Chapter I.

Operations Management Concepts

1.1. Operations General Concepts and Functions

Introduction
Operation is that part of an organization, which is concerned with the transformation of a range of inputs
into the required output (services) having the requisite quality level. Management is the process, which
combines and transforms various resources used in the operations subsystem of the organization into value
added services in a controlled manner as per the policies of the organization. The set of interrelated
management activities, which are involved in manufacturing certain products, is called as production
management. If the same concept is extended to services management, then the corresponding set of
management activities is called as operations management.

Today companies are competing in a very different environment than they were only a few years
ago. To survive they must focus on quality, time-based competition, efficiency, international
perspectives, and customer relationships. Global competition, e-business, the Internet, and
advances in technology require flexibility and responsiveness. This new focus has placed
operations management in the attention of business, because it is the function through which
companies can achieve this type of competitiveness. Consider some of today’s most successful
companies, such as Wal-Mart, Southwest Airlines, General Electric, Starbucks, Toyota, FedEx,
and Procter & Gamble. These companies have achieved world-class status in large part due to a
strong focus on operations management
What is operations management?
Every business is managed through three major functions: finance, marketing, and operations
management. Other business functions—such as accounting, purchasing, human resources, and
engineering—support these three major functions. Finance is the function responsible for
managing cash flow, current assets, and capital investments. Marketing is responsible for sales,
generating customer demand, and understanding customer wants and needs.

Operations management (OM) is the business function that plans, organizes, coordinates, and
controls the resources needed to produce a company’s goods and services. Operations management
is a management function. It involves managing people, equipment, technology, information, and

1
many other resources. Operations management is the central core function of every company. This
is true whether the company is large or small, provides a physical good or a service, and is for
profit or not for profit. Every company has an operations management function. Actually, all the
other organizational functions are there primarily to support the operations function. Without
operations, there would be no goods or services to sell. The marketing function provides
promotions for the merchandise, and the finance function provides the needed capital. It is the
operations function, however, that plans and coordinates all the resources needed to design,
produce, and deliver the merchandise to the various retail locations. Without operations, there
would be no goods or services to sell to customers.
1.2. Operations Functions and Its Environment
Today’s OM environment is very different from what it was just a few years ago. Customers
demand better quality, greater speed, and lower costs. In order to succeed, companies have to be
masters of the basics of operations management. To achieve this many companies are
implementing a concept called lean systems. Lean systems take a total system approach to
creating an efficient operation and pull together best practice concepts. This includes concepts
such as just-in-time (JIT), total quality management (TQM), continuous improvement, resource
planning, and supply chain management (SCM). The need for increasing efficiency has also led
many companies to implement large information systems called enterprise resource planning
(ERP). ERP systems are large, sophisticated software programs used for identifying and planning
the enterprise-wide resources needed to coordinate all activities involved in producing and
delivering products to customers.

Applying best practices to operations management is not enough to give a company a competitive
advantage. The reason is that in today’s information age best practices are quickly passed to
competitors. To gain an advantage over their competitors companies are continually looking for
ways to better respond to customers. This requires companies to have a deep knowledge of their
customers and to be able to anticipate their demands. The development of customer relationship
management (CRM) has made it possible for companies to have this detailed knowledge of their
customers. CRM encompasses software solutions that enable the firm to collect customer-specific
data. This type of information can help the firm identify profiles of its most loyal customers and

2
provide customer-specific solutions. Also, CRM software can be integrated with ERP software to
connect customer requirements to the entire resource network of the company.

Another characteristic of today’s OM environment is the increased use of cross functional

decision making, which requires coordinated interaction and decision making among the different
business functions of the organization. Until recently employees of a company made decisions in
isolated departments, called functional units. Today many companies bring together experts from
different departments into cross-functional teams to solve company problems. Employees from
each function must interact and coordinate their decisions. This requires employees to understand
the roles of other business functions and the goals of the business as a whole, in addition to their
own expertise.
1.3. The Role of Operations Management
The role of operations management is to transform a company’s inputs into the finished goods or
services. Inputs include human resources (such as workers and managers), facilities and processes
(such as buildings and equipment), as well as materials, technology, and information. Outputs are
the goods and services a company produces. Figure below shows this transformation process. At a
factory the transformation is the physical change of raw materials into products, such as
transforming leather and rubber into sneakers, denim into jeans, or plastic into toys. At an airline it
is the efficient movement of passengers and their luggage from one location to another. At a
hospital it is organizing resources such as doctors, medical procedures, and medications to
transform sick people into healthy ones.

Figure 1-1. The transformation process

3
Operations management is responsible for arranging all the resources needed to produce the final
product. This includes designing the product; deciding what resources are needed; arranging
schedules, equipment, and facilities; managing inventory; controlling quality; designing the jobs to
make the product; and designing work methods. Basically, operations management is responsible
for all aspects of the process of transforming inputs into outputs. Customer feedback and
performance information are used to continually adjust the inputs, the transformation process, and
characteristics of the outputs. As shown in figure 1-1, this transformation process is dynamic in
order to adapt to changes in the environment.
For operations management to be successful, it must add value during the transformation process.
We use the term value added to describe the net increase between the final value of a product and
the value of all the inputs. The greater the value added, the more productive a business is. An
obvious way to add value is to reduce the cost of activities in the transformation process. Activities
that do not add value are considered a waste; these include certain jobs, equipment, and processes.
In addition to value added, operations must be efficient. Efficiency means being able to perform
activities well, and at the lowest possible cost. An important role of operations is to analyze all
activities, eliminate those that do not add value, and restructure processes and jobs to achieve
greater efficiency. Today’s business environment is more competitive than ever, and the role of
operations management has become the focal point of efforts to increase competitiveness by
improving value added and efficiency.
1.4. Objectives of Operations Management
Objectives of operations management can be categorized into customer service and resource utilization.
CUSTOMER SERVICE
The first objective of operating systems is to utilize resources for the satisfaction of customer wants.
Therefore, customer service is a key objective of operations management. The operating system must
provide something to a specification, which can satisfy the customer in terms of cost and timing. Thus,
providing the ‘right thing at a right price at the right time’ can satisfy primary objective.

RESOURCE UTILISATION
Another major objective of operating systems is to utilize resources for the satisfaction of customer wants
effectively. Customer service must be provided with the achievement of effective operations through
efficient use of resources. Inefficient use of resources or inadequate customer service leads to commercial

4
failure of an operating system. Operations management is concerned essentially with the utilization of
resources, i.e. obtaining maximum effect from resources or minimizing their loss, under utilization or
waste. The extent of the utilization of the resources’ potential might be expressed in terms of the proportion
of available time used or occupied, space utilization, levels of activity, etc. Each measure indicates the
extent to which the potential or capacity of such resources is utilized. This is referred as the objective of
resource utilization.
Operations management is concerned with the achievement of both satisfactory customer service and
resource utilization. An improvement in one will often give rise to deterioration in the other. Often both
cannot be maximized, and hence a satisfactory performance must be achieved on both objectives. All the
activities of operations management must be tackled with these two objectives in mind, and because of this
conflict, operations managers’ will face many of the problems. Hence, operations managers must attempt to
balance these basic objectives.

