standard deviation, the greater the uncertainty that the project will be completed on the
due date
...
Since we have a lot of information about a Normal
Distribution, we can make several statistically significant conclusions from these calculations
...
68 probability of falling within one
standard deviation of the distribution average
...

In our case, the te = (12 + 16) = 28 weeks and the ST = 5 weeks
...
68 that the project will be completed within
28 ± 5 weeks, which is to say, between 23 and 33 weeks
...
954) of the area under a Normal Distribution falls within
two standard deviations, we can state that the probability that the project will be completed within
28 ± 10 is very high at 0
...


3
...
12 Probability of Project Completion by Due Date
Now, although the project is estimated to be completed within 28 weeks (te = 28) our Project
Director would like to know what is the probability that the project might be completed within
25 weeks (i
...
Due Date or D = 25)
...

Z

D  te 25  28 3


 0
...
6 is 0
...
This means that the chance of the project being completed
within 25 weeks, instead of the expected 28 weeks is about 2 out of 7 which is not very
encouraging
...
84134
...


If the probability of an event is p, the odds for its occurrence are a to b, where:
a
p
0
...
15866 3

Notes

44

Production and Operation Management

Notes

3
...
The rules of the game have
changed
...

For survival, innovation is almost obligatory (Drucker, 1999)
...
” Once a
well-defined innovation strategy that aligns with business goals is in place, the next step will
entail managing it effectively
...

“Innovation Management is about more than just planning new products, services, brand
extensions, or technology inventions
...

Whereas, Gartner says it is a business discipline that aims to drive a repeatable, sustainable
innovation process or culture within an organization
...
This
discipline of managing the innovation process harnesses creative ideas and uses them to
build a steady pipeline of innovations that are reliable, repeatable, consistent, and profitable
...
For
instance, an emerging business is likely to be focusing on one main product, unlike a mature
organization that is looking to fortify its position in the market or find new, disruptive
innovations
...
Deciding between developing new innovations for the future and revitalizing
their existing offerings can be tricky
...
7
...
Innovation
management helps deal with the challenges that stem from the innovation process
...
7
...


Process Innovation: A process innovation is the implementation of a new or significantly
improved production or delivery method
...
(OECD, 2005) Unlike incremental or continuous innovations that
will most likely generate little value, process innovations are typically expected to bring
game-changing shifts
...
Examples of process innovation would be reducing the cost per service provided
or the time taken and increasing the number of products or services provided within a specific
time
...


Project Management

45

2
...
This includes
significant improvements in technical specifications, components, and materials, incorporated
software, user-friendliness or other functional characteristics
...

Apple's iPhone, wrinkle-resistant fabrics, Amazon’s Kindle, mountain bike suspensions,
extreme-action cameras such as GoPro, wearable computers, and dual-clutch transmissions
are easily recognizable examples
...


Marketing Innovation: A marketing innovation is the implementation of a new marketing
method involving significant changes in product design or packaging, product placement,
product promotion or pricing
...
In sustaining innovations, incumbents win
...
Check out L’Oreal’s Makeup Genius app, IKEA’s
Catalogue app and SBI’s YONO app
...


Organizational Innovation: Organizational innovation means the implementation of a new
organizational method in the undertaking's business practices, workplace organization or
external relations
...


Process
Innovation

Product
Innovation

Innovational
Management

Marketing
Innovation

Organisational
Innovation

3
...
3 The 8 Phases of an Innovation Management Process
The innovation management process has become an important part of the operations of many
businesses, as the recognition of the importance of initiatives towards innovation has become
much more common
...
Instead, they seem to
hold many separate activities in isolation, such as brainstorming sessions, pilot projects and
campaigns, and vague communication with the market, and simply keep fingers crossed that it will
come together in the end
...
Instead, the best way to accomplish this is to have a set
innovation activities which integrates the activity into the regular cycle of your business
...


Notes

46

Production and Operation Management

Notes

1
...
It is many
times based on finding the solution to a problem
...
This team may consist of you and
another person, a group of people, or may even be all of your organization’s employees
...

When you establish the team for this process, make sure that you have someone representing
all the parts of the process from start to the end
...


Cooperation: The innovation team should work together so that instead of trying to come up
with an idea separately, they can bounce ideas off one another and create a collaborative
solution
...
You
might consider having a trained business coach facilitating the discussions
...


3
...
Often, strong ideas will be
complementary to one another and will join well to create an even better result
...
And for this combination to work
well, you need representatives of all parties involved in the process, because they for sure
have ideas that people from other departments could not come up with
...


4
...
When the best ideas have been combined, fine-tuned,
and polished, it is time to subject them to evaluation based on peer reviews
...
It also helps to
select the ideas with the greatest potential from among several that appear equally capable of
being successful
...

Each step you take forward will cost you more…

5
...
One of the most common means of testing a
product or service idea is to create a prototype or test group
...
Make sure that the product
or service not only raises interest but is able to generate orders also
...


6
...
The execution of implementation is a step that is unique to your business and,
unless your new product causes you to have to drastically alter the typical way that your goto-market strategy functions, then this part of the innovation management process should be
relatively commonplace in your organization
...


7
...

Should a milestone not be reached, then changes will need to be made or the idea will need to
be shut down
...


