Cours Material

8/6/2019 Cours Material

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Industrial

Management
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UNIT I

Industrial Management &Productivity
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MANAGEMENT Traditional Author says that

management is an art of gettingthings done through people

where as modern authors says thatmanagement is a process ofaccomplishing certain objectivesthrough the utilization of human and

other resource.
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IMPORTANCE OF MANAGEMENT

For the accomplishment of the goals.

For effective utilization of theresources.

Sound Organization.

Providing vision &Foresight.

For the harmony in work.

To help employees in achievingpersonal objective.

Development of the society andnation.


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INDUSTRIAL MANGEMENT

Industrial management is now abranch of engineering whichfacilitates creation of management

system and integrates same withpeople and their activities to utilizethe resources.

Industrial management is structuredapproach to mange the operationalactivities of the organization.


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SCOPE OF INDUSTRIALMANGEMENT Related to Designing of the

production system. This includes production engineering & Design of

tools, design development, installation of Equipment &

selection and optimization of the size of the firm. Production Engineering includes selection of plant,

plant layout, Material handling system, Problem ofhuman Factor and Research & Development.

Relating to analysis & control ofproduction operation.(see notes) This includes Production Planning, Production Control

etc.


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APPLICATION OF THEINDUSTRIAL MANGEMENT

Planning FunctionFor Designing Conversion SystemFor Scheduling Conversion SystemOrganizing FunctionOrganizing for conversionStructuring of Operation StaffingJob & Work Design.For Production & Operation

Standard.For Payment system.


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ontrolling FunctionQualityQuantityTimeInventoryCostMaintenance
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PRODUCTIVITY

Productivity measures theefficiency of the productionsystem. Or productivity may be

defined as ratio between outputand input.

Output means the amountproduced or the number of items

produced. Input are the various sourcesemployed like land. Building,equipment, machinery, material,

labor, etc


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PRODUCTIVITY INDEX

Performance Achieved (Effectiveness)

PRODUCTIVITY INDEX=

Input Resources Consumed(Efficiency)

Efficiency is the ratio of actual output attained to the.standard expected output It measures of how well the

resources are utilized to accomplish the target or.result

Effectiveness is the degree of accomplishing theobjectives


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Production System

Production is transformation of inputsinto the output of commodity in aspecific period of time with the

given technology. The production system can be viewed

as a framework or skeleton of

activities within which the creationof value can occur.

The difference between the value ofinput and the value of outputrepresent the value created through


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INPUT OUTPUT MODEL(ANALYSIS OF PRODUCTIONSYSTEM)

It is one of the basic models of theproduction system.

Production system is the set of

interconnected input output element. It is made up of three component partsnamely Input, Output and Process.

A wide variety of inputs are transformedso that they give out a set of output.

The transforming process can becomplicated and the design of anactual input and output system formanufacturing may be expensive and

difficult.


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INPUT OUTPUT MODEL(ANALYSIS OF PRODUCTION

SYSTEM)Material

Men

Energy

&Plant Facilities &Goods Services


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Purpose to Increase Productivity:

FOR MANAGEMENT To produce good earning (profit). To clear the debt or loans acquired from different

sources.

To sell more.

To stand better in the market.

FOR WORKERS HIGHER WAGES.

Better Working Conditions.

Higher standard of living.

Job Security and Satisfaction

FOR CUSTOMER To reduced price of the article.


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INDUSTRIAL OWNER SHIP

Sole Proprietorship

Partnership

Co operative Organization

Joint Stock Company

State & Central Govt .


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hree basic forms ofusiness ownership oleproprietorship

PartnershipCorporation


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ole proprietorship businesswned and


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dvantages of soleproprietorships .asy and inexpensive to create wner makes all business.ecisions .wner receives all profits east regulated form ofusiness


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isadvantages of soleproprietorships wner has unlimited liability forll debts and

.ctions of the business n l i m i t e dl i a b i l i t y :

he


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Partnershipform ofusiness wnership inhich two orore peoplehare the

,ssets ,iabilities.nd profits


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ypes of Partnerships e n e r a l p a r t n e r s h i p : partnership

n which all

artners have unlimited personaliability and take

ull responsibility for the


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dvantages of partnerships hared decision making andanagement

.esponsibilities asier to raise capital thann a sole


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isadvantages ofpartnerships artnerships may lead to.isagreements ome entrepreneurs are notilling to share

esponsibilities and


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Corporationbusiness that ishartered by a state and

egally operates apart.rom its owners


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ypes of corporations -c o r p o r a t i o n : he most common formf

.orporation It protects thentrepreneur from being

ersonally sued for the actions


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dvantages ofcorporations an raise money by issuing.hares of stock ffers owners limited.iability i m i t e d l i a b i l i t y :

wners are liablenly up to the amount of


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isadvantages ofcorporations egal assistance is needed totart a

.orporation - .tart up is costly orporations are subject to

ore


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lternate approaches totarting a business uy an existing.usiness nter a family.usiness wn a franchise

.usiness


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Sole Proprietorship

Merits Easy Formation Easy to Operate Secrecy Simplicity

Demerits Limited Resources

Lack of Continuity Unlimited Liability Limited Managerial Ability Partnership


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Partnership

Merits

Legal Entity

Risk Sharing

More Funds

Continuity

Mutual Agency

Demerits

Unlimited Liability

Limited Resources

Possibility Of Conflict

Lack of Public Interest


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Joint Stock Company

Merits

Limited Liability

Transfer of Interest

Perpetual Existence

Scope for Management

ProfessionalManagement

Demerits

Complexity inFormation

Lack of Secrecy

Impersonal WorkEnvironment

Numerous Regulation

Delay In DecisionMaking


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Co Operative Undertaking

Merits

Limited liability

Economy in Operation

Support FromGovernment

Stable Existence Ease of Formation

Demerits

Limited Resources

Inefficiency inManagement

Lack Of Secrecy

Government Control Difference Of Opinion


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Basis ofComparison

Soleproprietorship

Partnership CorporativeSociety

Company

Formation Easy (minimum

Legal Formalities

Registration is

Optional

Registration

Compulsory,Greater LegalFormalities

Lengthy &

ExpensiveFormation Process

Members Only Owner Minimum 2Maximum - 20

At least 10 nomaximum limit

Min (Pvt) 2,max 50,Min (Pub)- 7,Max Unlimited

CapitalContribution

Limited Finance Limited but morethen SP

Limited Large FinancialResources

Liability Unlimited Unlimited & Joint Limited Limited

Control &Management

Owner takes alldecision

All Partners ManagingCommittee

Board OfDirectors

Continuity No More Stable Stable Stable Because of Separate LegalStatus


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UNIT II

Management Function

Management


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Management

Managementrefers to the tasks and activitiesinvolved in directing an organization or one ofits units: planning, organizing, leading, andcontrolling.

The process of reaching organizational goals byworking with and through people and otherorganizational resources.

What are the Types of Managers?


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vFunctional Managers:A manager responsible forjust one organizational activity such as

accounting, human resources, sales, finance,marketing, or production

Focus on technical areas of expertise

Use communication, planning andadministration, teamwork and self-management competencies to get workdone

vFunction: A classification referring to a group

of similar activities in an organization like

.marketing or operations.marketing or operations


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vGeneral Managers:responsible for the operationsof more complex unitsfor example, a company ordivision

Oversee work of functional managersResponsible for all the activities of the unitNeed to acquire strategic and multicultural

competencies to guide organization

(contd)


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Basic Managerial Functions

Organizing

Planning

Controlling

Leading


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Management Process and Goal AttainmentManagement Process and Goal Attainment

M d O i i lM t d O i ti l


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Management and OrganizationalManagement and OrganizationalResourcesResources


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PlanningPlanning involves tasksinvolves tasks

that must be performed tothat must be performed to

attain organizational goals,attain organizational goals,

outlining how the tasksoutlining how the tasksmust be performed, andmust be performed, and

indicating when theyindicating when they

should be performed.should be performed.

