Module-V bu pom notes

8/6/2019 Module-V bu pom notes

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Asst Prof Arvind GajakoshBE, MBA, NET


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Define the following :

MRP

ERP

PPC MRP2

SPC

WIP

JIT SCM

IM

VE


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Explain the features of MRP?

Explain the importance of PPC?

Differentiate between MRP and MRP2?

Define capacity planning and explain it with example. Compare cost control vs cost reduction.

What is value analysis? Explain it briefly.

Is there any difference between value engineering

and value analysis justify it with an example. Explain the role ERP in P&OM?


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What is inventory management? And explain

different types analysis used in inventory

management.

What is ABC analysis? Explain it with an example.

What are different forms of inventory?

What do you mean by cycle stock and safety stock?

Explain importance of lean manufacturing?

What is the

differ

enc

e betw

een push and pullsystem?

Explain different measuring methods of SCM.

What is outsourcing? And explain mass customization


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Inventories are stocks of any kind. Todays inventory

is tomorrow's production, and in turn sales.

Inventory is material that the firm obtains in

advance of need, holds until it is needed, and then

uses, consumes, incorporates into a product, sells,

or otherwise disposes it of.

Inventories are stocks of any kind like fuel and

lubricants, spare parts and semi processed material

to be stored for future use mainly in the process ofproduction.

It can be known as the idle resources of any kind

having some economic value.


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Raw material inventories

Work in process inventories (semi finished form)

Spare part inventories

MRO Inventories (Maintenance repairs and operatingsupplies)

Finished inventories


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When an items undergoes repetitive usage or

demand over a long period of time, the firm usually

established a periodic replenishment(fill up) policy

to maintain an inventory on the item.

The firm may also maintain an additional amount of

inventory called safety stock, to deal with the

potential uncertainty in the replenishment situation.


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Cost of inventories are traditionally categorized into

four basic types:

Purchase costs (includes transport cost, tariff etc)

Ordering costs (includes administrative cost)

Holding costs (includes storage cost, risk cost)

Shortage costs (includes disruption cost, lost sales)


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Over the past few decades management attention

has increasingly focused on firms inventory as an

area where improvements can be made so as to both

reduce costs and improve the level of customer

service that the enterprise delivers to its customerbase.


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Over the past few decades management attention

has increasingly focused on firms inventory as an

area where improvements can be made so as to both

reduce costs and improve the level of customer

service that the enterprise delivers to its customerbase.


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IC is the technique of maintaining the size of the

inventory at some desired level keeping in mind the

best economic interests of the production system.

Maintaining desired level of inventory can be called

as safety stock.


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Safety stock

Total cost

Inventory levels

Number of orders from clients Reorder quantity

Customer service


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Determination of the limits of the inventories to be

held.

Determination of inventory policies.

Selling out of investment pattern and its regulations

as per requirements.

Follow up to examine the work of inventory policy

and effect changes as and when needed.


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To ensure smooth flow of stock

To provide for required quality of materials

To control investment in stock

Protection against fluctuating demand Protection against fluctuating in output

To avoid risk of obsolescence

Minimization of material cost


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Ensures timely availability of material

Better use of financial resources

Protecting the inventory from losses

Provides prot

ection against th

eunc

ertainti

es ofdemand & supply

Preparation of accurate material reports

Determination of financial results

Minimizes the wastages


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A very close control is exercised over the items of A

group which account for a high percentage of costs

while less stringent control is adequate for category

B and very little control would suffice for category

C items. The difference b/n the types of items are

summarized below:

Criteria A type B type C type

Quantity 10% 20% 70%

Value 65% 20% 15%

Control Very strict Moderate less

Ordering Daily/weekly Bi monthly Yearly

Safety stock Less Moderate High


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Categories Quantity Values

In units Percentage In Rs. Percentage

A 7,500 15% 130,00,000 65%

B 10,000 20% 40,00,000 20%

C 32,500 65% 30,00,000 15%

Total 50,000 100% 200,00,000 100%

Policies for A group items

Th

ey should

beord

er

ed mor

efr

equ

ently to r

educ

ecapital lock up at a time in inventories.

These items are to be stored as few in number as

possible.