Project Management

3
...
4 Uses of Innovation Management
Innovation management is quickly becoming a critical requirement for enabling a sustainable
business
...
8 SUMMARY
A project is an organized endeavor to accomplish a specified non-repetitive task
...
Once the project
receives the green light, it needs a solid plan to guide the team, as well as keep them on time and
on budget
...
The project plan gives the team direction for producing quality
outputs, handling risk, creating acceptance, communicating benefits to stakeholders and managing
suppliers In critical studies of project management it has been noted that phased approaches are
not well suited for projects which are large-scale and multi-company, with undefined, ambiguous,
or fast-changing requirements, or those with high degrees of risk, dependency, and fast-changing
technologies
...
This becomes especially true as
software development is often the realization of a new or novel product
...
Innovation management is quickly becoming a critical requirement for enabling a
sustainable business
...
9 SELF ASSESSMENT QUESTIONS
Short Type Questions
1
...


2
...


What do you mean by process based management?

4
...


5
...


6
...


7
...


47

Notes

48

Production and Operation Management

Notes

Essay Type Questions
1
...


2
...


3
...


4
...


5
...


Supply Chain Management

UNIT 4

SUPPLY CHAIN MANAGEMENT

Structure
4
...
1

Introduction

4
...
3

4
...
2
...
ERP

4
...
2

Objectives of Material Requirements Planning

4
...
3

JIT - Background and History

4
...
4

Objectives and Benefits

Definition of Supply Chain Management
4
...
1

Information Technology and SCM

4
...
2

Logistics - An Integral Component of Supply Chain Management

4
...
3

Logistics Operations in Supply Chain Network

4
...
4

Logistics Service Providers keeps Supply Chain Moving

4
...
5

International Logistics

4
...
6

Finished Goods Supply Chain

4
...
7

Spare Parts Supply Chain

4
...
8

Reverse Logistics

4
...
9

3PL Contract Logistics Operations

4
...
10

Warehouse Management System

4
...
11

Documentation in Supply Chain Management

Aggregate Product Planning
4
...
1

Factors Affecting Aggregate Planning

4
...
2

Aggregate Planning as an Operational Tool

4
...
3

Importance of Aggregate Planning

4
...
4

Aggregate Planning Strategies

4
...
6

Self Assessment Questions

4
...




Identify the functions of MRP
...
Describe its Uses
...




Functions of Supply chain Management



Aggregate product Planning

49

Notes

50

Production and Operation Management

Notes

4
...

IBM engineer Joseph Orlicky developed MRP in 1964 after he studied the Toyota Production
System, which was the model for the production methodology
...

It's important to note, however, that MRP and lean production are not the same and are considered
by some practitioners to be antithetical, though some say MRP can help with lean production
...

Orlicky's ideas spread rapidly throughout the manufacturing sector after the 1975 publication of
his book, Material Requirements Planning: The New Way of Life in Production and Inventory
Management, and by the early 1980s, there were hundreds of commercial and homegrown MRP
software programs
...
2 BASICS OF MRP
Material requirements planning (MRP) is a system for calculating the materials and components
needed to manufacture a product
...
MRP uses information from the bill of materials (a list of
all the materials, subassemblies and other components needed to make a product, along with their
quantities), inventory data and the master production schedule to calculate the required materials
and when they will be needed during the manufacturing process
...


4
...
1 MRP vs
...

In 1990, the analyst firm Gartner coined the term enterprise resource planning (ERP) to denote a
still more expanded and generalized type of MRP II that took into account other major functions
of a business, such as accounting, human resources and supply chain management, all of it
managed in a centralized database
...
ERP quickly expanded to other industries, including services, banking and retail that did not
need an MRP component
...


4
...
2 Objectives of Material Requirements Planning
Not surprisingly, the primary objective of MRP is to make sure that materials and components are
available when needed in the production process and that manufacturing takes place on schedule
...
While MRP is
designed to ensure adequate inventory at the required times, a company can be tempted to hold
more inventory than is necessary, thereby driving up inventory costs
...


Supply Chain Management
Proponents of MRP and DDMRP say these approaches can help achieve a better matching of
supply and demand
...


4
...
3 JIT - Background and History
JIT is a Japanese management philosophy which has been applied in practice since the early 1970s
in many Japanese manufacturing organizations
...
Taiichi Ohno is frequently referred to as the father of JIT
...
Toyota realized that JIT would only be successful if every
individual within the organization was involved and committed to it, if the plant and processes
were arranged for maximum output and efficiency, and if quality and production programs were
scheduled to meet demands exactly
...

There are strong cultural aspects associated with the emergence of JIT in Japan
...



Workers are highly motivated to seek constant improvement upon that which already exists
...




Companies focus on group effort which involves the combining of talents and sharing
knowledge, problem-solving skills, ideas and the achievement of a common goal
...
It is not unusual for a Japanese employee to work
14-hour days
...
This
allows the opportunity for them to hone their skills and abilities at a constant rate while
offering numerous benefits to the company
...
`Just-in-time' is a management philosophy and not a technique
...

It has now come to mean producing with minimum waste
...
Elements of JIT include:


Attacking fundamental problems - anything that does not add value to the product
...




Striving for simplicity - simpler systems may be easier to understand, easier to manage
and less likely to go wrong
...




Quality control at source - each worker is responsible for the quality of their own output
...
prevent mistakes



Preventative maintenance, Total productive maintenance - ensuring machinery and
equipment functions perfectly when it is required, and continually improving it
...
There are seven types of waste:


waste from overproduction
...




transportation waste
...




inventory waste
...




waste from product defects
...




Set-up time reduction - increases flexibility and allows smaller batches
...
Multi-process handling - a multi-skilled workforce has greater productivity, flexibility
and job satisfaction
...




Kanbans - simple tools to `pull' products and components through the process
...




Andon (trouble lights) - to signal problems to initiate corrective action
...
2
...