P l a n n i n gP l a n n i n g


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Planning

Determining organizational goals andmeans to reach them

Managers plan for three reasons

1.Establish an overall direction for theorganizations future

2.Identify and commit resources to achievinggoals

3.Decide which tasks must be done to reachthose goals


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Organizing means assigning the planned tasks toOrganizing means assigning the planned tasks tovarious individuals or groups within thevarious individuals or groups within the

organization and cresting a mechanism to put plansorganization and cresting a mechanism to put plans

into action.into action.

O r g a n i z i n gO r g a n i z i n g


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Organizing

Process of deciding where decisions will be made, whowill perform what jobs and tasks, and who will reportto whom in the company

Includes creating departments and job descriptions


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Leading (Leading (InfluencingInfluencing) means guiding the activities) means guiding the activities

of the organization members in appropriateof the organization members in appropriate

directions. Objective is to improve productivity.directions. Objective is to improve productivity.

L e a d i n gL e a d i n g

L di


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Leading

Getting others to perform thenecessary tasks by motivating them toachieve the organizations goals

Crucial element in all functions


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1. Gather information that measures recent performance1. Gather information that measures recent performance2. Compare present performance to pre-established standards2. Compare present performance to pre-established standards

3. Determine modifications to meet pre-established standards3. Determine modifications to meet pre-established standards

Con t r o l l i nC o n t r o l l i n

gg


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Controlling

Process by which a person, group,

ororganization consciously monitorsperformance and takes correctiveaction


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Basic Levels of Management(adapted from Figure 1.3)

Top

Managers

Middle Managers

First-Line

Managers

Nonmanagers

Top

Managers

Middle Managers

First-Line

Managers

Nonmanagers


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Levels of Management

First-line Managers:have direct responsibility forproducing goods or servicesForeman, supervisors,clerical supervisors

Middle Managers:

Coordinate employee activities Determine which goods or services to provide

Decide how to market goods or services tocustomers

Assistant Manager, Manager (Section Head)

Top Managers:provide the overall direction of anorganization Chief Executive Officer, President, Vice

President


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What Managers Do

Managerial Activities

Make decisions

Allocate resources

Direct activities ofothers to attain goals

Managerial Activities

Make decisions

Allocate resources

Direct activities ofothers to attain goals

(Managers or Administrators)

Individuals who achieve goals through other people


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Scientific Management

F W Taylor, a management guru, listed

different principles to guide management: Each worker should have a large, clearly

defined, daily task Standard conditions are needed to ensure

the task is more easily accomplished

High payment should be made for successfulcompletion of tasks


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F W Taylors Principles cont:

Taylor also listed new duties ofmanagement:

The Development of a true science

The Scientific selection, education and

development of workmen

Friendly close co-operation betweenmanagement and workers


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Administrative Management

Henry Fayol aimed at developing ascience of administration formanagement

He believed managers, at higher

levels, are less dependent on

technical knowledge and more on aknowledge of administration


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Fayols 14 principles ofmanagement:1.

2.Division of Labor

3.Authority

4.Discipline

5.Unity of command

6.Unity of direction

7.Subordination of Individual Interest togeneral interest

8.Remuneration or Salary and wages


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Fayols 14 principles ofmanagement Contd:

8. Centralization9. Scalar Chain10. Order11. Equity12. Stability of tenure of personnel13. Initiative14. Esprit de corps


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What are the Basic Seven Toolsof Quality?

Fishbone Diagrams/Cause & EffectDiagrams

Histograms

Pareto Analysis

Flowcharts

Scatter Plots

Run Charts

Control Charts


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The Basic Seven (B7) Tools ofQuality

Fishbone Diagrams

No statistics involved

Maps out a process/problem

Makes improvement easier

Looks like a Fish Skeleton

Constructing a Fishbone


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Constructing a FishboneDiagram

Step 1 - Identify the Problem

Step 2 - Draw spine and bones

Example: High Inventory Shrinkage at local Drug Store

S h rin ka ge


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Step 3 - Identify different areas whereproblems may arise from

Ex. : High Inventory Shrinkage at local Drug Store

S h rin ka ge

e m p loy e es

sh o p lifte rs


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Step 4 - Identify what these specific causescould be


Shrinkage

shoplifters

-Anti theft tags poorlydesignedExpensive merchandise

out in the open

/No securitysurveillance

Constructing a Fishbone


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Co s uc g a s bo eDiagram


Shrinkage

shoplifters

-Anti thefttags poorly designedExpensive merchandise out in the

open

/No security surveillance

employeesattitude

newtrainee

training

benefits practices

tep 5 Use the finished diagram to brainstorm solutions.o the main problems


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Histograms Bar chart

Used to graphically represent groups ofdata

From a set of data compute sum

mean (x) Max

Min

Range (max-min)


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Constructing a Histogram

Use range to estimate beginning andend

Calculate the width of each column

by dividing the range by thenumber of columns

R a n g e

# of Columns

= Width


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Example

Lets say the owner wants adistribution of Acmes ThursdayNight Sales

Data Set from last Thursday(slices) 0 2 1 2 2 4 1 3 1 2 1 2 2 4 3 4 1 4 3 2 2 3 2 1 2 2 1 2 2 1 4 2 2 1

2 1 2 2 1 2 1 2 1 2 1 2 1 2 1 2 2 2 1 2 1 2 1 1 2 2 2 3 1 4 2 2 3 22 2 1 2 3 2 2 4 2 2 4 4 1 2 2 2 3 2 2 1 2 2 4 2 1 2 4 2 1 7 2 1 2 23 1 2 1 1 2 1 2 2 2 1 2 2 1 2 1 2 2 2 4 2 4


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Example

Mean = 2.032258Max = 7Min = 0Range = 7

Question

For 7 columns what would the width be?

/ = / =R an ge C olum n s 7 7 1 slice


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Example

33

65

812

0 0 1

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7

S lice s o f Pizza

#

t

im

es

o

rd

er

ed

H isto g ra m


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Constructing a Histogram

How is this helpful to Acme?

2 slices of pizza most common orderplaced

Distribution of sales useful forforecasting next Thursdays late nightdemand

If you were an Acme manager howcould you apply this information?


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Pareto Analysis

Very similar to Histograms

Use of the 80/20 rule

Use of percentages to show importance


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(part 2)

Slices Frequency %

0 1 .3

1 33 13.09

2 65 25.79 3 8 3.17

4 12 4.76

5 0 0

6 0 0

7 1 .3


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(part 2)

The completed Pareto Analysis results in the followinggraph:

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7

S lice s o f Pizza

#

t

im

es

o

rd

er

ed

2 1 4 3 7 5 6

h i ( ) l f


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Flowcharts

A graphical picture of a PROCESS

ProcessD e cisio n

Th e p rocessflo w


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Flowcharts

Dont Forget to:

Define symbols before beginning

Stay consistent

Check that process is accurate

E l (Fl h )


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Example (Flowchart)

Window Take Customer Money? (start) Order

Get Pizza

Lockup Put More in Oven 2 Pies

Available?

Time to close? Take to Customer

no

yes

no

yesno

yes

Th B i S (B7) T l f


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Scatter Plots

2 Dimensional X/Y plots

Used to show relationshipbetween independent(x) anddependent(y) variables

(S tt Di )


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(Scatter Diagram)

Minutes Cooking Defective Pies

10 1

45 8

30 5

75 20

60 14

20 4

25 6

In this simple example, you can find the existingrelationship without much difficulty but


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Scatter Diagrams

0

5

10

15

20

25

0 20 40 60 80

Easier to seedirect

relationship

Time Cooking( )minutes

D

ef

ec

ti

ve

Pi

zz

as


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Scatter Diagrams

As a quality tool

What does this tell Acmemanagement about their

processes? Improvements?