1.5. Operations Decision Making

In this section we look at some of the specific decisions that operations managers have to make.
We can think about specific day-to-day decisions, we need to make decisions for the whole
company that are long term in nature. Long-term decisions that set the direction for the entire
organization are called strategic decisions. They are broad in scope and set the tone for other,
more specific decisions. They address questions such as: What are the unique features of our
product? What market do we plan to compete in? What do we believe will be the demand for our
product? Short-term decisions that focus on specific departments and tasks are called tactical
decisions. Tactical decisions focus on more specific day-to-day issues, such as the quantities and
timing of specific resources. Strategic decisions are made first and determine the direction of
tactical decisions, which are made more frequently and routinely. Therefore, we have to start with
strategic decisions and then move on to tactical decisions. This relationship is shown in Figure 1-2.
Tactical decisions must be aligned with strategic decisions, because they are the key to the
company’s effectiveness in the long run. Tactical decisions provide feedback to strategic decisions,
which can be modified accordingly. OM decisions are critical to all types of companies, large and
small. In large companies these decisions are more complex because of the size and scope of the
organization.

5
Large companies typically produce a greater variety of products, have multiple location sites, and
often use domestic and international suppliers. Managing OM decisions and coordinating efforts
can be a complicated task, yet the OM function is critical to the company’s success.

Figure 1-2: The relationships between strategic and tactical decisions

1.6. Productivity Measurement

Productivity is the value of outputs (goods and services) produced divided by the values of the
input resources used or the ratio of outputs (goods and services) to inputs (e.g. labor and
materials). In other words, productivity is a measure of how efficiently inputs are being converted
into outputs. It measures how well resources are used. The more efficiently a company uses its
resources, the more productive it is:

Productivity =

We can use this equation to measure the productivity of one worker or many, as well as the
productivity of a machine, a department, the whole firm, or even a nation. The possibilities are
shown in the following table

6
 Table 1-1: Productivity Measures
Pru Productivity measures

Total productivity measure =

Partial productivity measure = or or or

Multifactor productivity measures = or

or

When we compute productivity for all inputs, such as labor, machines, and capital, we are
measuring total productivity. Total productivity describes the productivity of an entire
organization. For example, let’s say that the weekly dollar value of a company’s output, such as
finished goods and work in progress is $10,200 and that the value of its inputs such as labor,
materials, and capital is $8,600. The company’s total productivity would be computed as follows:

Total productivity = = = 1.186

Often it is much more useful to measure the total productivity of one input variable at a time in
order to identify how efficiently each is being used. When we compute productivity as the ratio of
output relative to a single input, we obtain a measure of partial productivity also called single-
factor productivity. Following are two examples of the calculation of partial productivity:
1. A bakery oven produces 346 pastries in 4 hours. What is its productivity?

Machine productivity= = =86.5 pastries/hour

2. Two workers paint tables in a furniture shop. If the workers paint 22 tables in
8 hours, what is their productivity?

7
Labor productivity = =1.375 tables/ hour

Sometimes we need to compute productivity as the ratio of output relative to a group of inputs,
such as labor and materials. This is a measure of multifactor Productivity. For example, let’s say
that output is worth $382 and labor and materials costs are $168 and $98, respectively. A
multifactor productivity measure of our use of labor and materials would be

Multifactor productivity = = =1.436

Interpreting productivity measures

To interpret the meaning of a productivity measure, it must be compared with a similar
productivity measure. For example, if one worker at a pizza shop produces 17 pizzas in 2 hours,
the productivity of that worker is 8.5 pizzas per hour. This number by itself does not tell us very
much. However, if we compare it to the productivity of two other workers, one who produces 7.2
pizzas per hour and another 6.8 pizzas per hour, it is much more meaningful. We can see that the
first worker is much more productive than the other two workers. But how do we know whether
the productivity of all three workers is reasonable? What we need is a standard.

When evaluating productivity and setting standards for performance, we also need to consider our
strategy for competing in the marketplace—namely, our competitive priorities. A company that
competes based on speed would probably measure productivity in units produced over time.
However, a company that competes based on cost might measure productivity in terms of costs of
inputs such as labor, materials, and overhead. The important thing is that our productivity measure
provides information on how we are doing relative to the competitive priority that is most
important to us.

Productivity and competitiveness

Productivity can be treated as a multidimensional phenomenon. The modern dynamic concept of
productivity looks at productivity as what may be called “productivity flywheel”. The productivity is
energized by competition. Competition leads to higher productivity, higher productivity results in better
value for customers, this results in higher share of market for the organization, which results in still keener
competition. Productivity thus forms a cycle, relating to design and products to satisfy customer needs,

8
leading to improved quality of life, higher competition i.e. need for having still higher goals and higher
share of market, and thereby leading to still better designs.

Productivity is essentially a scorecard of how effectively resources are used and a measure of
competitiveness. Productivity is measured on many levels and is of interest to a wide range of
people. As we showed in earlier examples, productivity can be measured for individuals,
departments, or organizations. It can track performance over time and help managers identify
problems. Similarly, productivity can be measured for an entire industry and even a country.

The economic success of a nation and the quality of life of its citizens are related to its
competitiveness in the global marketplace. Increases in productivity are directly related to
increases in a nation’s standard of living. That is why business and government leaders
continuously monitor the productivity at the national level and by industry sectors.

Developing an Operations Strategy

The operations strategy focuses on specific capabilities of the operation that give the company a
competitive edge. These capabilities are called competitive priorities. By excelling in one of these
capabilities, a company can become a winner in its market. These competitive priorities and their
relationship to the design of the operations function are shown in Figure 1.3. Each part of this
figure is discussed next.
Figure 1.3: Operations strategy and the design of the
operations function

a) Competitive Priorities
Operations managers must work closely with
marketing in order to understand the competitive
situation in the company’s market before they can
determine which competitive priorities are important.
There are four broad categories of competitive
priorities:
1. Cost - Competing based on cost means offering a
product at a low price relative to the prices of
competing products. The need for this type of
competition emerges from the business strategy. The
role of the operations strategy is to develop a plan for
the use of resources to support this type of
competition. Note that a low-cost strategy can result in

9
a higher profit margin, even at a competitive price. Also, low cost does not imply low quality.
Let’s look at some specific characteristics of the operations function we might find in a company
competing on cost.
To develop this competitive priority, the operations function must focus primarily on cutting costs
in the system, such as costs of labor, materials, and facilities. Companies that compete based on
cost study their operations system carefully to eliminate all waste. They might offer extra training
to employees to maximize their productivity and minimize scrap (piece). Also, they might invest in
automation in order to increase productivity. Generally, companies that compete based on cost
offer a narrow range of products and product features, allow for little customization, and have an
operations process that is designed to be as efficient as possible.
2. Quality- Many companies claim that quality is their top priority, and many customers say that
they look for quality in the products they buy. Yet quality has a subjective meaning; it depends on
who is defining it. For example, to one person quality could mean that the product lasts a long
time, such as with a Volvo, a car known for its longevity. To another person quality might mean
high performance, such as a BMW. When companies focus on quality as a competitive priority,
they are focusing on the dimensions of quality that are considered important by their customers.
Quality as a competitive priority has two dimensions. The first is high-performance design. This
means that the operations function will be designed to focus on aspects of quality such as superior
features, close tolerances, high durability, and excellent customer service. The second dimension is
goods and services consistency, which measures how often the goods or services meet the exact
design specifications. A strong example of product consistency is McDonald’s, where we know we
can get the same product every time at any location. Companies that compete on quality must
deliver not only high-performance design but goods and services consistency as well.
3. Time or speed- is one of the most important competitive priorities today. Companies in all
industries are competing to deliver high-quality products in as short a time as possible.
Making time a competitive priority means competing based on all time-related issues, such as
rapid delivery and on-time delivery. Rapid delivery refers to how quickly an order is received; on-
time delivery refers to the number of times deliveries are made on time. When time is a
competitive priority, the job of the operations function is to critically analyze the system and
combine or eliminate processes in order to save time. Often companies use technology to speed up
processes, rely on a flexible workforce to meet peak demand periods, and eliminate unnecessary
steps in the production process.