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Policies for B group items:

Order quantities, reorder stocks and safety stock

should be fixed and revised for B items at least one

in every 4 to 6 months.

B items should be ordered less frequently than A

items.

Policies for C group items:

Large quantities can be brought at a time, as total

investment will be the least.

Paper work can be reduced considerably if orders

are placed once or twice a year.


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VED analysis:

Means Vital(critical), Essential, and Desirable items.This technique analyzes the essentiality of thematerial for production.

FSN analysis:

F: fast moving items

S: slow moving items

N: non moving items

HML anaysis:

H:high cost items

M: Medium cost items

L: Low cost items

SOS analysis:

Seasonal off-seasonal items (agri-i/ps)


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Asst Prof Arvind GajakoshBE, MBA, NET


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Today, it is notenough for firms to

behigh qualityand low cost producers. They must also be first in

getting products and services to the customer fast.

To compete in this new envt the order to delivery

cycle must be drastically reduced JIT is the weapon

of choice today to reduce manufacturing lead times.

This is primarily achieved by drastic reduction in

work in process.

A central feature of JIT is the ability to operate with

minimal levels of inventory. JIT manufacturing is a philosophy of manufacturing

based on planned elimination of waste and

continuous improvement of productivity.


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JIT manufacturing system Traditional manufacturing system

Reduces inventory Increased inventory to protect against

process problems

Reduces lead time Increases lead time as a buffer

against uncertainty

Reduces setup time Disregards(no attention) setup time

as an improvement priority

Emphasizes product oriented

layout

Emphasizes process oriented layout

Emphasizes team orientedemployee involvement

Emphasizes work of individualsfollowing mgr instructions

Emphasizes pull manufacturing Emphasizes push manufacturing

Emphasizes zero defects Tolerates defects


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Organize production in manufacturing cells

Hire & retain workers who are multi skilled

Aggressively pursue TQM to eliminate defects

Place emphasis on reducing both setup time andmanufacturing lead time

Carefully select suppliers who are capable ofdelivering quality materials in a timely manner.


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Eliminating waste

Enforced problem solving and continuous

improvement (kaizen)

TQM

Parallel processing

Kanban Production Control

JIT purchasing

Reducing inventories


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JIT is a management philosophy that eliminatessources of manufacturing waste by producing theright part in the right place at the right time.

JIT concept applies t o repetitive manufacturingprocesses in which the same products andcomponents are produced repetitively. Ex: Bamul

Under the JIT system, the waste is aimed to beeliminated by the application of the following steps

Only what is needed now, is produced.

Waiting is reduced by coordinating flows andbalancing loads.

All the un needed production steps are eliminated.

Set up times are reduced & the production rates areincreased.


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In JIT manufacturing, the approach is to lower

inventory gradually to expose the problems & force

their solution.

Kaizen Innovation

Effect LT but un dramatic small steps

maintenance & improvement

ST but dramatic large steps

scrap & rebuild

Time

frame

Continuous & increm

ental Int

er midt

erm nonincremental

Involvement Everyone Select a few champions

Spark Conventional know how & state of

the art

Technological breakthrough

: new inventions

Efforts Requires little investment but

great effort to maintain it

Requires large investment

littleeffort to maintain it

Evaluation

criteria

Process and efforts for better

results

Results for profits


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TQM:

There are three main principles of TQM, namely

customer focus, continuous improvement, and

teamwork.

Parallel Processing:

JIT believes in parallel processing rather than series

processing. This helps in saving the time, which is

considered the most significant asset in Japanesemanufacturing as also in any of the other qualitative

theories of manufacturing


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Kanban Production System:

Kanban is the means of the signaling to the upstream

workstation that the downstream workstation is

ready for the upstream workstation to produce

another batch of parts. JIT purchasing:

Under JIT purchasing supplier selection is based not

only on price, but also delivery schedules, product

quality and mutual trust. JIT is the purchase of goods or materials such that a

delivery immediately precedes demand or use.