0

5

10

15

20

25

0 20 40 60 80

( )Time Cooking minutes

De

fec

ti

ve

Pi

zz

as

Th B i S (B7) T l f


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Run chartsTime-based (x-axis)

Cyclical

Look for patterns


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Run Charts

8 9 1 0 1 1 1 2 12 3 4

8 9 1 0 1 1 1 2 12 3 4

8 9 1 0 1 1 1 2 12 3 4-PM AM -PM AM -PM AM

Thursday

Week 1

Thursday

Week 2

Thursday

Week 3

5

10

15

20

2

5

30

35

40

45

50

55

6

0

65

70

75

80

85

90

9

5

100

/Slices hour

Time

Th B i S (B7) T l f


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Control Charts Deviation from Mean

Upper and Lower Specs

Range


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Control ChartsUpper Limit

Lower Limit

U n acce p table d e via tio n

X


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Control Charts

Management wants to get in on the control chart action

=Average Diameter 16 inches

=Upper Limit 17 inches

=Lower Limit 15 inches

example Control Charts


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example Control Charts

Upper Limit

17 inches

Lower Limit15 Inches

S m a ll Pie

X16=inches


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Work Study


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Work Study

generic term for management services andsystem engineering techniques, used toinvestigate methods of performing work (method study)

and improve its efficiency and economy

the time taken to do it (work measurement)with a view to rationalization, routinisation,utilisation, cost and incentive improvement

the worker-work system-technologyrelationship: how this is best designed

and improved (ergonomics and thehuman-machine-information interfaces)

A work study curriculum 1


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A work study curriculum - 1

historical development & commitments ofWork Study

basic concepts, objectives and procedures Method Study approaches and tools of

Method Analyst Flow Diagrams & Process Charts etc Critical questioning techniques

Work Measurement and calculating timesfor Jobs Defining job elements & calculating

performance rating and standard/basic times Determining allowances: fatigue, unavoidable & avoidable delays,

extra allowances

various incentive plans

A work study curriculum 2


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A work study curriculum - 2

examining worker-machine relationships workload & line balancing & staff/machine inefficiencies material handling, human controls, tools and devices Workstation layout & design (EU work-station directive) Occupation Health & Safety:signals, reaction times, eyes,

backs, RSI safety criteria, preventing accidents

Ergonomics & human-machine-environment interfaces use of visual displays for dynamic information Designing for: lighting systems, industrial noise, thermal

controls, vibration etc

Systems analysis the human-machineinformation system data capture and processing design of the user interface

Business process re-engineering (BPR)

System relationships


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System relationshipsProcessanalysis

ethodstudy Plantlayout

Incentiverewards

Timestudy

Jobs

orkbreakdown

standadtimes

ngineer workflows&esign work stationnformation arrangements

e o s, mes ansystems for performance


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systems for performance

improve methods - get itright:

Method study

O & M & Ergonomics

Industrial & systemsengineering

define & maintain workstandards

incentive schemes e.g. piecework & measured day work

human-computer interface &systems analysis & design

rationalisation, automation &substitution of machinetechnologies for people

-raverman and de skilling inhe labour process

Method study


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Method study

Select job/process to be examined &

observe current performance high process cost, bottlenecks,tortuous route, low productivity,erratic quality

Record & document facts activities performed operators involved - how etc

equipment and tools used materials processed or moved

apply critical examination -challenge job components &necessity (purpose, place,sequence, method).

develop alternative methods &present proposals

document as base for new worksystem

Install, monitor (slippage) & maintain

ASME Symbols & Process Charting


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Operation

Move

Delay

Store

/nspectprocess

Decision

Traditional O&M critical


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examination questions

Purpose What, Why, What else might &

Should be done ?

Place Where, Why, Where else &

Where should it be done ?

Sequence When, Why then, When else

could & When should ?

People Who, Why, Who else might &

should do it? Method

How, Why, How else could,How else should

a sound reason for everyactivity

no assumptions so doublecheck

,quality safety and healthmust not compromised

a sound reason for everyactivity

no assumptions so doublecheck

,quality safety and healthmust not compromised

Other types of process


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Other types of processmodelling multiple activity charts

string diagrams

3-dimensional models

recording methods - video,etc computer-based modeling

Measuring Work


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Measuring Work

Whydefine/measurework? standard, reliable

methods

control performance &quality

obtain predictability defined labour costs &

performance set pay rates & provide

data for effort-reward

relationship Why set standard

times assumptions about

competent, motivatedworkers

be clear about" "

Toyota Avensis 10000 mileservice

MOT testing &Service times queue

managementBanks

-Airline check in Call centres - &Out sourcing service

level agreements - Work load balancing Work related bonuses

Toyota Avensis 10000 mileservice

MOT testing &Service times queue

managementBanks

-Airline check in Call centres - &Out sourcing service

level agreements - Work load balancing Work related bonuses

Work Measurement


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Work Measurement

techniques to establish the time for a qualified,motivated worker to carry out a task at adefined rate of working.

time Study: establish standard times - management knowledge

rate operator performance - criteria for appraisal

gather information to calculate productioncapabilities & data for capacity planning.

define/cost work content of finished goods andservices e.g. for charging & estimating

A Time Study


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A Time Study

select job & identify the work tasks

check the method - is it efficient/agreed?

start a Time Study sheet & break work task into "units"

several times with a stop watch & for a sample of workers,time measure completion times for each unit of work in the job sequence

average for each worker determine & apply worker effort rating for each worker (BSI

scale) Apply fatigue, personal & other allowances

From the observation data (worker average times) calculatestandard time for the task

Assumes: set sequence, routine work cycle (all workers),little discretion, 100% effort rating - trained/qualified,motivated/committed, working at normal pace & notfatigued

Fix standard time and enter into measured workmanual/database

Example standard time


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Example standard timecalculation

Element Basic time Relaxation % Effort % Standard time

1 2.50 +10% 110% 3.03

2 4.80 + 5% 110% 5.81

3 3.60 + 15% 110% 4.55

Standard time Total 13.39 minutes

Incentive Schemes


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Incentive Schemes

What are incentives? Effort-reward

relationships Economic orientation

& motivation Time rates of pay &assumptions/requirements

Piecework Measured day work Group Schemes

Incentive schemeproblems

Criticism andprevalence

co st sav in g s ? econ om y o f op eration ? e a sily u n d e rsto o d ? m a in ta in safe ty sta n d a rd s ?

e q u ita b le to a ll? co n tro la n d im p ro ve

&effe ctive n e ss sta n d a rd s ? c o m m o n g o a l ?

co st sav in g s ? econ om y o f op eration ? e a sily u n d e rsto o d ? m a in ta in sa fe ty sta n d a rd s ? e q u ita b le to a ll ? co n tro l a n d im p ro ve

&e ffe ctive n e ss sta n d a rd s ? c o m m o n g o a l ?

Process Analysis and BPR


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Process Analysis and BPR

Management services & business process re-engineering

how work is done & data for planning, staffing & controlfunctions.

applied across a wide range of industrial/commercialactivity: manufacturing, office, service industries,facilities layout, materials handling, logistics, IT and IS

Identify process components & interrelationships (inputs,processes/transformations, rules, outputs, interfaces

break down the process into its logical sub processes (workbreakdown structure)

map using process flow charts etc

describe the business process & jobs at sub process levels document for: capacity planning, quality (zero defects &

process orientation, inspection), operator intervention,safety, accounting/cost, planned maintenance, JITpurposes

FROM WORK STUDY TO


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SYSTEMS ANALYSIS AND

DESIGN

Informationmodelling Analysis

& designSocio-tech

Humanactivity

Keepin mind

Our focus

Analysis, Design, Build Projects


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Implement -Fine tuneConversionTraining

-Cut over

&uild testdatabasesprogramsHCI

Hardware

DesigndatabasesprogramsHCI

Hardwaresecurity

DesignSpecification

Business ituation&InformatioProcessingRequirementFeasibility

Technological Financial Organisational

Analysis data flows -d structuresevents

,SOs TSOsRequirements

ew system Add modules Review

performance .Devel Team

dispersedMaintenance

cceptontinuity contracts

/ontribution VfM?