A case-study summary from Daman Products in 1999 lists the following benefits: reduced cycle
times 97%, setup times 50%, lead times from 4 to 8 weeks to 5 to 10 days, flow distance 90% –
achieved via four focused (cellular) factories, pull scheduling, kanban, visual management, and
employee empowerment
...

Hewlett-Packard, one of western industry's earliest JIT implementers, provides a set of four case
studies from four H-P divisions during the mid-1980s
...
At the time
about half of H-P's 52 divisions had adopted JIT
...
8 months

75%

Labour cost reduction

30%

15%

Space reduction

50%

30%

33%

40%

WIP stock reduction

22 days to 1 day

Production increase

100%
30% scrap, 79%
rework

80% scrap

30% scrap &
rework

50%

17 days to 30 hours

Quality improvement
Throughput time reduction
Standard hours reduction
No
...
3 DEFINITION OF SUPPLY CHAIN MANAGEMENT
If you go to a Supermarket and pick up a few items off the shelf from electronics and white goods
or even clothes and look at the labels, the chances are that you will find them having been
manufactured in China or Mexico
...
Computers have been shipped out of South American Factories and Soft furnishings
on the shelves are from India and Hong Kong
...
Global companies are driven by markets across continents
...
Sourcing of raw materials and vendors to supply the right
quality, quantity and at right price calls for dynamic procurement strategy spanning across
countries
...
The finished goods out of
these different factory locations then pass through various chains of distribution network involving
warehouses, exports to different countries or local markets, distributors, retailers and finally to the
end customer
...
As per definition SCM is the management of a
network of all business processes and activities involving procurement of raw materials,
manufacturing and distribution management of Finished Goods
...


4
...
1 Information Technology and SCM
Supply Chain Management is a broad-based function that encompasses all business and
operational processes involved in but not limited to Procurement, Manufacturing, and Finished
Goods Transportation, warehousing & Distribution and Inventory Management
...

Global business has been fuelled and enabled by the IT Technology which has redefined all
aspects of business today
...


4
...
2
...
All these activities involve multiple networks of vendors and service
providers which are integrated and co-coordinated by the Supply Chain Experts of the
organization to move raw materials and finished goods from and to all distant locations across the
globe
...
Logistics refers to the management
of the flow of goods and supplies involving information, data and documentation between two
entities or points
...


53

Notes

54

Production and Operation Management

Notes

4
...
3 Logistics Operations in Supply Chain Network
Logistics has aided and contributed to enabling global trade
...
Supply Chain
Consultants and professionals find it very essential to have knowledge of the operational field and
how things work on the ground
...

Take an example of DELL which has successfully implemented its Supply Chain strategy built
around the concept of JIT manufacturing and Direct Marketing
...
European Markets are serviced from its plants in Ireland and Poland
...
South America is
serviced from its Eldora do plant while the new plan in Brazil supports the African continent
...
Dell does not buy
raw materials and components and maintains inventory
...

Under procurement logistics, in this case, some logistics service providers play a major part in
ensuring smooth operations
...

Though the raw materials belong to the vendors until the time they are supplied to production shop
floor, the design, planning and selection of logistics service provider are initiated and managed by
Dell
...

While the shipments are in transit, the freight forwarders electronically transfer shipment
information and documentations to their overseas offices or agents at the destination and keep Dell
and vendors informed of the status of shipments
...

The third party service provider who manages the inventories in his warehouse receives the cargo,
unpacks the shipments from bulk skids to individual carton level and completes inbound
formalities including updating of inventories in its system and stocks the materials in designated
rack locations
...
The warehouse stocks inventory in the name of various vendors at SKU
level
...
Upon
receiving a production order from Dell, as per Bill of Material received through DELL ERP
system, items are picked up, loaded into the supply cages and trays as per predetermined design
and delivered to the plant after completing documentation and system entries to remove inventory
from its system held in vendors name, invoice raised and physical delivery accompanied with
documents completes the supply chain cycle of Raw material supply
...
3
...
Though the duties of the
departments involve common activities like transportation etc
...
With the emerging trends and availability of third party logistics
providers has pushed the companies to adapt the practice of outsourcing all supply chain
components and logistics functions termed as non-core functions to their logistics providers
...

Third Party Logistics field is a multi-layer or multi-tier integration of various players who have the
niche segment expertise to manage any one or many functions of Logistics
...
You can have a lead logistics service provider who will
further tie up with and manage other service providers to provide a single window service to the
client organization
...
Like for example in a contract logistics facility, the
third party logistics provider who has secured the contract may not own and operate the facility
himself
...

Normally in Logistics, the lead players front ending the businesses would be the Freight
Forwarders, Transport Companies (generally in long haul segment only) and Warehousing Service
Providers
...

Freight forwarders are those agencies who consolidate the cargo and book the cargo for onward
freight using an airline or a shipping line or use ground transportation network including rail
services wherever required
...

They book the space with airlines and shipping lines and negotiate the freight
...
Most of them also have in-house customs clearance division to
support ground logistics operations

4
...
5 International Logistics
The foundation of logistics function is based mainly on Transportation by Road, Rail, and Air &
Sea
...
History is replete with the major
maritime routes that connected continents across the globe and enabled trade between them
...

