Prodn Mgt Intro

Production Management

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Production Management MEL – 421 Course Content and Evaluation Scheme

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Its all about decision making

A production manager needs to make major decisions at different stages of production and propose solutions.

Objectives: The major objective of this course is to understand and learn how to make decisions related to the production process.

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More specifically, the course would covert the following topics. Intro to Production Management Performance measures of a production system Quantitative decision-making Demand forecasting Product mix decisions Aggregate production planning Inventory control and MRP Shop-floor Scheduling Plant location and layout

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Evaluation Scheme

Minor 1 Minor 2 Practical 20% 20% 20%

Assignments 10%

Major 30%

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A Broad Definition Production Mgt is concerned with the efficient and effective transformation of inputs into "desired outputs".

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Efficient and effective To provide goods and services • • • • •

In the right quantities At the appropriate place At the desired time With the required quality At a reasonable cost

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Production Management Customer Orders

WORK

RESOURCES

People, Equipment, Money

TIME

Schedule 8

Production managers need to be able to translate strategic objectives into clear operational objectives and to design, implement and improve both the "products" themselves and the processes by which they are delivered. Customer Needs

Corporate Strategy

Operations Strategy

Production managers have to understand how changes to external factors impact on the operation and how changes in one part of the operating system impact on every other part.

Decisions on Processes and Infrastructure 9

The Big Picture Market

Forecasts Market

Capacity Building

Strategy Product Development

Sales Function Manufacturing Function

Purchasing

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The Big Picture Market

Forecasts Opportunities

Capacity Building Capacity and layouts

Market Strategy

Product Development

Cost, Quantity, Time

Design, Process, Cost BOM

Purchasing

Product Features, Cost Manufacturing Function Quality, Quantity, Cost, Schedule

Sales Function

Order Booking

Work and Time

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Markets are dynamic and to be able to cater to this, organizations need to build strengths in the following areas

Product / process expertise Quick delivery Short product development time Production flexibility Lean processes Facility location Product variety Quality and reliability

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Production Management

Production Systems

Product Development

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Production Systems

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Various Process Features

Structure: Flow shop, Job shop, Cellular, Project

Nature: Continuous, Batch, Discrete

Type: Low/High Volume and High/ Low Mix

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Flow Processes 1

2

3

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If all the products to be made by a production system require the same type of processing in the same sequence, It is efficient to structure the process according to the flow of the products or sequence of tasks. Nature of Flow processes Continuous – Steel Plants Batch – Printing, Clothing mfg Discrete – Assembly line

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Job Shop Process 1

1

1

1

1 1

1

1

Uses general purpose equipment produce a variety of jobs. When a wide variety of products are to be made by a production system, Process flexibility is essential. Each job can be routed through any machine as per the requirement of the processing sequence for each job. Example : Tool room 17

Cellular Process Cellular: This setup is used when it required to produce families or group of products that require similar processing steps.

An ideal cell manufactures a narrow range of highly similar products. Such an ideal cell is selfcontained with all necessary equipment and resources.

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Projects

This usually a long duration one-of-akind product delivery process.

Start

A

C

B D

E F Finish

It involves identifying major activities, breaking down in to smaller tasks. These tasks are then planned on a time scale and then executed monitored. Example: Construction projects, Large Transformer Mfg.

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Product - Process Matrix Low Volume, One of a Kind I. Job Shop II. Batch III. Discrete Flow IV. Continuous Flow

Few High Multiple Major Volume, Products, Products, High Low Higher StandardVolume Volume ization Flexibility (High) Unit Cost (High)

Heavy Equipment

Commercial Printer Automobile Assembly Sugar Refinery

Flexibility (Low) 20 Unit Cost (Low)

Production Management Involves making decisions related to products as well as processes and cost is one of the main considerations.

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Evaluating Process Alternatives

The cost of a production process will be influenced not only by the general production structure, but also by the designed capacity of the process and the technology used.