Prototyping

System Development Costs


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System Development Costs

Modelling the Information


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Modelling the InformationSystem

ur 'model' of the information system

Input- triggersactivities

Requirements information processing

functions

data to store

Outputto activities

which use the

processedinformation

ataitems

Data Flow Modelling (DFDs)


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Data Flow Modelling (DFDs)

Data flows across the system boundary &within the system

Processes (functions that process data) Data stores

Sources/sinks (external entities) Functional decomposition (levels &

modularisation) Do not show

Time (when things happen & sequence) Decisions (see process specification)

System boundary Diagrams - better than narrative CASE tools to draw and record details

roduction Planningroduction Planning


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Production Planning 112

Aggregate planning

Definition Choosing production rates, work force levels,

and inventory levels

Horizon 6-18 months into future

Prerequisites Forecasting Company policies on

Max./min. inventories Hiring/firing Overtime

Policy considerations in aggregatel i


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113

planning

Flexibility Are work force and inventories

maintained at a level sufficient to meetunexpected demand?

Work force stability

Improves quality, productivity, unionrelations

Production rate stability Makes materials planning easier, reduces

uncertainty in physical distribution

Policy considerations in aggregate


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114

Policy considerations in aggregateplanning (cont.)

Production capacity Will overtime reduce quality? When will

physical capacity (space, machinery,

equipment) become inadequate?

Customer service Have lead time and stock availability

goals been met?

Aggregate planning in services


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Aggregate planning in services

Definition Balancing service capacity with demand

Tactics Change operating hours

Change staffing Nbr. of workers Full vs. part-time

Modify type of service Influence demand

Advertising Pricing

Build more service outlets

Aggregate planning in services(cont )


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116

(cont.)

Evaluation

Waiting timeThroughput

Service time Nbr. of lost customers

Production Inventory System Information Flow

Material Flow


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Material Flow

Days for transit time

Days to process or to

handle and issue orders

25 Day De- 5 Day Delay 25 Day Delay 13 Day Delay

lay to sense to sense for Review for Review

needs, place needs, place and and

and transmit and transmit Transmission Transmission

orders M.O.s of orders of orders

Demand

Raw Factory Factory Distributor Retail Ultimate

Material Warehouse Inventory Inventory Customer

Vendor

50 Independent 500 Independent

Distributors Retailers

35 4 2 130

110

5 1

#

#

Company SystemUnder

Managerial Control .ynam xls

Response of inventories


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We

eks

7500

5000

2500

10,000

0

10

7.5

5

2.5

0

Retail inventory (units)

-4%

+45% Factory production output (units/week)

Distributor inventory (units)

+10%

+32% +12%

Retail sales RRR

(units/week)-10%

-15% -3%

Factory warehouse inventory

(units)

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun J

The role ofhierarchical productionplanning in modern corporations:


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planning in modern corporations:An MRP-based push framework(borrowed from Heizer and Render)

Production Planning throughTime-based Decomposition


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Aggregate Planning

Master Production Scheduling

Materials Requirement Planning

Aggregate UnitDemand

( )End Item SKUDemand

Corporate Strategy

Capacity and Aggregate Production Plans

-SKU level Production Plans

Manufacturingand Procurement

lead timesComponent Production lots and due dates

Part processplans

( . .: - , : )lan Hor 2 years Time Unit 1 month

( . .: , : )lan Hor a few months Time Unit 1 week

( . .: , : )lan Hor a few months Time Unit 1 week

-Shop floor level Production Control

( . .: , : - )lan Hor a day or a shift Time Unit real time

-(borrowed from Hopp & Spearman)


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Functional Specification(Requirements Inception)


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(Requirements Inception)

Minimum necessary documentation to beginformal design and implementation

Forms common denominator for all stakeholders

Formal design in UML (Elaboration) Implementation and testing (Construction) System deployment (Transition) Homework 6 & 7 Functional Specification

Homework 8 Function specification briefing Homework 9 Sprint 1

Typical Product Life Cycle


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yp y

ConceptDevelopment

RequirementsAnalysis

Design &Development

Production Operation &Maintenance

Phase Out &Disposal

Why? What? How? Execute!

Product Life Cycle


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Concept Development

Identify customer needs The consumer/user need is identified as a basic concept. It is later expanded to include features which are simply

desirable. Product Planning Function

Marketing analysis, feasibility study, advanced productplanning.

Product Research Function.

Basic research and applied research. Evolution from basic research to product design anddevelopment.

Product Requirements & Design Function. Design requirements, conceptual design, preliminary system

design, and detailed design. Prototyping, and transition from design to production.

Production and Construction. Production requirements, operational analysis, and manufacturing. Methods engineering, production control. Product Evaluation

Evaluation requirements, test preparation phases, formal testand evaluation.

Data collection, analysis, reporting, corrective action,retesting.

Product Operation & Maintenance Product is distributed to the consumer/user and in operational use.

Development Life Cycle Models


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p y

WATERFALLINCREMENTALPHASED

EVOLUTIONARYTRANSFORM

SPIRAL

Agile

ach life cycle phase is completed before.he next is started, ,fter requirements are established design .ode and test is done in overlapped stages

ultiple iterations are done throughout the.ife cycle

ystem evolves based on prototype versus an.stablished set of requirementsutomatic transformation of a formal.pecification into code

,epetition of cycles where each cycle( . . ,nvolves same or similar steps e g).rototyping On the final spiral the final.roduct is produced,crum or similar implementation rapidterations of .eatures on feature backlog

Spiral Model


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umulative cost

isk analysis

OperationalPrototyperototype3rototype2

UnittestIntegratin andtest

CodeDetaileddesign

Riskanalysis

Determine ,bjectives ,lternatives andconstraints

rogress throughstepsisk analysis

CommitmentPartitionReview

valuate process;lternatives,dentify resolverocess risks

Implementation Formaltest

Softwareproductdesign

esign validationnd verification

Requirementvalidation

Softwarereqmtsoncept ofoperation

isk analysis

-evelopentplanntegration

nd testplan

etermine process,bject ,lternativesconstraints

,evelopVerify-ext levelrocess plans

valuate alternative,dentify resolve risk

,evelop Verify-ext Level Product

eqmts planife cycleplanP1

Figure based on the concept by Barry Boehm published inInformation Technology in Action, , .Prentice Hall 1993

Development Model Thoughts


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Development Model Thoughts

There is no magic model they arelargely the creation of academia

Many experienced software & systemsengineers create development life

cycles as needed In particular, rapidly evolving softwaretechnology leaves most standardmodels in the dust

Dont be afraid to experiment!