Global trade is dependant 80% on sea route than air route, simply for the fact that air route is far
more expensive and is used only in case of light weight cargo, perishable cargo, and priority
shipments or in other conditions where shipping would not be possible
...
Normally the so called
mother vessels ply on the main shipping route across the continents traveling through Pacific or
Atlantic oceans and calling on countries from point to point
...
Some of the main routes normally traversed by mother
vessels are the Far East to Europe and Mediterranean, Europe to America East Coast and the Gulf
of Mexico, Far East Australia to South Africa, Intra Asia, Asia to the Middle East, and Europe to
South Africa, etc
...
The
feeder vessels carry cargo from individual ports in nearby countries which discharge the cargo at
the port of calling to be transshipped on to the main vessel
...
Likewise
the global shipping trade lanes have certain gateways and lanes which they operate and in turn are
fed and supported by feeder lanes and vessels
...
3
...
You browse the
internet to see the latest models and configurations, decide on your specific requirement and click
to place an order
...
Immediately on payment, you cannot wait for the delivery
Finished Goods supply chains are very dynamic and are the backbone of a good sales
organization
...
Logistics and supply chain
departments have to work in tandem with or aim to be ahead of Marketing and Sales and ensure
that when a product is announced for sale by marketing, the products are made available at all
nook and corner of the city, state, and country
...
3
...
Service support is critical in industries like Computers, Telecom,
Aero spares, etc
...
In all
cases corporate installations demanding onsite support coupled with critical downtime service
level measurements have pushed the suppliers to set up an efficient spare parts supply chain
...
The company who installs the server is required to ensure that service engineer is
available at site during normal hours and on call basis on 24 × 7 basis
...
Aero
spare parts supply chain has also been built around processes to ensure fastest lead times and ready
availability and immediate retrieval of the right component
...
In case of non availability the
parts are called for on urgent basis from a regional distribution center normally available at a
regional level servicing a continent and flown down on urgent courier mode
...
3
...
There is another extension
to Supply Chain Process called as Reverse Logistics
...

Reverse Logistics planning further re-captures value from these materials as much as possible by
way of re salvaging, repair, refurbishing, recycling etc
...
3
...
Under the broad umbrella of Contract Logistics, 3PL providers provide
services of setting up consolidation centers, distribution centers, warehouses and inventory
management services
...
America too has similar capabilities developed
in recent years
...

Warehousing Parks or Distribution Facilities are designed with complete layout and infrastructure
for truck parking, yard management, and security systems, etc
...
mtrs to several hundred sq
...
These facilities include office facilities and other utilities too as a
complete stand-alone facility
...
3
...
Most of the inventory is held at
the warehouses as compared to the pipeline, and the efficiency of the warehouse operations will
determine the further supply chain efficiency
...

A distribution center or a warehouse is the key to the entire model as it holds the inventories and
also manages other operations like bundling, packing, labeling, co-packing, kitting, etc
...
Most of the marketing and buyers requirements are met with from the
warehouses
...


On the inventory front, the system maintains inventory in the warehouse at Zone & individual
location level, SKU level, pallet wise, carton wise and unit level inventories for multiple
customers and allows specific inventory attributes and parameters to be built in to manage,
allocate or block the inventory
...


2
...
The intelligent
system guides and helps operations manager to schedule and manage all operations for
various groups and teams simultaneously depending upon the workload and pattern and
thereby manage resource allocation too
...
3
...
A logistical exercise originates at the buyers end and involves multiple agencies
including buyer, seller, 3PL freight forwarder, transporters at various juncture, shipping lines,
airlines, various governmental agencies, customs departments at various locations and financial
institutions like banks to complete the entire supply chain cycle
...
Need for
decision making concerning financial, commercial, technical, operational matters about shipments
arise at various times in the cycle, which demands that the 3PL, the logistics carrier, the buyer, the
supplier are actively engaged and have visibility to information and documentation for the smooth
flow across various transit points
...

Documentation becomes important not only for the physical logistics operations involving
multiple agencies engaged in the entire chain, the financial, trading and accounting processes of

57

Notes

58

Production and Operation Management

Notes

the both buyer and seller organizations and partner banks also involved depend upon the entire set
of documentation pertaining to each transaction to be able to recognize the sale, recognize value of
consignment and effect necessary payment
...
Finally, goods and services are
recognized and identified at every stage only with the set of authenticated documentation showing
ownership based on which the customs allow them to be exported or imported into or out of the
country
...

A supply chain manager needs to be aware of the complete set of documentation requirement
along with the various aspects to be able to design processes and documentation control
mechanisms
...


4
...
Once
business plans are ready, an organization can do backward working from the final sales unit to raw
materials required
...
requirements over a medium-range period (6 months to 18 months)
...


4
...
1 Factors Affecting Aggregate Planning
Aggregate planning is an operational activity critical to the organization as it looks to balance
long-term strategic planning with short term production success
...




A solid demand forecast covering the medium-range period



Financial planning surrounding the production cost which includes raw material, labor,
inventory planning, etc
...


For aggregate planning to be a success, following inputs are required;


An aggregate demand forecast for the relevant period



Evaluation of all the available means to manage capacity planning like sub-contracting,
outsourcing, etc
...
), inventory level and
production efficiency

Aggregate planning will ensure that organization can plan for workforce level, inventory level and
production rate in line with its strategic goal and objective
...
4
...
It serves as a platform to manage capacity and demand
planning
...
In scenario
where capacity is not matching demand, an organization can try to balance the both by various
alternatives such as
...




Including overtime as part of scheduling there by creating additional capacity
...


Supply Chain Management

4
...
3 Importance of Aggregate Planning
Aggregate planning plays an important role in achieving long-term objectives of the organization
...
4
...

They are as follows
...


Level Strategy: As the name suggests, level strategy looks to maintain a steady production
rate and workforce level
...

Advantage of level strategy is steady workforce
...