A simple analysis used to evaluate alternative processes and technologies is cross-over analysis.

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Fixed and Variable Costs Fixed Cost: The sum of all costs required to produce the first unit of a product. This amount does not vary as production increases or decreases, until new capital expenditures are needed. Eg. rental or cost of land, Initial Machinery cost, R&D cost, Warehouse, factory and office space Variable Unit Cost: Costs that vary directly with the production of one additional unit. Direct variable costs are those which can be directly attributable to the production of a particular product or service and allocated to a particular cost centre. Raw materials, Packaging, and the wages those working on the production line are good examples. Indirect variable costs cannot be directly attributable to production but they do vary with output. These include depreciation (where it is calculated related to output - e.g. machine hours), maintenance and certain labour costs. 23

Semi-Variable Costs Whilst the distinction between fixed and variable costs is a convenient way of categorizing business costs, in reality there are some costs which are fixed in nature but which increase when output reaches certain levels. These are largely related to the overall "scale" and/or complexity of the business. For example, when a business has relatively low levels of output or sales, it may not require costs associated with functions such as human resource management or a fully-resourced finance department. However, as the scale of the business grows (e.g. output, number people employed, number and complexity of transactions) then more resources are required. If production rises suddenly then some short-term increase in warehousing and/or transport may be required. In these circumstances, we say that part of the cost is variable and part fixed.

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Expected Unit Sales: Number of units of the product projected to be sold over a specific period of time. Unit Price: The amount of money charged to the customer for each unit of a product or service.

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Total Variable Cost: The product of expected unit sales and variable unit cost. (Expected Unit Sales * Variable Unit Cost ) Total Cost: The sum of the fixed cost and total variable cost for any given level of production. (Fixed Cost + Total Variable Cost ) Total Revenue: The product of expected unit sales and unit price. (Expected Unit Sales * Unit Price ) Profit (or Loss): The monetary gain (or loss) resulting from revenues after subtracting all associated costs. (Total Revenue - Total Costs)

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Break Even: Number of units that must be sold in order to produce a profit of zero ( but will recover all associated costs). (Break Even = Fixed Cost / (Unit Price - Variable Unit Cost)) Break Even / Cross-over Analysis Break even analysis depends on the following variables: The fixed production costs for a product. The variable production costs for a product. The product's unit price. The product's expected unit sales [sometimes called projected sales.] On the surface, break-even analysis is a tool to calculate at which sales volume the variable and fixed costs of producing your product will be recovered. Another way to look at it is that the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company. 27

Break even / Cross-over Analysis Revenue = bV Profit

Cost & Revenue

Total Cost = F+aV At BEP, Revenue = Cost bV1 = F+aV1

Loss

or, V1

Breakeven point (BEP)

V1 = F/(b-a)

Volume of Sales

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Margin of Safety Revenue = bV Cost = F+ aV

Margin of Safety F = = V1

(V2- V1)/V1 (V2/V1) - 1

V2

(BEP) 29

Example A company has decided to install a new production facility for one of its products. The company is considering three options, Option A: The facility will have an annual capacity of 200,000 units. It is estimated to have an annual fixed cost of Rs. 1,50,00,000 and a variable cost of Rs. 275 per unit. Option B: The facility will have an annual capacity of 100,000 units. It is estimated to have an annual fixed cost of Rs. 90,00,000 and a variable cost of Rs. 337 per unit. Option C: The facility will have an annual capacity of 65,000 units. It is estimated to have an annual fixed cost of Rs. 37,50,000 and a 30 variable cost of Rs. 412 per unit.

Example

Process A B C

Capacity

FC

200000 15000000 100000 9000000 65000 3750000

VC 275.0 337.0 412.0

How will you make a decision ?