10
Practical illustration:
FedEx is an example of a company that competes based on time. The company’s claim is to
“absolutely, positively” deliver packages on time. To support this strategy, the operation function
had to be designed to promote speed. Bar code technology is used to speed up processing and
handling, and the company uses its own fleet of airplanes. FedEx relies on a very flexible part-time
workforce, such as college students who are willing to work a few hours at night. FedEx can call
on this part-time workforce at a moment’s notice, providing the company with a great deal of
flexibility. This allows FedEx to cover workforce requirements during peak periods without having
to schedule full-time workers.

4. Flexibility- As a company’s environment changes rapidly, including customer needs and

expectations, the ability to readily accommodate these changes can be a winning strategy. This is
flexibility. There are two dimensions of flexibility. One is the ability to offer a wide variety of
goods or services and customize them to the unique needs of clients. This is called product
flexibility. A flexible system can quickly add new products that may be important to customers or
easily drop a product that is not doing well. Another aspect of flexibility is the ability to rapidly
increase or decrease the amount produced in order to accommodate changes in the demand. This is
called volume flexibility.

1.7. Types of Manufacturing Systems

In manufacturing a system is composed of a number of components. These components are
combined together for the accomplishment of some predetermined goal. Any production
organization can be termed as a production system to produce goods and services. There are three
main components of these system namely input, transformation process and out put. But these
components can be further divided into number of subcomponents, operations and activities. For
example, input can be men, material and equipment. The transformation process involves many
activities and operations necessary to change inputs into output. These activities can be
mechanical, chemical, inspection and control, material handling operations etc. Output is in the
form of goods and services.
Thus, a combination of all activities and operations to produce some goods and services is known
as manufacturing system. Depending on a number of factors such as policies of the organization,
types of the production, size of production, type of transformation process and production method,

11
manufacturing system can be classified into two broad categories: Intermittent system and
Continuous system.

1.7.1. Intermittent System

In this system, the goods are manufactured specially to fulfill orders made by customers rather than
for stock. Here the flow of material is intermittent. Intermittent production system is there where
the production facilities are flexible enough to handle a wide variety of products and size. These
can be used to manufacture those products where the basic nature of inputs change with the change
in the design of the product and the production process requires continuous adjustments.
Considerable storage between operations is required, so that individual operations can be carried
out independently for further utilization of men and machines. Examples of intermittent system are
machine shops, hospitals, general office, etc.
Chief characteristics of intermittent system:
i. Most products are produced in small quantities
ii. Machines and equipments are laid out by process.
iii. Work load are generally unbalanced.
iv. Highly skilled operators are required for efficient use of machines and equipments.
v. In-process inventory is large.
vi. Flexible to suit production varieties.
Intermittent system can be further classified into two categories, namely (a) Job production
and (b) Batch production
a) Job Production
Job or ‘make complete’ production is the production of single complete unit by one operator
or a group of operators e.g. bridge building, dam construction, ship building etc. Here, whole
project is considered as one operation and work is completed on each product before passing
on to the next. Each product is a class by itself and requires a distinct and separate job for
production purposes. The system requires versatile and highly skilled labor with high capital
investments. Control of operations is relatively simple.
In this system the goods are produced to definite customer’s orders. There is no assurance of
continuous demand for specific items and the manufacturing depends on the receipt of orders
from customers.
Job-order process is characterized by
 Whole project is considered as single operation.

12
  Work is to be completed on each product before processing the next item.
 Versatile and skilled labour ids needed.
 High capital investment.
 Operations control is relatively simple.
 High unit cost of production.
Any organization manufacturing heavy and special purpose machinery use job-order
production system.
b) Batch production
In this production system, the production schedule can be carried out according to specific
orders or on the bases of demand forecasts. The items are processed in lots or batches unlike
job-type system where one item is produced during each production run. In batch-type
system new batch is undertaken for production only when the work on all items of a batch is
complete. In fact, batch type of production can be considered as an extension of job-type
system.
In the system of batch production, any product is divided into parts or operations and that
each operation is to be completed through out the whole batch before the next operation is
undertaken. In other words, after the production of one batch, the plant and machines become
available to other batch of similar type of production one can employ more specialized labor
for each operation with comparatively low investment. But organization and planning is
more complicated in this system. The best example of batch production system is chemical
industry where different medicines are manufactured in batches. Other examples can be
production of electronic instruments, machine tools, printing press, etc.
In this system a batch is not passed to the next operation until the work on the previous
operation is complete for the whole batch and no new batch enters the production line, till all
the operations for manufacturing any product is completed. This results in considerable idle
time for various operational centers.

Features of batch production system

 Demand can be discontinuous.
 All operational stages may not be balanced.
 Elaborate sequencing and scheduling is required.
 Planning, routing and scheduling changes with fresh orders.

13
  Storage is necessary at each stage of production process.
 The system can adjust to new situation and specification.
 Inspection is not in line with production.

1.7.2. Continuous System

In this system the items are produced for the stocks and not for specific orders. Before
planning manufacturing to stock, a sales forecast is made to estimate likely demand of the
product and master schedule is prepared and is made to adjust the sales forecast according to
past orders and level of inventory. Here the inputs are standardized and a standard set of
processes and sequences of processes can be adopted. Due to this, routing and scheduling for
the whole process can be standardized.

After setting of master production schedule, a detailed planning is carried on. Basic
manufacturing information and bills of material are recorded. Information for machine load
charts, equipment, personnel and material needs is tabulated. In continuous manufacturing
the input-out put characteristics are standardized to standardize the operations and their
sequence.

Features of continuous production system

i. There must be continuous demand for the product.
ii. The product is standardized.
iii. Materials should be as per specification and delivered in time.
iv. All operational stages in the process must be balanced.
v. Maintenance must be by anticipation and not by default.
vi. Inspection must be in line with production.

Continuous production system can be categorized into two namely (a) mass and (b) process
production
a) Mass Production
Standardization is the fundamental characteristic of this system. Items are produced in large
quantities and much emphasis is not given to consumer order. In fact the production is to

14
stock and not to order. Uniform and uninterrupted flow of material is maintained through
predetermined sequence of operations required to produce the product. The system can
produce only one type of product at one time.
These days, mass production system is generally used to manufacture sub-assemblies or
particular parts/components of an item. These parts are assembled together by the enterprise
to get the final product. In this system, specialization and standardization in manufacturing
single component can lead to economies in production.

b) Process Production
This system is analogous to mass production system with more stress on automation in
production process. The volume of production is very high. This method is used for
manufacturing those items whose demand are continuous and high e.g. petroleum products,
particular brand of medicines, heavy chemical industries, plastic industries etc. In this
system, single raw material can be transformed into different kinds of product at different
stages of the production process e.g. in the processing of crude oil in refinery one gets
kerosene, gasoline etc. As in mass production, planning and scheduling for material and
finished products is done well in advance in process production. The whole system is
designed to produce some specific type of product only.

15
Chapter II. Design of the Operations System

2.1. Product/Service Design and Development

In this section, we will learn about product design, which is the process of deciding on the
unique characteristics and features of the company’s product. We will also learn about
process selection, which is the development of the process necessary to produce the designed
product. Product design and process selection decisions are typically made together. Products
are the goods and services produced, processes are the facilities, and skills and technologies
used to produce them. The two go together – products require processes and processes limit
what products can be produced. A company can have a highly innovative design for its
product, but if it has not determined how to make the product in a cost effective way, the
product will stay a design forever. Since the business environment in which most
organizations must operate is dynamic, product and service design too is dynamic. Pressures
for changes can come from customers, competitors, legal sources, and from within the
organization.