A Simplified Software


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pEngineering Process

oftware Engineering. . .nputs Environment

Technology Base Outputs from Prior

Phase

Program Decisions

RequirementsApplied Through

,RegulationsSpecifications and

Standards

Management Plan anage Risk AssessControl

TechnicalRequirements

DesignImplementationTesting

Outputs Baselined Set of

requirements

Final software design

Final software tests Well Defined Engineering

Process

&Final Code Executable

Outputs of SystemsEngineering Process

Sprint Product Life Cycle


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DailyScrum

Plan

Analyze/MapsRequirements

Analyze/MapsRequirements

Production

Product

Test &Document

Test &Document

ReleaseRelease

Sprint Product Life Cycle

WeeklyReview

Our Functional Spec


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HTML Functional Specification with links to artifacts (Folder) Project Description (word)

User Conops (how the user sees the product) System Conops (perspective of technology) Requirements Table (id, description, sprint no., date

complete) (Folder) UI Storyboard (your favorite graphics editor

or html) Screen Flow Diagrams (a -> b -> c Screen prototypes

(Folder) Business Processes (Argo UML) Activity Diagrams Class Diagrams Sequence Diagrams

(Folder) Feature Backlog (Excel) Prioritized List of features and requirements Sprint Plan Assign features to sprints Percent Complete

UNIT III


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Inventory Management

OVERVIEW


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Overview of Material Management Concept of Inventories Inventory control Inventory cost Inventory Techniques Inventory Models Deterministic Model

EOQ Supply chain mgt and Inventory control Just-In-Time Inventory

CONCEPT OF MATERIAL


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MANAGEMENT Material management is a scientific

technique, concerned with Planning,Organizing &Control of flow of materials,from their initial purchase to

destination.

AIM OF MATERIAL MANAGEMENT The Right quality Right quantity of supplies At the Right time At the Right place For the Right cost

SCOPE OF MATERIALS


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MANAGEMENT

What is Inventory?


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Inventory is the total amount of goodsand/or materials contained in a store orfactory at any given time.

Store owners need to know theprecise number of items on their shelvesand storage areas in order to placeorders or control losses. Factory

managers need to know how many unitsof their products are available forcustomer orders. Restaurants need toorder more food based on their current

supplies and menu needs

Why We Want to Hold


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Inventories Time - The time lags present in the supply chain,

from supplier to user at every stage, requiresthat you maintain certain amounts of inventoryto use in this "lead time.

Uncertainty - Inventories are maintained asbuffers to meet uncertainties in demand, supplyand movements of goods.

Economies of scale - Ideal condition of "one unitat a time at a place where a user needs it, whenhe needs it" principle tends to incur lots of costsin terms of logistics. So bulk buying, movement

and storing brings in economies of scale, thus

INVENTORY TYPESR t i l d h d t


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Raw materials and purchased components:These are raw - materials, parts and components

which enter into the product Direct during theproduction process and generally form part ofthe product.

In process inventory: Semi-finished parts, work-in-process and partly finished products formed atvarious stages of production.

Finished Products: Complete finished productsready for sale.

Maintenance, repair and tooling inventories:

Maintenance, repairs and operating supplieswhich are consumed during the productionprocess and generally do not form part of theproduct itself (e.g. Petroleum products likepetrol, kerosene, diesels, various oils and

lubricants machinery and plant spares tools

INVENTORY TYPES


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For example: A canned food manufacturer's

materials inventoryincludes theingredients to form the foods to be

canned, empty cans and their lids (orcoils of steel or aluminum forconstructing those components),labels, and anything else (solder, glue,

...) that will form part of a finishedcan. The firm's work in processincludes those materials from the timeof release to the work floor until they

become complete and ready for sale

Inventory


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Current trends in inventory management

Nature of Inventory


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Two Fundamental InventoDecisions

Terminology of Inventories

Inventory Costs Inventory Techniques

Inventory Models

Two Fundamental Inventoryi i


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Decisions

How much to order of each materialwhen orders are placed with eitheroutside suppliers or production

departments within organizations? When to place the orders?


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SPECIAL TERMS USED IN DEALING WITH

INVENTORY

Stock Keeping Unit (SKU) is a uniquecombination of all the components that areassembled into the purchasable item.

Therefore, any change in the packaging orproduct is a new SKU. This level of detailedspecification assists in managing inventory.

Stockout means running out of the inventory ofan SKU.

"New old stock" (sometimes abbreviatedNOS) is a term used in business to refer tomerchandise being offered for sale that wasmanufactured long ago but that has never beenused. Such merchandise may not be producedanymore, and the new old stock may represent

TYPOLOGY IN INVENTORY MANAGEMENT


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Buffer/safety stock- Buffer Stock is a stock held to reducethe negative effects (stock-out costs) of an unusuallylarge usage of stock.

Cycle stock-Used in batch processes, it is the available

inventory, excluding buffer stock De-coupling (Buffer stock that is held by both the supplier

and the user). Inventory decouples in different stages.It might be raw material, WIP, finished goods inventory.Ex: customer has inventory for 10 days for consumption.

For 10 days customer is decoupled from producer. So,decoupling inventory is the one which decouplescustomer and producer.

Anticipation stock-Building up extra stock for periods of

increased demand - e.g. ice cream for summer.

Contd


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ipeline stock (Goods stillin transit or in the process of-

distribution have left the factory but not arrived at the).customer yet ,It can be raw material work in progress or finished

: .goods inventory Ex Assume supplier is far away Consumption per, =day is 20 units 5 days for transportation 20X5 100 units are

.required for the period of transportation So if you keep 100.units in your stock it becomes your pipeline inventory

:ead Time Lead time is the period between a customer's order

. -and delivery of the final product A small order of a pre existing,item may only have a few hours lead time but a larger order of

- ,custom made parts may have a lead time of weeks months or even. ,longer It all depends on a number of factors from the time it

.takes to create the machinery to the speed of the delivery system

What is Inventory control?


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The simplest language, inventorycontrolmay be said to be a plannedmethod whereby investment in

inventories held in stock ismaintained in such a manner that itensures proper and smooth flow ofmaterials needed for productionoperations as 'well sales, while atthe same time, the total costs ofinvestment in inventories is kept at

OBJECTIVES OF INVENTORYCONTROL

To ensure adequate supply of products to customer and


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CONTROLTo ensure adequate supply of products to customer and

avoid shortages as far as possible.

To make sure that the financial investment in inventories isminimum (i.e., to see that the working capital is blockedto the minimum possible extent).

Efficient purchasing, storing, consumption and accountingfor materials is an important objective.

To maintain timely record of inventories of all the items andto maintain the stock within the desired limits.

To ensure timely action for replenishment.

To provide a reserve stock for variations in lead times ofdelivery of materials.

To provide a scientific base for both short-term and long-term planning of materials.

BENEFITS OF INVENTORYCONTROL


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CONTROL

Improvement in customers relationshipbecause of the timely delivery ofgoods and service.

Smooth and uninterrupted productionand, hence, no stock out.Efficient utilisation of working capital.

Helps in minimising loss due to

deterioration, obsolescence damageand pilferage.

Economy in purchasing.Eliminates the possibility of duplicate

Inventory


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Inventory Costs

Inventory Costs Cost Of Ordering/ Replenishment cost :


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Cost Of Ordering/ Replenishment cost : Every time an order is placed for stock replenishment,

certain costs are involved, and for most practical purposes,it can be assumed that the cost per order is constant. Theordering cost (Co) may vary, depending upon the type ofitems; raw material like steel against production componentslike casting. However, it is assumed that an estimate Co canbe obtained for a given range of items. This cost of ordering,

Co includes: Paper work costs, typing and despatching an order. Follow-up costs required to ensure timely supplies

includes the travel cost for purchase follow-up,telephone, telex and postal bills.

Costs involved in receiving the order, inspection,checking and handling in the stores.

Any set up cost of machines if charged by thesupplier, either directly indicated in quotations orassessed through quotations for various quantities.

The salaries and wages to the purchase department.

Inventory Costs (continued) Holding\Inventory Carrying cost:


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Holding\Inventory Carrying cost: This cost is measured as a percentage of the unit cost of

the item. This measure, gives a basis for estimating what itactually costs a firm to carry stock. This cost includes:

interest on capital. insurance and tax charges. storage costs any labour, the costs of provisions

of storage area and facilities like bins, racks,etc.

allowance for deterioration or spoilage. salaries of stores staff. Obsolescence.