2
...
Advantage of chase strategy is lower inventory levels and back logs
...


3
...


4
...
It consists of three primary steps: taking inventory of the
materials and components on hand, identifying which additional ones are needed and then
scheduling their production or purchase
...
A logistical exercise originates at the
buyers end and involves multiple agencies including buyer, seller, 3PL freight forwarder,
transporters at various juncture, shipping lines, airlines, various governmental agencies, customs
departments at various locations and financial institutions like banks to complete the entire supply
chain cycle
...
Objectives and benefits of JIT manufacturing may be stated in two primary ways: first, in
specific and quantitative terms, via published case studies; second, general listings and discussion
...


4
...


Define Material Requirement Planning (MRP)
...


What are objectives of MRP?

3
...


Justify the basics of MRP
...


Explain the benefits of JIT
...


Explain objectives of JIT
...


Who is father of JIT?

8
...


What do you mean by spare parts supply chain?

10
...


Essay Type Questions
1
...


2
...


3
...


Inventory Management

UNIT 5

INVENTORY MANAGEMENT

Structure
5
...
1

Introduction

5
...
3

Different Types of Inventory

5
...
5

Finished Goods Inventory

5
...
7

Inventory Costs

5
...
9

Factors affecting Inventory Operations

5
...
11 Inventory Planning
5
...
13 Inventory Management Techniques
5
...
15 Self Assessment Questions

5
...




Identify the functions of MRP
...
Describe its Uses
...




Functions of Supply chain Management



Aggregate product Planning

5
...
Every organization constantly
strives to maintain optimum inventory to be able to meet its requirements and avoid over or under
inventory that can impact the financial figures
...
Inventory management requires constant and careful evaluation of
external and internal factors and control through planning and review
...

Inventory management is a very important function that determines the health of the supply chain
as well as the impacts the financial health of the balance sheet
...


61

Notes

62

Production and Operation Management

Notes

Inventory is always dynamic
...
Most of the organizations
have a separate department or job function called inventory planners who continuously monitor,
control and review inventory and interface with production, procurement and finance departments
...
2 DEFINING INVENTORY
Inventory is an idle stock of physical goods that contain economic value, and are held in various
forms by an organization in its custody awaiting packing, processing, transformation, use or sale
in a future point of time
...
While inventory is
a necessary evil of any such business, it may be noted that the organizations hold inventories for
various reasons, which include speculative purposes, functional purposes, physical necessities etc
...
The popular among them are :-“the term
inventory includes materials-raw, in process, finished packaging, spares and others stocked in
order to meet an unexpected demand or distribution in the future
...
D
...
1
...




Inventory can be in complete state or incomplete state
...




All inventoried resources have economic value and can be considered as assets of the
organization
...
3 DIFFERENT TYPES OF INVENTORY
Inventory of materials occurs at various stages and departments of an organization
...
It also holds inventory of semi-finished goods at various stages in the plant with
various departments
...

Further both raw materials and finished goods those that are in transit at various locations also
form a part of inventory depending upon who owns the inventory at the particular juncture
...

Besides Raw materials and finished goods, organizations also hold inventories of spare parts to
service the products
...


Types of Inventory by Function
INPUT

PROCESS

OUTPUT

Raw Materials

Work In Process

Finished Goods

Consumables required for
processing
...

required in manufacturing

Semi Finished Production in various
stages, lying with various
departments like Production, WIP
Stores, QC, Final Assembly, Paint
Shop, Packing, Outbound Store etc
...
4 NEED FOR INVENTORY MANAGEMENT
Most of the organizations have raw material inventory warehouses attached to the production
facilities where raw materials, consumables and packing materials are stored and issue for
production on JIT basis
...

1
...
Accordingly the demand for raw material supply for
production varies with the product plan in terms of specific SKU as well as batch quantities
...


2
...
Accordingly they stock
up raw materials and hold inventories to be able to increase production and rush supplies to
the market to meet the increased demand
...


Economies of Scale in Procurement: Buying raw materials in larger lot and holding
inventory is found to be cheaper for the company than buying frequent small lots
...


4
...

Companies resort to buying in bulk and holding raw material inventories to take advantage of
the quantity discounts offered by the supplier
...


5
...

Part shipments can be costlier
...

There could be a lot of factors resulting in shipping delays and transportation too, which can
hamper the supply chain forcing companies to hold safety stock of raw material inventories
...


Long Lead and High demand items need to be held in Inventory: Often raw material
supplies from vendors have long lead running into several months
...
In
such cases it is safer to hold inventories and have control
...
5 FINISHED GOODS INVENTORY
1
...
Accordingly organizations produce based
on marketing orders
...

While Build to Order strategy is manufactured against specific orders and does not warrant
holding of stocks other than in transit stocking, Build to Stock production gets inventoried at
various central and forward locations to be able to cater to the market demands
...


Market penetration: Marketing departments of companies frequently run branding and sales
promotion campaigns to increase brand awareness and demand generation
...
Any
non-availability of stock at the point of sale counter will lead to dip in market demand and
sales
...


3
...
The first
objective would be to ensure correct product stock is available to service the market
...


4
...
Hilly regions for example may require longer lead-time to service
...
In such cases they will have to have an inventory holding plan for such
markets
...
Inventory
holding policy will take into account these factors to work out the plan
...


Local tax and other Govt
...
Accordingly while one state may offer a tax
rebate for a particular set of product category, another state may charge higher local taxes and
lower interstate taxes
...
Accordingly inventory holding would have to be planned to
cater to the market fluctuation
...


6
...
Sudden market demand or opportunities in such cases require FG
inventories to be built up and supplies to be effected
...