Product design and process selection affect product quality, product cost, and customer
satisfaction. If the product is not well designed or if the manufacturing process is not true to
the product design, the quality of the product may suffer. Further, the product has to be
manufactured using materials, equipment, labor and skills that are efficient and affordable;
otherwise, its cost will be too high for the market. We call this the product’s
manufacturability—the ease with which the product can be made. Finally, if a product is to
achieve customer satisfaction, it must have the combined characteristics of good design,
competitive pricing, and the ability to fill a market need.

Product design defines a product’s characteristics, such as its appearance, the materials it is
made of, its dimensions and tolerances, and its performance standards.

16
  Effective design can provide a competitive edge:
 matches product or service characteristics with customer requirements
 ensures that customer requirements are met in the simplest and least costly
manner
 reduces time required to design a new product or service
 minimizes revisions necessary to make a design workable

In today’s competitive environment, both products and processes are critical elements of an
organization’s operating strategy. Successful products must reflect a creative and intimate
knowledge of the market environment. And the process used to produce or deliver them must
make effective use of the firm’s resources and available levels of technology. The person
challenged to respond to the market demands by making best use of the firm’s capabilities is
the operations manager.

Requirements of a good Design

A good product must fulfill following essential requirements:
(a) Customer satisfaction. The product should satisfy the customers by fulfilling their
need and expectations. In order to achieve this objective, following points should be
kept in view.
 It functions properly
 It should be of proper quality so as to achieve desired degree of accuracy and
reliability
 Easy to use( operate)
 Easy to repair and service
 Able to withstand rough handling
 Good aesthetic view
 Have good space utilization
(b) Adequate profit
 It should be able to manufacture at a reasonable cost so that it can compete other
products in the market
 A good design needs minimum number of parts

17
  It should adapt latest technology so that manufacturing requires minimum cost per
unit of production

Factors considered while designing a product

i) Materials- should be cheap, and should be able to withstand design requirements
and it should be easily workable.
ii) Manufacturing facility – product design should commensurate (match) with the
facilities available in the factory as regards to equipment, labor, and layout
iii) Use of standardization – the parts used should be of minimum variety and should
either be easily available in the market or can be manufactured easily with the
machines available. It should have as many standard (and interchangeable) parts
as possible.
iv) Aesthetic- the product should be in good appearance and should have attractive
colors.
v) Function – it should be able to perform its desired function with desired accuracy,
reliability and strength.
vi) Ergonomics – it should be easy to use, operate and should cause minimum
possible fatigue and provide comfort.
vii) Operating conditions- the product should operate with minimum of noise,
vibration, heat and other hazard (risk) to be operated with available skill.
viii) Maintenance- should easily be maintained and serviced.
ix) Value engineering – factors related to value engineering should be considered
thoroughly to reduce cost of production.
x) Simplification- the design should be simple to avoid manufacturing
complications.
xi) Economy – At the design stage, it is easy to attack cost than latter on when the
product is actually produced. All the possible ways to reduce the cost should be
considered at the design stage.
2.2. The Product Design Process
The path from an idea to a finished product is by no means fixed. It depends up on the nature
of the firm, the product, and numerous other factors. Certain steps are common in the

18
development of most product designs. They are idea generation, product screening,
preliminary design and testing, and final design. These steps are shown in Figure 2-1.

Figure 2-1. Steps in the product design process

Notice that the arrows show a circular process. Product designs are never finished, but are
always updated with new ideas. Let’s look at these steps in more detail.
1. Idea Development
All product designs begin with an idea. The idea might come from a product manager who
spends time with customers and has a sense of what customers want, from an engineer with a
flare for inventions, or from anyone else in the company. To remain competitive, companies
must be innovative and bring out new products regularly.

Sources of Product Ideas Include:

 The first sources of ideas are customers, the driving force in the design of goods and
services. Marketing is a vital link between customers and product design. Market
researchers collect customer information by studying customer buying patterns and
using tools such as customer surveys and focus groups. Management may love an
idea, but if market analysis shows that customers do not like it, the idea is not viable.
Analyzing customer preferences is an ongoing process. Customer preferences next
year may be quite different from what they are today. For this reason, the related
process of forecasting future consumer preferences is important, though difficult.

19
  Competitors are another source of ideas. Studying the practices of companies
considered “best in class” and comparing the performance of our company against
theirs is called benchmarking. Another way of using competitors’ ideas is called
reverse engineering which is to buy a competitor’s new product and study its design
features.
 A company’s R & D (research and development) department whose role is to develop
product and process innovation also generates product design ideas.
 Suppliers are another source of product design ideas. To remain competitive more
companies are developing partnering relationships with their suppliers, to jointly
satisfy the end customer.
2. Product Screening
After a product idea has been developed, it is evaluated to determine its likelihood of
success. This is called product (idea) screening. The company’s product screening team
evaluates the product design idea according to the needs of the major business functions. In
their evaluation, executives from each function area may explore issues such as the
following:
Operations -what are the production needs of the proposed new product and how do they
match our existing resources? Will we need new facilities and equipment? Do we have the
labor skills to make the product? Can the material for production be readily obtained?
Marketing -what is the potential size of the market for the proposed new product? How
much effort will be needed to develop a market for the product and what is the long-term
product potential?
Finance -the production of a new product is a financial investment like any other. What is
the proposed new product’s financial potential, cost, and return on investment?
Break-even analysis is a technique that can be useful when evaluating a new product. This
technique computes the quantity of goods a company needs to sell just to cover its costs, or
break even, called the “break-even” point. When evaluating an idea for a new product it is
helpful to compute its break-even quantity. An assessment can then be made as to how
difficult or easy it will be to cover costs and make a profit. A product with a break-even
quantity that is hard to attain might not be a good product choice to pursue. Next we look at
how to compute the break-even quantity.

20
The total cost of producing a product or service is the sum of its fixed and variable costs. A
company incurs fixed costs regardless of how much it produces. Fixed costs include rents,
taxes, and insurance. For example, a company must pay a rent even if it produces nothing.
Variable costs, on the other hand, are costs that vary directly with the amount of units
produced, and include items such as direct materials and labor. Together, fixed and variable
costs add up to total cost:
Total cost =FC + VC (Q)

Where F= fixed cost

VC= variable cost per unit
Q =number of units sold
Figure 2-2 shows a graphical representation of these costs as well as the break-even quantity.
Fixed cost is represented by a horizontal line as this cost is the same regardless of how much
is produced. Adding variable cost to fixed cost creates total cost, represented by the diagonal
line above fixed cost. When Q = 0, total cost is only equal to fixed cost. As Q increases,
total cost increases through the variable cost component. The diagonal line from the origin
in the figure is revenue, the amount of money brought in from sales:

Revenue = (SP) Q
Where SP= selling price per unit

When Q = 0, revenue is zero. As sales increase, so does revenue. Remember, however, that
to cover all costs we have to sell the break-even amount. This is the quantity QBE, where
revenue equals total cost. If we sell below the break-even point we incur a loss, since costs
exceed revenue. To make a profit, we have to sell above the break-even point. Since revenue
equals total cost at the break-even point, we can use the previous equations to compute the
value of the break-even quantity:
Total cost= total revenue
F + (VC) Q = (SP) Q
Solving for Q, we get the following equation:

21
BEQ=

Note that we could also find the break-even point by drawing the graph and finding where
the total cost and revenue lines cross.

Figure 2-2: Graphical approach to break-even analysis

22
Break-even analysis is useful for more than just deciding between different products. It can
be used to make other decisions, such as evaluating different processes or deciding whether
the company should make or buy a product.