These charges increase as inventory levels rise. Tominimize carrying costs, management makes frequentorders of small quantities. Holding costs are commonlyassessed as a percentage of unit value, rather thanattempting to derive monetary value for each of these costs

Inventory Costs (continued)


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Ordering costs: Ordering costs have to do with

placing orders, receiving and storage.Transportation and invoice processing

are also included. Lowering these costswould be accomplished by placing smallnumber of orders, each for a largequantity. Unlike carrying costs, ordering

expenses are generally expressed as amonetary value per order. If the businessis in manufacturing, then to productionsetup costs are considered instead.

Inventory Costs (continued)


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Stock-out costs: Stockout or shortfall costs(Ks) represent lost sales

due to lack of supply for consumers. How these costs arecalculated can be a matter of contention between salesand logistics managers. Sales departments prefer these

numbers be kept low so that an ample stock will alwaysbe kept. Logistics managers prefer to err on the side ofcaution to reduce warehousing costs. They include salesthat are lost, both short and long term, when a desireditem is not available; the costs associated with backordering the missing item; or expenses related to

stopping the production line because a component parthas not arrived. These charges are probably the mostdifficult to compute, but arguably the most importantbecause they represent the costs incurred by customerswhen an inventory policy falters.

INVENTORY CONTROLTECHNIQUES


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TECHNIQUES

vABC Analysis - based on annualconsumption.

vVED Analysis - criticality forproduction.

vSDE Analysis - availability.vGOLF analysis-based on suppliersvHML Analysis - weight / cost permit.

vFSN Analysis - consumption rate.vSOS Analysis-based on seasonalityvXYZ Analysis-Left out stock value

vTwo Bin S stem

ABC ANALYSIS


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ABC is said to connote Always BetterControl.

ABC analysis is the analysis of thestore items cost criteria.

Of the various techniques, ABCclassification is the most importanttechnique.

It will be seen that first 10% of itemsapproximately account for 70%, thenext 20% for 20% of value and thelast 70% account for 10% of value.

ABC ANALYSIS Contd


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A- Items B- Items C- Items

Tight controls Moderate control Ordinary control measure

Rigid estimates of requirements Purchase based on rigidrequirements

Purchase based on usage estimates

Strict and close watch

( monitoring)

Reasonably strict watch and

control

Controls exercises by store keeper.

Safety stocks should be low Safety stocks moderate Safety stocks high

Management of items should bedone at top management level.

Management be done at middlelevel

Management be done at lowerlevels.

ABC ANALYSIS Contd


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ABC ANALYSIS Contd


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Class Number of items Rupee value in items

A 10% of total items 70%

B 20% of total items 20%

C 70% of total items 10%

ABC ANALYSIS Contd


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Steps in computing A-B-C analysis: procedure of A-B-Canalysis

First we are trying to prepare a list of items and calculate theirannual usage in rupees. This can be obtained by multiplyingthe quantity ( number of units) of the item consumed in oneyear by its unit price.

Arranging all these items in the descending order of theirindividual dosage in rupees. That means the first item in thelist will now show the maximum annual usage in rupees, thesecond item the second maximum, the third item the thirdmaximum and so on. After having done this the total ofannual usage in rupees is put at the bottom of the list.

Those items which together form about 70% of the totalannual usage may be total annual usage may becategorized as A items. Similarly. Items which contribute thenext 20 to 25 % of the aggregate are listed as B items. Therest which contributes 5 to 10% of the total percentage ofannual usage are called C items.

Placing of the orders on the basis of this classification.

VED ANALYSIS


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VED analysis is done to control a critical inventorysituation. Through this analysis, we identify the criticality ofproduction situation and accordingly plan for the inventory.Materials are classified into the three types as under:

V-Vital: items without which production will completelystop. i.e. non- availability can not be tolerated. Eg. Dueto the absence of bearing, rolling machine cannotoperate. Airlines industry is bound to keep stand-byengines as its absence; at times, the industry mayrequire flight cancellation, which costs to the industry anenormous revenue loss.

E-Essential: items whose cost of non availability can betolerated for 2-3 days, because similar or alternative

items are available. For example, some paper mills,bamboo is an important raw material. Availability ofbamboo from the forests, at times, becomes uncertainbecause of number of reasons due to climate, naturalcalamities etc.,

Desirable:items whose non availability can be toleratedfor a long period.

SDE ANALYSIS


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This analysis is based spares availability of an item S-Scarce Items D-Difficult Items E-Easy Items

S - refers to Scarce Items, especially imported and those whichare very much in short supply. Due to their nature, these itemsare procured on yearly interval.

D - are Difficult items which are procurable in market but noteasily available. For example, items which have to come fromfar off cities or where there is not much competition in marketor where good quality supplies are difficult to get or to be

procured.

E - refers to Easy items Items are those which are easilyavailable; mostly local items. Due to their easy availability,organizations may not require to hold these items in largevolume in their stock.

GOLF ANALYSIS


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It is similar to SDE analysis, and it is based on thenature of market and suppliers. Suppliers or Vendors areclassified as under:

G-Government

O-Ordinary or Non-government

L-Local

F-Foreign

All these suppliers have their own payment terms, ownadministrative procedure and soon. For a materialsManager, therefore, it is important to keep in mind allthese issues to function efficiently and smoothly.

HML ANALYSIS


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The cost per item (per piece) is considered forthis analysis.

High cost items (H),

Medium Cost items (M) and Low Cost item (L) help in bringing controls

over consumption at the departmental level.

FSN ANALYSIS


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This analysis is to help control obsolescence and isbased on the consumption pattern of the items. Theitems are analyzed to be classified as

Fast-moving (F), Slow-moving (S) and

Non-moving (N) items.

The Non-moving items (usually not consumed over aperiod of two years) are of great importance. Scrutiny ofnon-moving items is to be made to determine whether

they could be used or be disposed off. The fast and slow-moving classifications help in arrangement of stock instores and their distribution and handling methods.

SOS ANALYSIS SOS Analysis is done, keeping in view the seasonality or

lit f th it


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non-seasonality of the item.

S- Seasonal Items OS non-seasonal Items

Depends on seasonality and non-seasonality of the items,

procurement actions vary. Example: in case of sugar mills whose

procurement is seasonal, these companies need to procure theirrequirement for a longer duration so as to adjust their

production plans. Green tea leaves are available for a longer

duration from February to October. Non-seasonal items are

available throughout the year without any major price variation.

Since seasonal items, which are available for a limited period,

are procured in bulk to manage the production process

throughout the year.

XYZ ANALYSIS


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This analysis is made based on the value ofleft out stock in the stores.

X items are those whose value of left outstock is very high.

Y items are those whose left-out stock valueis moderate.

Z items are the residual items, whose left-outstock value are neither high nor moderate.

Materials managers, based on such analysis,can plan not only for procurement but alsofor secured storage of items.

THE TWO-BIN SYSTEM


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One of the earliest systems of stock control is two-bin

system, which is a simple method of control exercised by

two simple rules. One is when the order should be placed,

and the other is what quantity should be covered. The

following diagram shows this simple method. The bins

contain, say, mild-steel bolts and nuts. The bolts and nuts

are issued from the first bin as and when required, and as

soon as the first bin is empty, more bolts and nuts are

ordered. The replenishment arrives just when the second bin

is empty. While delivery is awaited, the nuts and bolts from

the second bin are issued. When the delivery arrives, then

both the bins are again filled in.

THE TWO-BIN SYSTEM Contd


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INVENTORY MODELS


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Deterministic models [Known

Demand]

Probabilistic models [Unknown

Demand]

What is Deterministic andProbabilistic inventory control?