Speculative gain: Companies always keep a watch on the economy, annual state budget,
financial environment and international environment and are able to foresee and estimate
situations, which can have an impact on their business and sales
...
They also hold up finished stock in warehouses in anticipation of a
impending sale price increase
...


Inventory Management
8
...


9
...


5
...
Inventory is
categorized into two types based on the demand pattern, which creates the need for inventory
...


Independent Demand
An inventory of an item is said to be falling into the category of independent demand when the
demand for such an item is not dependent upon the demand for another item
...

Independent demands for inventories are based on confirmed Customer orders, forecasts,
estimates and past historical data
...

Raw materials and component inventories are dependent upon the demand for Finished Goods and
hence can be called as Dependant demand inventories
...
The car as finished goods is an held produced and held in inventory as
independent demand item, while the raw materials and components used in the manufacture of the
Finished Goods - Car derives its demand from the demand for the Car and hence is characterized
as dependant demand inventory
...

While Finished Goods inventories which is characterized by Independent demand, are managed
with sales order process and supply chain management processes and are based on sales forecasts,
the dependant demand for raw materials and components to manufacture the finished goods is
managed through MRP -Material Resources Planning or ERP – Enterprise Resource Planning
using models such as Just In Time, Kanban and other concepts
...

Managing Raw Material Inventories is far more complicated than managing Finished Goods
Inventory
...
Raw material management also involves periodic review of the
inventory holding, inventory counting and audits, followed by detailed analysis of the reports
leading to financial and management decisions
...
7 INVENTORY COSTS
Inventory costs are basically categorized into three headings:
1
...


Carrying Cost

3
...


a
...


b
...


Sales Discounts, Volume discounts and other related costs
...

Ordering Cost is dependant and varies based on two factors - The cost of ordering excess and
the Cost of ordering too less
...
Ordering excess quantity will
result in carrying cost of inventory
...

These two above costs together are called Total Stocking Cost
...

This functional analysis and cost implications form the basis of determining the Inventory
Procurement decision by answering the two basic fundamental questions - How Much to
Order and When to Order
...


5
...


Inventory Storage Cost

b
...
In both cases, inventory
management and process involves extensive use of Building, Material Handling Equipments,
IT Software applications and Hardware Equipments coupled managed by Operations and
Management Staff resources
...


Inventory Storage Cost: Inventory storage costs typically include Cost of Building Rental
and facility maintenance and related costs
...
Further costs include operational costs, consumables, communication
costs and utilities, besides the cost of human resources employed in operations as well as
management
...


Cost of Capital: Includes the costs of investments, interest on working capital, taxes on
inventory paid, insurance costs and other costs associate with legal liabilities
...

Current times, the trend is increasingly in favor of outsourcing the inventory management to third
party service provides
...

They would rather outsource to a supplier who has the required competency than build them in
house
...
Besides the project may span over
a longer period of several years, thus blocking capital of the company, which can be utilized into
more important areas such as R & D, Expansion etc
...


5
...
While in some
cases the inventory may be very high in value, in some other cases inventory may be very high in
volumes and number of SKU
...

Inventory Controllers are engaged in managing Inventory
...
Primary focus of inventory controllers is to maintain optimum inventory levels and
determine order/replenishment schedules and quantities
...


ABC Classification
Inventory in any organization can run in thousands of part numbers or classifications and millions
of part numbers in quantity
...

In most of the organizations inventory is categorized according to ABC Classification Method,
which is based on parent principle
...

The principle applied here is based on 80/20 principles
...




B Category Items Comprise 30% of SKU & Contribute to 15% of $ spend
...


The above is only an illustration and the actual numbers as well as percentages can vary
...

Annual Usage in No
...
50

7,500

2
...
00

12,000

4
...
50

105,000

41
...
00

12,000

4
...
50

3,750

1
...
60

81,000

32
...
75

3,750

1
...
25

5,625

2
...
50

17,500

6
...
00

Item

Total

6,000

2
...
0%

Advantages of ABC Classification


This kind of categorization of inventory helps one manage the entire volume and assign
relative priority to the right category
...


Notes

68

Production and Operation Management
Hence one is able to monitor the inventory of this category closely to ensure the inventory
level is maintained at optimum levels for any excess inventory can have huge adverse impact
in terms of overall value
...

It helps the managers and inventory planners to maintain accurate records and draw
management’s attention to the issue on hand to facilitate instant decision-making
...




C Category Items: Can be managed with basic and simple records
...


Example: Take the case of a Computer Manufacturing Plant; the various items of inventory can be
broadly classified as under:
SKU Description

Classification of
Inventory

Remarks

Processor Chips

A Class

Kept under High Value Storage/Asset Tracking /
Access Control required

Memory Chips

A Class

Kept under High Value Storage/Asset Tracking /
Access Control required

Hard Disk / Storage
Media

A Class

Kept under High Value Storage/Asset Tracking /
Access Control required

Software License

A Class

Kept under High Value Storage/Asset Tracking /
Access Control required

Disk Drives

A Class

Normal Storage / Access Control Required

Cabinet / Case

B Class

Normal Procedures

Battery Pack

B Class

Normal Procedures

Monitor

A Class

Normal Storage / Access Control Required

Keyboard

B Class

Normal Procedures

Training Manuals

C Class

Minimal Procedures

Mouse

B Class

Normal Procedures

Stickers

C Class

Minimal Procedures

Screws & Nuts

C Class

Minimal Procedures

Power Cord

C Class

Minimal Procedures

Starter Assembly PackInstructions

C Class

Minimal Procedures

Disadvantages


Inventory Classification does not reflect the frequency of movement of SKU and hence can
mislead controllers
...