3. Preliminary Design and Testing

Once a product idea has passed the screening stage, it is time to begin preliminary design and
testing. At this stage, design engineers translate general performance specifications into
technical specifications. Prototypes (samples) are built and tested. Changes are made based
on test results, and the process of revising, rebuilding a prototype, and testing continues. For
service companies this may entail testing the offering on a small scale and working with
customers to refine the service offering. Fast-food restaurants are known for this type of
testing, where a new menu item may be tested in only one particular geographic area.
Product refinement can be time consuming, and there may be a desire on the part of the
company to hurry through this phase to rush the product to market. However, rushing creates
the risk that all the “bugs” have not been worked out, which can prove very costly.

23
4. Final Product Design
Following extensive design testing the product moves to the final design stage. This is where
final product specifications are drawn up. The final specifications are then translated into
specific processing instructions to manufacture the product, which include selecting
equipment, outlining jobs that need to be performed, identifying specific materials needed
and suppliers that will be used, and all the other aspects of organizing the process of product
production.
2.3. Capacity Planning
How much should a plant be able to produce? How many customers should a service facility
should be able to serve? What kinds of problems arise as the production system expands?
Such capacity questions are of a major concern to the operations managers. Determination of
productive capacity requirements is a key problem in not only when designing a new system
or expanding an existing one but also for the shorter operating periods during which the plant
size cannot be changed.

Design of the production system involves planning for the inputs, conversion process and
outputs of production operation. The effective management of capacity is the most important
responsibility of production management. The objective of capacity management (i.e.
planning and control of capacity) is to match the level of operations to the level of demand.
Capacity planning is to be carried out keeping in mind future growth and expansion plans,
market trends, sales forecasting, etc. It is a simple task to plan the capacity in case of stable
demand. But in practice the demand will be seldom stable. The fluctuation of demand creates
problems regarding the procurement of resources to meet the customer demand. Capacity
decisions are strategic in nature. Capacity is the rate of productive capability of a facility.
Capacity is usually expressed as volume of output per period of time.
Production managers are more concerned about the capacity for the following reasons:
􀁺 Sufficient capacity is required to meet the customers demand in time.
􀁺 Capacity affects the cost efficiency of operations.
􀁺 Capacity affects the scheduling system.
􀁺 Capacity creation requires an investment.
Capacity planning is the first step when an organization decides to produce more or new
products.

24
Types of Capacity:
1. Design or Theoretical Capacity (DC): The maximum output under ideal conditions
as designed by engineers. Designed capacity of a facility is the planned or engineered rate
of output of goods or services under normal or full scale operating conditions. For example,
the designed capacity of the cement plant is 100 TPD (Tonnes per day). Capacity of the sugar
factory is 150 tonnes of sugarcane crushing per day. The uncertainty of future demand is one
of the most perplexing problems faced by new facility planners. Organization does not plan
for enough regular capacity to satisfy all their immediate demands. Design for a minimum
demand would result in high utilization of facilities but results in inferior service and
dissatisfaction of customers because of inadequate capacity. The design capacity should
reflect management’s strategy for meeting the demand. The best approach is to plan for some
in-between level of capacity.

2. Effective or System Capacity (EC): The maximum output under operating

restrictions such as schedules. System capacity is the maximum output of the specific
product or product mix the system of workers and machines is capable of producing
as an integrated whole. System capacity is less than design capacity or at the most
equal it because of the limitation of product mix, quality specification, and
breakdowns. The actual is even less because of many factors affecting the output such
as actual demand, downtime due to machine/equipment failure, unauthorized
absenteeism. The system capacity is less than design capacity because of long-range
uncontrollable factors. The actual output is still reduced because of short-term effects
such as breakdown of equipment, inefficiency of labor. The system efficiency is
expressed as ratio of actual measured output to the system capacity.

3. Actual or operating capacity (AC): This is the rate of output actually achieved.
Accordingly, AC is less than EC and EC is less than DC.

2.4. Facility Location and Layout

2.4.1. Facility Location

Where should a plant or service facility be located? This is a top question on the strategic
agendas of contemporary manufacturing and service firms particularly, in this age of
global markets and global production. Dramatic changes in trade agreements, both in
North America and Europe, have made the world truly a “global village,” allowing
companies greater flexibility in their location choices. In practice, however, the question
of location is very much linked to two competitive imperatives:

1. The need to produce close to the customer due to time-based competition,

trade agreements, and shipping costs.
2. The need to locate near the appropriate labor pool to take advantage of low
wage costs and /or high technical skills.

25
Issues in Facility Location

The problem of facility location is common to new and existing businesses. Criteria that
influence manufacturing plant and warehouse location planning are:

 Proximity to Customers: A location close to the customer is important because of

the ever-increasing need to be customer-responsive. This enables faster delivery of
goods to customers. In addition, it ensures that customers’ needs are incorporated into
the products being developed and built. Population characteristics provide a basis for
decision making on these criteria.

 Business Climate: A favorable business climate can include the presence of similar
sized businesses, the presence of companies in the same industry, and, in the case of
international locations, and the presence of other foreign companies. Pro-business
government legislation and local government intervention to facilitate businesses
locating in an area via subsidies, tax abatements, and other support are also factors.

 Total Costs: The objective is to select a site with the lowest total cost. This includes
regional costs, inbound distribution costs, and outbound distribution costs. Land,
construction, labor, taxes, and energy costs comprise the regional costs. In addition,
there are hidden costs that are difficult to measure. These involve (1) excessive
moving of preproduction material between locations before final delivery to the
customers and (2) loss of customer responsiveness arising from locating away from
the main customer base.

 Infrastructure: Adequate road, rail, air, and sea transportation is vital. Energy and
telecommunications requirements must also be met. In addition, the local
government’s willingness to invest in upgrading infrastructure to the levels required
may be an incentive to select a specific location.

 Quality of Labor: The educational and skill levels to the labor pool must match the
company’s needs. Even more important are the willingness and ability to learn.

 Suppliers: A high-quality and competitive supplier base makes a given location

suitable. The proximity of important suppliers’ plants also supports lean production
methods.

 Other Facilities: The location of other plants or distribution centers of the same
company may influence a new facility’s location in the network. Issues of product
mix and capacity are strongly interconnected to the location decision in this context.

 Free Trade Zones: A foreign trade zone or a free trade zone is typically a closed
facility (under the supervision of the customs department) into which foreign goods
can be brought without being subject to the necessary customs requirements.
Manufacturers in free trade zones can use imported components in the final product

26
 and delay payment of customs duties until the product is shipped into the host
country.

 Political Risk: The fast-changing geopolitical scenes in numerous nations present

exciting, challenging opportunities. But the extended phase of transformation that
many countries are undergoing makes the decision to locate in those areas extremely
difficult. Political risks in both the country of location and the host country influence
location decisions.

 Government Barriers: Barriers to enter and locate in many countries are being
removed today through legislation. Yet many non legislative and cultural barriers
should be considered in location planning.

 Environmental Regulation: The environmental regulations that impact a certain

industry in a given location should be included in the location decision. Besides
measurable cost implications, this influences the relationship with the local
community.

 Host Community: The host community’s interest in having the plant in its midst is a
necessary part of the evaluation process. Local educational facilities and the broader
issue of quality of life are also important.

 Competitive Advantage: An important decision for multinational companies is the

nation in which to locate the home base for each distinct business. Porter suggests
that a company can have different home base for distinct businesses or segments.
Competitive advantage is created at a home base where strategy is set, the core
product and process technology are created, and a critical mass of production takes
place. So a company should move its home base to a country that stimulates
innovation and provides the best environment for global competitiveness. This
concept can also be applied to domestic companies seeking to gain sustainable
competitive advantage.

Locating Service Facilities

While the focus in industrial-sector location analysis is on minimizing cost, the focus in the
service sector is on maximizing revenue. This is because manufacturing costs tend to vary
substantially between locations, but in service firms’ location often has more impact on
revenue than cost. Therefore, for the service firm a specific location often influences revenue
more than it does cost. This means that the location focus for service firms should be on
determining the volume of business and revenue.