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Probabilistic inventory control?

vDeterministic optimization modelspresume the state of affairs to bedeterministic and consequently renderthe numerical model to optimize onsystem arguments. Since it conceivesthe system to be deterministic, itautomatically means that one has fullinformation about the system.

vProbabilistic situation is also known as a

situation of uncertainty. Although thisis present everywhere, the vaguenessalways makes us comfortless. Sopeople keep attempting to lessenuncertainty.

Determining Order Quantities


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Basic EOQ EOQ for Production Lots

EOQ with Quantity Discounts

Model I: Basic EOQ


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Underlying assumptions of the EOQ modelv Demand is known and is deterministic, ie. constant.

v The lead time, ie. the time between the placement of theorder and the receipt of the order is known and constant.

v The receipt of inventory is instantaneous. In other words

the inventory from an order arrives in one batch at onepoint in time.

v Quantity discounts are not possible, in other words it doesnot make any difference how much we order, the price ofthe product will still be the same. (for the Basic EOQ-

Model)v That the only costs pertinent to the inventory model are the

cost of placing an order and the cost of holding or storinginventory over time

. . . more


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Purchase cost:This is the variable cost of goods,indicated by per unit purchase price annualdemand quantity. This is indicated asPD

Ordering cost: This is the cost of placing orders, eachorder has a fixed cost S, and we need to order D/Q

times per year. Where Order Cost = The Number of Orders Placed in

the period x Order Costs. This is indicated as S D/Q

Holding cost: the average quantity in stock (betweenfully replenished and empty) is Q/2. and Holding

cost/Carrying Cost = Average Inventory Level xthe Carrying Costs of 1 unit of Stock for oneperiodso this cost is H Q/2

Model I: Basic EOQ


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CDS/2=EOQ

The order quantity where the TSC is

at a minimum (EOQ) can be foundusing calculus (take the firstderivative, set it equal to zero andsolve for Q)

Balancing Carrying againstOrdering CostsAnn al Cost ($)Annual Cost ($)


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Ordering CostsAnnual Cost ($)Annual Cost ($)

Order QuantityOrder Quantity

MinimumMinimum

Total AnnualTotal Annual

Stocking CostsStocking Costs

AnnualAnnualCarrying CostsCarrying Costs

AnnualAnnual

Ordering CostsOrdering Costs

Total AnnualTotal AnnualStocking CostsStocking Costs

SmallerSmaller LargerLarger

Lower

Lo

wer

High

er

High

er

EOQEOQ

Example: Basic EOQ


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Zartex Co. produces fertilizer to sellto wholesalers. One raw material calcium nitrate is purchased from anearby supplier at $22.50 per ton.

Zartex estimates it will need 5,750,000tons of calcium nitrate next year. The annual carrying cost for this

material is 40% of the acquisition cost,

and the ordering cost is $595. a) What is the most economical orderquantity?

b) How many orders will be placedper year?

Example: Basic EOQ


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Economical Order Quantity (EOQ)

D = 5,750,000 tons/year C = .40(22.50) = $9.00/ton/year S = $595/order

= 27,573.135 tons perorder

EOQ = 2DS/C

EOQ = 2(5,750,000)(595)/9.00

Example: Basic EOQ


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Total Annual Stocking Cost (TSC)

TSC = (Q/2)C + (D/Q)S = (27,573.135/2)(9.00) + (5,750,000/27,573.135)

(595) = 124,079.11 + 124,079.11 = $248,158.22

Note: Total Carrying CostNote: Total Carrying Cost

equals Total Ordering Costequals Total Ordering Cost

Example: Basic EOQ


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Number of Orders Per Year = D/Q = 5,750,000/27,573.135

= 208.5 orders/year

Time Between Orders = Q/D

= 1/208.5 = .004796 years/order = .004796(365 days/year) = 1.75

days/order

Note: This is the inverseNote: This is the inverse

of the formula above.of the formula above.

Model II: EOQ for ProductionLots


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Lots

Used to determine the order size,production lot, if an item isproduced at one stage ofproduction, stored in inventory, andthen sent to the next stage or thecustomer

Differs from Model I because orders

are assumed to be supplied orproduced at a uniform rate (p) raterather than the order beingreceived all at once

Model II: EOQ for Production Lots

It is also assumed that the supply rate


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It is also assumed that the supply rate,

p, is greater than the demand rate, d The change in maximum inventory level

requires modification of the TSC

equation TSC = (Q/2)[(p-d)/p]C + (D/Q)S

The optimization results in

dp

p

C

DS2

=EOQ

Example: EOQ for ProductionLots


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Lots Highland Electric Co. buys coal from

Cedar Creek Coal Co. to generateelectricity. CCCC can supply coal at therate of 3,500 tons per day for $10.50 perton. HEC uses the coal at a rate of 800tons per day and operates 365 days peryear.

HECs annual carrying cost for coalis 20% of the acquisition cost, and the

ordering cost is $5,000. a) What is the economical productionlot size?

b) What is HECs maximum inventorylevel for coal?



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Lots

Economical Production Lot Size

d = 800 tons/day; D = 365(800) =292,000 tons/year

p = 3,500 tons/day S = $5,000/order C = .20(10.50)

= $2.10/ton/year

= 42,455.5 tons per order

EOQ = (2DS/C)[p/(p-d)]

EOQ = 2(292,000)(5,000)/2.10[3,500/(3,500-800)]



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Lots

Total Annual Stocking Cost (TSC)

TSC = (Q/2)((p-d)/p)C + (D/Q)S = (42,455.5/2)((3,500-

800)/3,500)(2.10) + (292,000/42,455.5)(5,000) = 34,388.95 + 34,388.95 = $68,777.90

Note: Total Carrying CostNote: Total Carrying Cost

equals Total Ordering Costequals Total Ordering Cost



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Lots

Maximum Inventory Level

= Q(p-d)/p = 42,455.5(3,500 800)/3,500 = 42,455.5(.771429) = 32,751.4 tons

Note: HEC will use 23%Note: HEC will use 23%

of the production lot by theof the production lot by the

time it receives the full lot.time it receives the full lot.

Model III: EOQ with QuantityDiscounts


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Under quantity discounts, a supplieroffers a lower unit price if largerquantities are ordered at one time

This is presented as a price or discount

schedule, i.e., a certain unit price overa certain order quantity range This means this model differs from

Model I because the acquisition cost(ac) may vary with the quantity

ordered, i.e., it is not necessarilyconstant . . . more



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Under this condition, acquisition costbecomes an incremental cost andmust be considered in thedetermination of the EOQ

The total annual material costs (TMC)= Total annual stocking costs (TSC)+ annual acquisition cost

TSC = (Q/2)C + (D/Q)S + (D)ac

. . . more



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To find the EOQ, the followingprocedure is used:

1. Compute the EOQ using the lowest

acquisition cost. If the resulting EOQ is feasible (the

quantity can be purchased at theacquisition cost used), this quantity is

optimal and you are finished. If the resulting EOQ is not feasible, goto Step 2

2. Identify the next higher acquisition

t



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3. Compute the EOQ using theacquisition cost from Step 2.

If the resulting EOQ is feasible, go toStep 4.

Otherwise, go to Step 2.4. Compute the TMC for the feasibleEOQ (just found in Step 3) and itscorresponding acquisition cost.