5
...
Active management calls for continuous analysis and management of
inventory items to target at lean m inventory Management
...
The efficiencies of inventory management are largely dependent upon the skills and
knowledge of the inventory planners, the focus and involvement of management and the
management policies coupled with the inventory management system
...
In this section of the article we aim to
uncover few of the critical areas and action points on the part of operations that can impact the
inventory of the company
...


Unskilled Labour and Staff: Inventory operations management is a process-oriented
operation
...
Therefore knowledge of
what one is required to do and the effect of the action should be known to the operatives who
are on the shop floor
...
Besides he should also know the impact of not completing any of these actions or
doing something wrong
...

Secondly different inventory items would have to be handled differently
...
They should also
know the consequences of not following the process
...
The operatives should be trained
on the entire process and understand why and what he is doing
...
Where the warehouses are being
managed on RF based systems, the operatives should be able to manage the RF readers,
understand how to access and complete transactions through the RF Guns
...
Such situations can lead to inventory discrepancies
...


In adequate SOP, Training and emphasis on processes compliance: When a inventory
management project kicks off at a third party warehouse location, both the principle customer
as well as the third party service provider work on the project and setup basic processes,
document them in Standard Operating Procedures and conduct training as a part of the project
management methodology
...
These do not get documented in terms of amendments and
the SOPs become outdated
...
With the result they often have
half-baked knowledge of the processes and carry on tasks not knowing why they are doing
and what they are required to do
...
Continuation of such a situation will lead to bad
housekeeping, inventory mismatches, and discrepancies and also affect the service delivery
...

In any third party owned inventory operations warehouse, the principle client should ensure
that periodic review and training is conducted for all staff
...


69

Notes

70

Production and Operation Management

Notes

5
...
In all of the businesses be in automobile, manufacturing, pharma
or retail industry, status of inventory reflects the health of the business
...

Today inventory systems have replaced the book keeping and financial accounting that was being
practiced earlier
...

In terms of measuring a sales performance in relation to Inventory, we often use the term
Inventory Turnover
...
Inventory turnover is also termed as stock turn, or stock turnover
...
Adding together opening inventory and closing inventory and dividing the figure by 2
which in turn gives average Inventory
...
A higher inventory turnover does indicate a healthy trend of
increased sales and indicates the need to maintain adequate inventory levels to avoid stock outs
...
On the other hand a lower inventory turnover shows that either the
sales of the said inventory is slowing down or that the unused inventory is building up clogging
the system somewhere
...

Inventory turnover also reflects the holding cost that is incurred in managing inventory
...
The costs especially fixed costs like rent and cost of
operations get distributed over higher inventory throughput and thereby the cost of inventory
transactions reduces
Inventory turnover is also indicative of the health of inventory operations
...

Inventory turn in some cases or some systems is also calculated based on the numbers sold rather
than the average value of inventory
...

Over a number of years, each industry has developed methods to check inventory turnover and
industry standards have been standardized
...


5
...
First function deals with inventory planning and the second being inventory
tracking
...
Traditional inventory management approach
consists of two models namely:


EOQ - Economic Order Quantity



Continuous Ordering

Inventory Management

71

Notes



Periodic Ordering

1
...
EOQ is a basic model and further models developed based
on this model include production Quantity Model and Quantity Discount Model
...


Continuous Order Model: works on fixed order quantity basis where a trigger for fixed
quantity replenishment is released whenever the inventory level reaches predetermined safety
level and triggers re ordering
...


Periodic System Model: This model works on the basis of placing order after a fixed period
of time
...
Co produces chemicals to sell to wholesalers
...
50 per ton
...
The annual total
carrying cost for this material is 40% of acquisition cost and the ordering cost is $595
...
40(22
...
00/Ton/Year
S = $595/Order
EOQ  2(5, 750, 000)(595) / 9
...
135 tons per Order
...




No Shortages allowed in order delivery
...




This model does not take into account other costs of inventory such as stock out cost,
acquisition cost etc to calculate EOQ
...
12 GOOD INVENTORY MANAGEMENT PRACTICES
Good inventory Management practices in the company help by adding value in terms of having
control over and maintaining lean inventory
...
Both
the situations are bad for the company
...
It is only when we start a cost reduction drive that the inventory
goof ups and skeletons come out of the cupboard and results in revamping the entire operations
...
Many business models work
on lean inventory principle or JIT inventory along with other models like VMI etc
...

Inventory management is a management cum operations function
...
Coupled with
operations, it entails continuous study; analysis and decision making to control and manage
inventory levels
...

1
...
Often companies
follow one stocking policy for all items
...
While some
items may have a longer lead-time thus affecting the inventory holding, the demand pattern
and the hit frequency in terms of past data may show up differently for each of the inventory
items
...


2
...
Then build the inventory
stocking parameters taking into account the unique characteristics of the particular inventory
...
Some might be very expensive and need to be carried in stock for a longer period,
while another item might have a shorter lead-time and may be fast moving
...

Getting into the detailed understanding will help you identify the inventory-stocking norm
required to manage these characteristics to ensure optimum efficiency
...
Quite a few items often have shelf life and hence require separate norms and focus to
manage such items
...