A common problem encountered by service-providing organizations are deciding how many

service outlets to establish within a geographic area, and where. The problem is complicated
by the many possible locations and several options in the absolute number of service centers.

27
2.4.2. Facility Layout Decisions

Facility layout decision entails determining the placement of departments, workstations,

machines, and stockholding points within a productive facility. Its general objective is to
arrange these elements in a way that ensures a smooth workflow (in a factory) or a particular
traffic pattern (in a service organization). The inputs to the layout decision are:

1. Specification of objectives of the system in output and flexibility.

2. Estimation of product or service demand on the system.
3. Processing requirements in number of operations and amount of flow between
departments and work centers.
4. Space availability within the facility itself.

All these inputs are, in fact, outputs of process selection and capacity planning. That is how
layouts are developed under various formats (or workflow) structures. Our emphasis is on
quantitative techniques used in locating departments within a facility and on workstation
arrangements and balance in the important area of assembly lines.

Strategic Importance of Layout Decisions

Layout is one of the decisions that determine the long-run efficiency of operations. Layout
has numerous strategic implications because it establishes a firm’s competitive priority in
regard to capacity, processes, flexibility, and cost, as well as quality of work life. An
effective layout can help a firm to achieve the following:

1. Higher utilization of space, equipment, and people.

2. Improve flow of information, materials, or people.
3. More convenience to the customer.
4. Improved employee morale and safer working conditions.

The objective of layout strategy is to develop economic layout that will assist in these four
areas while still meeting the firm’s competitive requirements.

Types of Layout
Layout decisions include the best placement of machines (in a production setting), offices
and desks (in an office setting), or service centers (in settings such as hospitals or department
stores). An effective layout facilitates the flow of materials, people, and information, within
and between areas. Management’s goal is to arrange (layout) the system so that it operates at
peak effectiveness and efficiency. To achieve these layout objectives, a variety of approaches
have been developed. Among them are the following:

1. Fixed-position layout-addresses the layout requirements of large, bulky projects such as

ships and buildings.

28
2. Process-Oriented layout deals with low-volume, high-variety production (also called “job
shop” or intermittent production).
3. Office layout- positions workers, their equipment, and spaces/offices to provide for
movement of information.
4. Retail/service layout-allocates shelf space and responds to customer behavior.
5. Warehouse layout – addresses trade-offs between space and material handling.
6. Product-oriented layout – seeks the best personnel and machine utilization in repetitive or
continuous production.

2.5. Job Design and Work Measurement

2.5.1. Job Design

The operations manager’s job, by definition deals with managing the human resource that
creates the firm’s products and services.
The objective in managing personnel is to obtain the highest productivity possible without
sacrificing quality, service, or responsiveness. The operations manager uses job design
techniques to structure the work so that it will be conducive to both the physical and
behavioral needs of the human worker. Work measurement methods are used to determine
the most efficient means of performing a given task, as well as to set reasonable standards for
performing it.
Job design may be defined as the function of specifying the work activities of an individual
or group in an organizational setting. Its objective is to develop job structures that meet the
requirements of the organization and its technology and that satisfy the job holder’s personal
and individual requirements.

29
The following figure summarizes the decisions involved.

Who What Where When Why How

Mental and Task(s) to be Geographic Time of day; Organizational Method of

physical performed locale of time of rationale for performanc
characteristics of organization; occurrence the e and
the work force Location of in the job;objectives motivation.
work areas. workflow. and motivation
of workers.

Ultimate
job
structure

Fig.2.2.Decision involved in job design

2.5.2. Labor Standards and Work Measurement

Effective management of people requires knowledge of labor standards. Labor standards are
the amount of time required to perform a job or part of a job. Every firm has standards,
although they may vary from those established via informal methods to those established by
professionals. Labor standards are necessary to determine the following:

1. Labor content of items produced (the labor cost).

2. Staffing needs of organizations (how many people it will take to make the required
production).
3. Cost and time estimates prior to production (to assist in a variety of decisions from
developing cost estimates for customers to the make-or-buy decision)
4. Crew size and work balance (who does what on a group activity or assembly line).
5. Production expected (both manager and worker should know what constitutes a fair
day’s work).
6. Basis of wage-incentive plans (what provides a reasonable incentive).
7. Efficiency of employees and supervision (a standard is necessary against which to
determine efficiency).

30
Chapter III. Operations Planning and Control
3.1. Aggregate Production Planning
Aggregate planning is an intermediate-range capacity planning that typically covers a time

horizon of 2 to 18 months. It is useful for organizations that experience seasonal or other

variations in demand and the goal is to achieve a production plan that will effectively utilize
the organizations’ resources to satisfy the demand.

Aggregate planning is the process of planning the quantity and timing of output over the intermediate
range (often 2 to 18 months) by adjusting the production rate, employment, inventory, and other
controllable variables. Aggregate planning links long-range and short-range planning activities. It is
“aggregate” in the sense that the planning activities at this early stage are concerned with
homogeneous categories (families) such as gross volumes of products or number of customers served.
Aggregate plans precede the master schedule.

The main purpose of the aggregate plan is to specify the optimal combination of production
rate, the work force level, and inventory on hand so that it is possible to minimize the cost of
resources required to meet demand over that period.
Production rate: refers to the number of units completed per unit of time (such as per hour or
per day).
Workforce level: is the number of workers needed for production.
Inventory on hand: is the balance of unused inventory carried over from the previous period.

Aggregate planning is essentially a big picture approach to planning. Planners usually try to
avoid focusing on individual products or services. Instead, they focus on a group of similar
products or sometimes an entire product line.

For purposes of aggregate planning, it is often convenient to think of capacity in terms of

labor hours or machine hours per period without worrying about how much of a particular
item will actually be involved. This approach frees planners to make general decisions about
the use of resources without having to get into the complexities of individual product or
services requirements.

An overview of operations planning activities

Based on time dimension the planning activities can be long, intermediate, and short range.
 Long range planning: is generally done annually, focusing on a horizon greater
than one year.
- Focuses on strategic issues relating to capacity, process selection and plant
location.
- Begins with the statement of organizational objectives and goals for the
next 2 to 10 years.
- Corporate strategic planning articulates how these objectives and goals are
to be achieved in the light of the company’s capabilities and its economic
and political environment as projected by its business forecasting.

31
 - Elements of strategic plan include product line description, quality and
price levels, and market penetration goals.
 Product and planning translates these in to individual product line
objectives, and include a long range production plan.
 Financial plan- analyzes the financial feasibility of these objectives
relative to capital requirements and return in investment goals.
 Resource planning identifies the facilities, equipment and personnel
needed to accomplish the long range production plan, and thus it is
frequently referred to as long range capacity planning.
 Intermediate range planning: usually covers a period from 6 to 18 months, with
time increment that are monthly or sometimes quarterly.
- focuses on tactical issues pertaining to aggregate workforce and material
requirements for the coming year.
- Typically reviewed and updated quarterly.
 Short range planning: covers a period from one day or less to six months, with
time increment usually weekly.
-addresses day-to-day issues of scheduling workers on specific jobs at
assigned work stations.
3.2. Master Production Schedule and Materials Requirement
Planning

Master Production Schedules (Mps): generates the amounts and dates of specific items
required for each order. For the production plan to be translated into meaningful terms for
production, it is necessary to disaggregate the aggregate plan. This involves breaking down
the aggregate plan into specific product requirements in order to determine labor
requirements (skills, size of workforce), materials and inventory requirements. The result of
disaggregating the aggregate plan is a master schedule showing the quantity and timing of
specific end items for a schedule horizon, which often covers about six to eight weeks ahead.