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JIT purchasing Traditional purchasing

Smaller lot sizes Relatively large lot sizes

More frequent deliveries Less deliveries at higherquantities

No rejection from the supplier 2% rejection from supplier

LT contracts Lowest price is main objective

Buyer decides deliveryschedule

Time consuming, formalpaperwork

Less formal communication Formal communication


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Reducing inventories:

Under JIT manufacturing, setup time and lot size

reduced in order to reduce inventories.

To attain this we should implement FMS (flexible

manufacturing systems)

Implementation of JIT manufacturing

Eliminate setup times

Reduce lot sizes

Reduce lead times

Preventive maintenance

Flexible workforce

Zero defects quality program


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The basis for ABC analysis is pareto principles.

Pareto arrived at the general conclusion that incomedistribution pattern were basically same in different

countries & in different historical period.

Pareto study shows that a very small % of the totalpopulation always seemed to receive the bulk of the

income.

He also concluded that there was a natural economic

law in existence which would always establish theshape of the income distribution & could not be over

ridden (control) by any political or sociological

reforms.


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Statistical process control (SPC) is based on

Statistical quality control (SQC).

SQC is the application of statistical techniques to

accept or reject products already produced, or to

control the process. When we use SQC to control the process will be

known as SPC.

SQC for process control is based on the probability

theory. It is common that when several identical parts are

manufactured some are little large & some are little

small, but most will be approximately same.


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Chance causes: these are inherent and cannot becontrolled or prevented. (size b/n 0.995-1.005)

Chance causes are ignored because any effort to

eliminate then is uneconomical & counterproductive.

If the size measures beyond 1.005 inches or below0.995 it is not due to chance causes but because of

assignable causes.

Assignable causes: include internal temp, tear of

m/c parts, improper dimension of RM etc. Assignable cause can be controlled and rectify by

identifying it.


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LM is a method of production that emphasizes the

minimization of the amount of all resources used in

the various activities of the enterprise.

It requires identifying & elimination non value adding

activities in design, production, SCM, & dealing withthe customers.

Lean producers employ teams of multi skilled workers

at all levels of the organization.

It uses highly flexible increasingly automatedmachines to produce volumes of products.


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Pull processing:

Production are pulled from the consumer end (demand)

not pushed from the production end (supply).

Defect free quality:

Quest for zero defects, revealing and solving problems at

the source.

Waste minimization:

Eliminating all activities that do not add value in the

production process.

Continuous improvement:

Reducing costs, improving quality, increasing

productivity, flexibility, and building LT relationship etc.


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To make a fixed order No single formula applies to

all situations

Each situation requires analysis based on the

characteristics of that particular inventory system.

EOQ for three inventory models:

Model I Basic economic order quantity

Model II EOQ for production lots

Model III EOQwith quantity discounts


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Assumptions:

Annual demand, carrying cost, & ordering cost for amaterial can be estimated.

Average inventory level for a material is order quantitydivided by 2.

Quantity discounts do not exist.

Variable definitions:

D = annual demand for a material (units/yr)

Q = quantity of material ordered at each order point

(units/ord

er)

C = cost of carrying one unit in inventory for one yr(rupees/unit per yr)

S = avg cost of completing an order for a material (rupees/yr)

TSC = total annual stocking costs for a material (rupees/yr)


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Cost formulas

Annual carrying cost = avg invntry level * CarryingCost

= Q/2*C

Annual ordering cost = orders/yr * ordering cost

= D/Q*S

Total annual stocking cost = annual CC + annual OC

= Q/2*C + D/Q*S

EOQ=

square

root (2D

S/C)


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If production occurs & flows into inventory at a rate

(p) that is greater than the usage or demand rate (d)

at which the material is flowing out of inventory.

Eg. Inventory flow rate is 120 products/day and

demand rate is 40 products/day. Therefore this model is suited for planning the size of

production lots for in house manufacture of products.

EOQ= square root of [2DS/c*{p/(p-d)}]


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Suppliers may offer their goods at lower unit prices if

larger quantities are ordered. This practice is

referred to as quantity discounting.


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Break even point is the point at which the firms

revenues are just sufficient to cover its total costs

(aggregated fixed cost & variable cost).

Fixed cost includes fixed overhead cost.

Variable cost includes direct wages, direct materialcost and variable overhead cost.


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