Study demand pattern, movement patterns and cycles to build suitable inventory norms for
different categories of inventory: Companies which are into retail segments and dealing with
huge inventories in terms of number of parts as well as value will necessarily need to ensure
they practice review of inventory list and clean up operations on ongoing basis
...
Understanding of
the business and sales cycles specific to the product category helps one manage inventories
better
...
This helps identify those
stocks which are required to be managed at a micro level and identify the high value and fast
moving items that need to be always on the radar to avoid stock outs
...
If the low value items are locally available and the lead-time is less,
one can cut down on the inventory and change the buying pattern
...

It helps to periodically study the past data and extrapolate the same to identify slow moving
and obsolete items
...


Why Inventory Management Is Important
Holding inventory ties up a lot of cash
...
Just like cash flow, it can make or break your business
...
Solid inventory management helps you avoid unnecessary
spoilage
...
It could have
gone out of season, out of style, or otherwise become irrelevant
...


Save on Storage Costs
Warehousing is often a variable cost, meaning it fluctuates based on how much product you’re
storing
...


Inventory Management Improves Cash Flow
Not only does good inventory management save you money, it also improves cash flow in other
ways
...
Just try paying your landlord with 500 iPhone cases
...
It affects both
sales (by dictating how much you can sell), and expenses (by dictating what you have to buy)
...
Better inventory
management leads to better cash flow management
...
Not only does this make sure you don’t lose sales
(critical for cash flow), but it also helps you plan ahead for buying more so you can ensure you
have enough cash set aside
...
13 INVENTORY MANAGEMENT TECHNIQUES
Inventory management is a highly customizable part of doing business
...
However, every business should strive to remove human error from
inventory management as much as possible
...
Regardless of the system you use, the following eight techniques will help
you to improve your inventory management—and cash flow
...
Par levels
are the minimum amount of product that must be on hand at all times
...
Ideally, you’ll typically
order the minimum quantity that will get you back above par
...
Although it
requires some research and decision-making up front, setting par levels will systemize the process
of ordering
...
Remember that conditions change over time
...
If something changes in
the meantime, don’t be afraid to adjust your par levels up or down
...
It means that your oldest
stock (first-in) gets sold first (first-out), not your newest stock
...
It’s also a good idea to practice
FIFO for non-perishable products
...
Plus, packaging design and features often change over time
...
In order to manage a FIFO system;
you’ll need an organized warehouse
...
If you’re working with a warehousing and
fulfillment company they probably do this already, but it's a good idea to call them to confirm
...
Whether you need to
return a slow selling item to make room for a new product, restock a fast seller very quickly,
troubleshoot manufacturing issues, or temporarily expand your storage space, it’s important to
have a good relationship with your suppliers
...
In particular, having a good relationship with your product suppliers goes a long
way
...
Don’t be afraid to ask for a lower minimum
so you don’t have to carry as much inventory
...

It’s about good communication
...
Have them let you know when a product is running behind
schedule so you can pause promotions or look for a temporary substitute
...
These types of problems can cripple
unprepared businesses
...
In most cases, you’ll be relying on software and reports from your
warehouse to know how much product you have stock
...
There are several methods for doing this
...
Many businesses do this at their year-end because it ties in with accounting and filing
income tax
...
If you do find a

Inventory Management
discrepancy, it can be difficult to pinpoint the issue when you’re looking back at an entire
year
...
This simply means choosing a product, counting it, and comparing the number to
what it's supposed to be
...
In particular, you may want to spot check problematic or fast-moving products
...
Rather than a full count at year-end, cycle counting spreads
reconciliation throughout the year
...
There are different methods of determining which items to count
when, but, generally speaking, items of higher value will be counted more frequently
...
Use an ABC analysis to prioritize your inventory
management
...
Do this by
going through your product list and adding each product to one of three categories:
A

high-value products with a low frequency of sales

B

moderate value products with a moderate frequency of sales

C

low-value products with a high frequency of sales

Items in category A require regular attention because their financial impact is significant but sales
are unpredictable
...
Items in category B fall somewhere in-between
...
Make
no mistake; this is incredibly hard to do
...
Here are a few things to look at
when projecting your future sales:


trends in the market



last year’s sales during the same week



this year's growth rate



guaranteed sales from contracts and subscriptions



seasonality and the overall economy



upcoming promotions



planned ad spend

If there's something else that will help you create a more accurate forecast, be sure to include it
...
Instead of
having to carry inventory and ship products yourself—whether internally or through third-party
logistics—the manufacturer or wholesaler takes care of it for you
...
Many wholesalers and manufacturers
advertise drop shipping as a service, but even if your supplier doesn’t, it may still be an option
...
Although products often cost more this way than they do in bulk orders,
you don't have to worry about expenses related to holding inventory, storage, and fulfillment
...
14 SUMMARY
Inventory management is a very important function that determines the health of the supply chain
as well as the impacts the financial health of the balance sheet
...
Inventory management requires constant and
careful evaluation of external and internal factors and control through planning and review
...
Inventory should not be too much or too less
...
However often we see that inventory is not focused upon by
the management and hence lot of inefficiencies build up over a period of time without the
knowledge of the management
...

Inventory operations have two key elements namely Inventory System and Physical operations
...
Current inventory systems not only do the book keeping but are linked to
upstream as well as down stream activities including procurement, sales processing, financial
accounting
...
Active management calls for continuous analysis and management of
inventory items to target at lean m inventory Management
...


5
...


Define inventory
...


What is finished goods inventory?

3
...


Justify the concept of inventory turnover
...


Explain the benefits of inventory turnover
...


Explain the need for inventory management

Essay Type Questions
1
...
Explain various types of inventory
...


Describe the advantages and disadvantages of inventory management
...


What do you mean by inventory turnover? Discuss different types of inventory costs
...


Narrate the different types of inventory management techniques

---