A master schedule shows demand for individual products rather than an entire product group,
along with the timing of production. It reveals when orders are scheduled for production and
when completed orders are to be shipped. Rough – cut capacity planning is then used to
verify that production and warehouse facilities, equipment, and labor are available and that
key vendors have allocated sufficient capacity to provide materials when needed.

Material Requirements Planning (MRP): takes the end product requirements from the
MPS and breaks them down into their component parts and subassemblies to create a
materials plan. This plan specifies when production and purchase orders must be placed for
each part and subassembly to complete the products on schedule. MRP begins with a
schedule for finished goods that is converted into a schedule of requirements for the
subassemblies, component parts and raw materials needed to produce the finished items in
the specified time frame. Thus, MRP is designed to answer three questions: what is needed?
How much is needed? And when is it needed? The primary in puts of MRP are
 a bill of materials which tells the composition of a finished product
 a master schedule which tells how much finished product is desired are when and
 an inventory records file which tells how much inventory is on hand or on order.

32
3.3. Production Activity Control: Scheduling
Detailed day-to- day planning of operations is called scheduling. Scheduling decisions allocate
available capacity or resources (equipment, labor and space) jobs, activities, tasks or customers over
time. Since scheduling is an allocation decision, it uses the resources made available by facilities
decisions and aggregate planning. Therefore, scheduling is the last and most constrained decision in
the hierarchy of capacity planning decisions.

In practice, scheduling results in a time phased plan, or schedule, of activities. The schedule indicates
what is to be done, when, by whom, and with what equipments. Scheduling should be differentiated
from aggregate planning. Aggregate planning seeks to determine the resources needed, while
scheduling allocates the resources made available through aggregate planning in the best manner to
meet operations objectives.
Scheduling deals with questions such as
 Which work centers will do which job?
 When should an operation / job be started? When should it end?
 On which equipment should it be done, and by whom?
 What is the sequence in which jobs/ operations need to be handled in facility or on equipment?

Why scheduling is necessary?

Scheduling operationalizes tactical plans by defining at the shop-floor level of production activity
exactly what each worker has to do to complete the operations management transformation
process. Scheduling provides the detailed instructions necessary to convert the production
objectives of the MPS into-day -to day directives for workers who perform different tasks.
Scheduling is a necessary operations management activity that helps the organization minimize
inefficiency and maximize customer service.

In scheduling, an organization allocates its production capacity to meet timely customer demand
requirements. If too much capacity is scheduled, idle workers and idle facilities will result in
costly waste of time causing poor service to customers and possibly a loss of business to the
organization. An organization that schedules the exact amount of capacity at the right time to meet
customer demand will optimize its resources.

Scheduling is also a tactical means of achieving a competitive advantage. Some organizations

have built flexibility into their scheduling systems to accommodate rapid changes in customer
demand. By designing operations management production scheduling systems to be highly
flexible, companies are better able to shift production activity to more profitable or sales
generating new markets as external demand shifts.

Basics of scheduling
Schedules should be easy to use, easy to understand, to carry out, and flexible enough to accommodate
necessary demand requirement changes.
The primary objective of short range scheduling in any type of production operation include
 Minimizing waste and inefficiency of human, technology and system resources
 Maximizing customer service
The objectives are universal to any type of operation.

33
Scheduling methods
Many different methods are used to develop a schedule in job operation. The selection of the methods
depends on the volume of orders and nature of the operation. Most of the scheduling methods can be
categorized as being forward scheduling, backward scheduling, or some combination of both.

 Forward scheduling. In forward scheduling actual production activities begin when a job
order is received. Materials and production capacity are immediately allocated to satisfy the
job order on its arrival. Forward scheduling refers to the situation in which the system takes an
order and then schedules each operation that must be completed forward in time. Forward
scheduling is used in fabrication operations in which custom products are the norm and product
demand is unknown until announced by the customer. Scheduling operating rooms, doctors,
nurses, and equipment for surgery in hospitals is one example of forward scheduling in a
service operation.
 Backward scheduling. In backward scheduling, production activities are scheduled by their
due dates, i.e., starting in reverse order with the due dates for job orders, production activity is
scheduled backward from the finished product to the procurement of materials. Backward
scheduling starts from some date in the future (a due date) and schedules the required
operations in reverse sequence. The backward schedule tells when an order must be started in
order to be done by specific date. An MRP system is an example of an infinite, backward
scheduling system for materials.

Backward scheduling is ideal for manufacturing organizations that use MRP systems in service
operations in which demand for services is known ahead of time. When a customer orders an
automobile from a manufacturer or a motion picture service organization produces a film,
backward scheduling is necessary to complete these products.

Priority Rules and Scheduling Techniques

When jobs go through only a single stage of production, they are scheduled one after another. If
jobs go through two or more stages of production (for example, two or more departments), we run
the risk of idle time occurring in some of the later stages or departments.

Johnson’s job sequencing rules can be used when we have a set of known jobs (and timing
requirements for each job) that must each go through a two- stage production process.
Ten priority rules for job sequencing
1. FCFS (first come, first served).
2. SOT/SPT (shortest operating/Processing time)
3. Due date –Earliest due date first
4. Start date – Due date minus normal lead time
5. STR (slack time remaining): time remaining before the due date – the processing time
remaining. Orders with the shortest STR are run first.
6. STR /OP (Slack time remaining per operation). Orders with shortest STR/OP is calculated as
follows:

34
 STR/OP = Time remaining before the due date – Remaining processing time
Number of remaining operations

7. CR (Critical Ratio): This is calculated as the difference between the due date and the current
date divided by the number of work days remaining. Orders with the smallest CR are run first.

8. QR (Queue ratio): This is calculated the slack time remaining in the schedule divided by the
planned remaining queue time. Orders with smallest QR are run first.

9. LCFS (Last come, First served). This rule occurs frequently by default. As orders arrive they
are placed on the top of the slack; the operator usually picks up the order on top to run first.

10. Random order or whim: The supervisors or the operators usually select whichever job they
feel like running.

Scheduling n Jobs on one Machine (n job one –machine problem: n/1)

Consider the following example:

Example.1. MM is a legal copy servicing firm. Five customers submitted their orders at the beginning
of the week. Specific scheduling data are as follows:

Job (in order of arrival) Processing Time days Due Date (days)

A 3 5
B 4 6
C 2 7
D 6 9
E 1 2

All orders require the use of only color copy machines available. The firm must determine the
processing sequence for the five orders. The evaluation criterion is minimum flow time. Suppose that
the firm decides to use the FCFS rule in an attempt to become fair to its customers.

Solution: Using FCFS Rule: the FCFS rule results in the following flow times:

FCFS SCHEDULE

Job sequence Processing Time (days) Due Date (Days hence) Flow time (days)

A 3 5 0+3 = 3
B 4 6 3+ 4 = 7
C 2 7 7+2=9
D 6 9 9 + 6 = 15

35
E 1 2 15 + 1=16

Total Flow Time = 3+7+9+ 15+ 16 = 50 days

Mean flow time = 50 days = 10 days
5

Comparing the due date of each job with its flow time, we observe that only job A will be on time.
Jobs B, C, D, and E will be late by 1, 2, 6, and 14 days respectively. On average, a job will be late by
(0 + 1+ 2+ 6+ 14)/ 5 = 4.6 days.

Solution: Find The Solutions Using Rules: SOT, DDDATE, LCFS, RANDOM, AND STR.