5. Compute the TMC for each of thelower acquisition costs using theminimum allowed order quantity foreach cost.

6. The quantity with the lowest TMC is

Example: EOQ with QuantityDiscounts


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A-1 Auto Parts has aregional tire warehouse in Atlanta. Onepopular tire, the XRX75, has estimateddemand of 25,000 next year. It costs A-1$100 to place an order for the tires, andthe annual carrying cost is 30% of theacquisition cost. The supplier quotesthese prices for the tire:

Q ac

1 499 $21.60 500 999 20.95 1,000 + 20.90



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Economical Order Quantity

This quantity is not feasible, so tryac = $20.95

This quantity is feasible, so there isno reason to try ac = $21.60

i iEOQ = 2DS/C

3EOQ = 2(25,000)100/(.3(20.90) = 893.00

2EOQ = 2(25,000)100/(.3(20.95) = 891.93



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Compare Total Annual Material Costs(TMCs)

TMC = (Q/2)C + (D/Q)S + (D)ac

Compute TMC for Q = 891.93 and ac= $20.95

TMC2 = (891.93/2)(.3)(20.95) +

(25,000/891.93)100 + (25,000)20.95 = 2,802.89 + 2,802.91 +

523,750

529 355 80



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Compute TMC for Q = 1,000 and ac =$20.90

TMC3 = (1,000/2)(.3)(20.90) +

(25,000/1,000)100 + (25,000)20.90 = 3,135.00 + 2,500.00 +

522,500 = $528,135.00 (lower thanTMC2)

PROBABLISTIC MODELASSUMPTIONS


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Demand is NOT deterministic butprobability distribution is known

Lead time MIGHT NOT BE

deterministic Shortages MAY OCCUR

All ordered units arrive at once

Purchasing cost is independent of theorder quantity

SUPPLY CHAIN MANAGEMENTN AND INVENTORY

CONTROL


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Supply chain management (SCM)is the management of a network ofinterconnected businesses involvedin the ultimate provision of productand service packages required byend customers. Supply chainmanagement spans all movement

and storage of raw materials, work-in-process inventory, and finishedgoods from point of origin to pointof consumption .

JUST-IN-TIME INVENTORY


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JIT, or just in time, inventory is an inventorymanagement strategy that is aimed atmonitoring the inventory process in such amanner as to minimize the costs associatedwith inventory control and maintenance. To agreat degree, a just-in-time inventoryprocess relies on the efficient monitoring ofthe usage of materials in the production ofgoods and ordering replacement goods that

arrive shortly before they are needed. Thissimple strategy helps to prevent incurringthe costs associated with carrying largeinventories of raw materials at any givenpoint in time.

UNIT IV


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Quality Management

PresentationImplementationMonitoring

Solutionroblem results roblemAnalysisause andeffectat a ollectionn d a na ly si s

roblemIdentificationis talternativesConsensusBrainstorming

Trainingroupprocessesatacollectionroblemanalysis

Organization-1 0 me mber same area/upervisor moderator

uality Management


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Meaning of Quality

Websters Dictionary

degree of excellence of a thing American Society for Quality totality of features and

characteristics that satisfyneeds

Quality is the totality of featuresand characteristics

Meaning of Quality:Consumers Perspective


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Fitness for use how well product or

service does whatit is supposed to

Quality of design designing quality

characteristicsinto a product orservice

A Mercedes and a Ford areequally fit for use, butwith different designdimensions

Dimensions of Quality:Manufactured Products


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Performance basic operating characteristics of a

product; how well a car is handled orits gas mileage

Features extra items added to basic features,

such as a stereo CD or a leatherinterior in a car

Reliability probability that a product will operateproperly within an expected timeframe; that is, a TV will work withoutrepair for about seven years

Dimensions of Quality:Manufactured Products (cont.)


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Conformance degree to which a product meets pre

established standards

Durability how long product lasts before replacement

Serviceability ease of getting repairs, speed of repairs,

courtesy and competence of repairperson

Dimensions of Quality:Manufactured Products (cont.)


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Aesthetics how a product looks, feels, sounds,

smells, or tastes

Safety assurance that customer will notsuffer injury or harm from aproduct; an especially importantconsideration for automobiles

Perceptions subjective perceptions based onbrand name, advertising, andthe like

Dimensions of Quality:Service


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Time and Timeliness How long must a customer wait for

service, and is it completed on time?

Is an overnight package deliveredovernight?

Completeness:

Is everything customer asked forprovided? Is a mail order from a catalogue

company complete when delivered?

Dimensions of Quality:Service (cont.)


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Courtesy: How are customers treated by

employees?

Are catalogue phone operators nice andare their voices pleasant?

Consistency Is the same level of service provided to

each customer each time? Is your newspaper delivered on timeevery morning?

Dimensions of Quality:Service (cont.)


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Accessibility and convenience How easy is it to obtain service? Does a service representative answer you calls

quickly?

Accuracy

Is the service performed right every time? Is your bank or credit card statement correct every

month?

Responsiveness How well does the company react to unusual

situations? How well is a telephone operator able to respond

to a customers questions?

Meaning of Quality:Producers Perspective


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Quality of Conformance Making sure a product or service is

produced according to design if new tires do not conform to

specifications, they wobble

if a hotel room is not clean when a

guest checks in, the hotel is notfunctioning according tospecifications of its design


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Meaning of Quality


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itness foronsumer Useitness foronsumer Use

roducer s Perspectiveroducer s Perspective onsumer s Perspectiveonsumer s Perspective

uality ofConformanceuality ofConformance onformance tospecificationsCost

uality of Designuality of Design uality characteristicsPrice Marketingarketingroductionroduction

eaning of Qualityeaning of Quality

Meaning of Control


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Control is a system For measuring and checking

(inspecting) a phenomenon.

Suggests when to inspect, how oftento inspect and how much to inspect.

It incorporates a feedbackmechanism which explores thecauses of poor quality and takescorrective action.

Quality Control


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Defined as the entire collection ofactivities which ensures that theoperation will produce the optimumQuality products at minimum cost.

It is a technique of management forachieving required standards ofproducts.

Definition:


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As per A.Y.Feigorbaum Total QualityControl is: An effective system forintegrating the qualitydevelopment, Quality maintenanceand Quality improvement efforts ofthe various groups in anorganization, so as to enable

production and services at the mosteconomical levels which allow fullcustomer satisfaction

Factors Affecting Quality


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Market Research i.e. demand ofpurchaser.

Money i.e. capability to invest.

Management i.e. Management policiesfor quality level.

Production methods and product design.

Objectives of QualityControl


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To decide about the standard ofquality of a product that is easilyacceptable to the customer and atthe same time this standard shouldbe economical to maintain.

To take different measures to improvethe standard of quality of product.

To take various steps to solve anykind of deviations in the quality ofthe product during manufacturing.

Statistical Quality Control(S.Q.C)


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S ta tistica lq u a lity co n tro lca n b e sim p ly&d e fin e d as a n eco n o m ic e ffe ctive

&syste m o f m a in ta in in g im p ro vin g th eq u a lity o f o u tp u ts th ro u g h o u t th e w h o le

,o p e ra tin g p ro ce ss o f sp e cifica tio n&p ro d u ctio n in sp e ctio n b a se d o nco n tin u o u s te stin g w ith ra n d o m

.sa m p le s

-:B y YA LU N


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Statistical quality control should be viewed as akit of tools which may influence decisions tothe functions of specification, production orinspection.

By-: EUGENE L. GRANT

CHARACTERISTICS OF S.Q.C.-:


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Designed to control quality standard of goods produced formarketing. Exercise by the producers during production to assess the

quality of goods.

Carried out with the help of certain statistical tools like Mean

Chart, Range Chart, P-Chart, C-Chart etc.

Designed to determine the variations in quality of the goods &limits of tolerance.

CAUSES OF VARIATIONS INQUALITY-:


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1. ASSIGNABLE CAUSES-: It refers to thosechanges in the quality of the products whichcan be assigned or attributed to any particularcauses like defective materials, defectivelabour, etc.

2. CHANCE CAUSES-: These causes take place asp

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