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Annual Cost

Cross-over Analysis

C B

A A is least expensive

C is least expensive B is least expensive

Annual Production

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Cross-over Analysis Process

Capacity

A B C

FC

VC

200000 15000000 100000 9000000 65000 3750000

275.0 337.0 412.0

50000000

45000000

C

Cost

40000000

B 35000000

A 30000000

25000000 50000

60000

70000

80000

90000

100000

110000

Production Quantity A

B

C

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Cross-over Analysis

50000000

Forecast

2006 2007 2008 2009 2010 2011 2012 2013

75000 83000 91000 99000 107000 115000 123000 131000

45000000

C

40000000 Cost

Year

B 35000000

A 30000000

25000000 50000

60000

70000

80000

90000

100000

110000

Production Quantity A

B

C

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New Product Development and Economic Evaluation

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The Product Life Cycle

Profit

Zero profit

Product Dev

Introduction Growth

Maturity

Decline 36

The NPD Process Concept selection (Pugh’s method) Concept proving (rapid proto) Detailed design (QFD, Taguchi, FMEA) Prototype building Prototype testing (Functionality, HALT) Pilot batch mfg Testing samples from pilot batch (Cpk, ALT) Handing over design, processes, tooling and procedures to mfg

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Breaking Down Barriers

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The Design Process Idea generation

Feasibility study

Product Yes Preliminary feasible? design No

Final design

Prototype

Process planning

Pilot Batch

Design & Manufacturing Specifications Manufacturing

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Series Of QFD Houses

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Evaluating Products

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Profit- Volume Chart

Profit, Z

Z = -F + pV

V1

-F

Volume

Profit, Z = Revenue - Cost = bV - (F+aV) -F + (b-a)V = -F + p V

Slope = (b-a) = profitability, p

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An Example Fixed cost Product A zero Management Choices

Unit variable cost Rs 100

Likely Sales

Selling Price

1000

Rs 150

Product B Rs 10,000 Rs 80

2000

Rs 150

Product C Rs 20,000 Rs 50

5000

Rs 150

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Example (Contd 1)

The Profit functions for the three products A B and C are: ZA= 0 + (150-100) V = 50V (BEP = zero) ZB = -100,000 + (150-80)V = -100,000 + 70V (BEP = 1429) ZC = -200,000 +(150-50)V = -200,000+ 100V (BEP = 2000) The breakeven profit values occur as follows: For A and B For B and C For C and A

Volume = 5000 Volume = 3333 Volume = 4000

Profit Value = Rs 250,000 Profit Value = Rs 133,310 Profit Value = Rs 200,000

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Example (Contd 2) 3 lac 2 lac 1lac Profit 0

A

1

B -1 lac -2 lac

C

2

3

4

5

6 V in 000 s

For maximum profit: For Volume 0 < V< 4000 Product A V>= 4000 Product C 45

Prod Life Cycle, Forecasts and BEP Product Life Cycle Profit

Forecasting

Revenue P

Cost

Break Even Analysis

L Vol

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Reliability – Cost Decisions

A

B

For the product to function both A and B must function If there are 3 designs for A And 3 designs for B There are a total of 3 X 3 =9 designs for the product

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Reliability – Cost Decisions

Reliability

Subcomponent A B

0.9 Rs 50 Rs 70

0.95 Rs 90 Rs 90

0.98 Rs 140 Rs 110

Required reliability of the product = 0.90

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Reliability – Cost Decisions Combinat Reliability ion A

Cost A

Reliability B

Cost B

Reliability Product

Cost Product

1

0.90

50

0.90

70

0.8100

120

2

0.90

50

0.95

90

0.8550

140

3

0.90

50

0.98

110

0.8820

160

4

0.95

90

0.90

70

0.8550

160

5

0.95

90

0.95

90

0.9025

180

6

0.95

90

0.98

110

0.9310

200

7

0.98

140

0.90

70

0.8820

210

8

0.98

140

0.95

90

0.9310

230

9

0.98

140

0.98

110

0.9604

250

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Warranty Cost Analysis

How to decide how much reliability is OK ?

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