SOT SCHEDULE:

Job sequence Processing Time (days) Due Date (Days hence) Flow time (days)

E 1 2 0+1 = 1
C 2 7 1+2 = 3
A 3 5 3+3 = 6
B 4 6 6+4 =10
D 6 9 10+6= 16

Total flow time = 1+3+6+10+16= 36 days

Mean flow time = 36 = 7.2 days. SOT results in a lower average flow time than the FCFS rule.
5
In addition jobs E and C will be ready before the due date; job A is late by only one day. On the
average a job will be late by (0+ 0+ 1+4+7)/5 = 2.4 days.

DDDATE schedule:

Job sequence Processing Time (days) Due Date (Days hence) Flow time (days)

E 1 2 0+1 = 1
A 3 5 1+3 = 4
B 4 6 4+4 = 8
C 2 7 8+2 =10
D 6 9 10+6=16

Total completion time = 1+4+8+10+16= 39 days

Mean flow time = 7.8 days
In this case jobs B, C, and D will be late. On the average a job will be late by ( 0+ 0+2+3+7)/5= 2.4
days.

36
Solutions: LCFS, RANDOM, and STR RULES:

LCFS schedule

Job sequence Processing Time (days) Due Date (Days hence) Flow time (days)

E 1 2 0+1 = 1
D 6 9 1+ 6 = 7
C 2 7 7+2 = 9
B 4 6 9+4 = 13
A 3 5 13+3=16

Total completion time = 1+7+9+13+16= 46 days

Mean flow time = 9.2 days
Average lateness = 4.0 days

RANDOM schedule
Job sequence Processing Time (days) Due Date (Days hence) Flow time (days)

D 6 9 0+6 = 6
C 2 7 6+ 2 = 8
A 3 5 8+3 = 11
E 1 2 11+1 =12
B 4 6 12+4=16

Total completion time = 6+8+11+12+16= 53 days

Mean flow time = 10.6 days
Average lateness = 5.4 days

STR. Schedule

Job sequence Processing Time (days) Due Date (Days hence) Flow time (days)

E 1 2 0+1 = 1
A 3 5 1+ 3 = 4
B 4 6 4+4 = 8
D 6 9 8+6 =14
C 2 7 14+2=16

Total completion time = 1+4+8+14+16= 43 days

Mean flow time = 8.6 days
Average lateness = 3.2 days

37
COMPARISON OF PRIORIRTY RULES:

RULE TOTAL COMPLETION AVERAGE COMPLETION AVERAGE LATENESS

TIME (DAYS) TIME (DAYS) (DAYS)

FCFS 50 10 4.6
SOT 36 7.2 2.4
DDATE 39 7.8 2.4
LCFS 46 9.2 4.0
RANDOM 53 10.6 5.4
STR 43 8.6 3.2

Obviously, here SOT is better than the rest of the rules.

Scheduling n Jobs on Two Machines (n/2 Flow): Johnson’s rule.

The objective of this approach is to minimize the flow time from the beginning of the first job until the
finish of the last. Johnson’s rule consists of the following steps:
1. List the operation time for each job on both machines.
2. Select the shortest operation time.
3. If the shortest time is for the first machine, do the job first; if it is for the second machine, do
the job last.
4. Repeat steps 2 and 3 for each remaining until the job scheduling is complete.

EXAMPLE 2. n jobs on two machines. Scheduling four jobs through two machines.
Solution. Step 1: list operation times.

Job operation time on machine 1 operation time on machine 2

A 3 2
B 6 8
C 5 6
D 7 4

Step 2 and 3: select the shortest operation time and assign. Job A is shortest on machine 2 and is
assigned first and performed last. (Once assigned job A is no longer available to be scheduled).

Step 4. Repeat steps 2 and 3 until completion of schedule. Select the shortest operation time among the
remaining jobs. Job D is second shortest on machine 2, so it is performed second to last. ( remember
Job A is last). Now jobs A and D are not available any more for scheduling. Job C is the shortest on
machine one among the remaining jobs. Job C is performed first. Now job B is left with the shortest
operation time on machine 1. Thus according to step 3 it is performed first among the remaining, or
second overall. (Job C was already scheduled first).

38
In summary, the solution sequence is: C-B-D-A.

Scheduling a set number of Jobs on the same number of machines

Some job shops have enough of the right kinds of machines to start all jobs at the same time. Here the
problem is not which job to do first, but rather which particular assignment of individual jobs to
individual machines will result in the best overall schedule. In such cases, we can use the assignment
method.
The assignment method: is a special case of the transportation method of linear programming. It can
be applied to situations where there are n supply sources and n demand uses (e.g., five jobs on five
machines) and the objective is to minimize or maximize some measures of effectiveness. This
technique is convenient in applications involving allocation of jobs to work centers, people to jobs,
and so on. The assignment method is appropriate in solving problems that have the following
characteristics:
1. There are n things to be distributed to n destinations
2. Each thing must be assigned to and only one destination.
3. Only one criterion can be used (minimum cost, maximum profit, or minimum completion
time, for example).
Example: Suppose that a scheduler has five jobs that can be performed on any of five machines
(n=5). The cost of completing each job –machine combination is shown below. The scheduler
wants to devise a minimum- cost assignment.( there are 5!, or 120 possible assignments).

Machine

A B C D E
Job

I $5 $6 $4 $8 $3
II 6 4 9 8 5
III 4 3 2 5 4
IV 7 2 4 5 3
V 3 6 4 5 5

Solution: this problem may be solved by assignment method, which consists of four steps:
1. Subtract the smallest number in each row from it self and all other numbers in that row.
(There will then be at least one zero in each row).
2. Subtract the smallest number in each column from all other numbers in that column. (There
will then be at least one zero in each column).
3. Determine if the minimum number of lines required to cover each zero is equal to n. If so, an
optimal solution has been found, because job machines assignments must be made at the zero
entries. And this test proves that this is possible. If the minimum number of lines required to
cover each zero is less than n, then go to step 4.

39
 4. Draw the least possible number of lines through all zeros. Subtract the smallest number not
covered by the lines from it self and all other uncovered numbers, and add it to the number at
each intersection of lines. Repeat step 3.

Step 1: Row Reduction –the smallest number is deducted from each row.
Machine

A B C D E
Job

I 2 3 1 5 0
II 2 0 5 4 1
III 2 1 0 3 2
IV 5 0 2 3 1
V 0 3 1 2 2

Step 2: column Reduction –the smallest number is deducted from each column.
Machine

A B C D E
Job

I 2 3 1 3 0
II 2 0 5 2 1
III 2 1 0 1 2
IV 5 0 2 1 1
V 0 3 1 0 2

Step 3: apply line test- the number to lines to cover all zeros is 4; because 5 is required, go to step 4.
Machine

A B C D E
Job

I 2 3 1 3 0
II 2 0 5 2 1
III 2 1 0 1 2
IV 5 0 2 1 1
V 0 3 1 0 2

40
Step 4: subtract smallest uncovered number and add to intersection of lines – using lines drawn in step
3, smallest uncovered number is 1.
Machine

A B C D E
Job

I 1 3 0 2 0
II 1 0 4 1 1
III 2 2 0 1 3
IV 4 0 1 0 1
V 0 4 1 0 3

Optimum solution _by line test:

Machine

A B C D E
Job

I 1 3 0 2 0
II 1 0 4 1 1
III 2 2 0 1 3
IV 4 0 1 0 1
V 0 4 1 0 3

Optimum assignments and their costs:

Job I to Machine E $3
Job II to Machine B 4
Job III to Machine C 2
Job IV to Machine D 5
Job V to Machine A 3
Total cost $17

41
 Chapter IV. Quality Management
4.1. Introduction
Quality was viewed primarily as a defensive function rather than as a competitive weapon for
use in developing new markets and increasing market share. In this role, the quality emphasis
was quality control: reducing number of customer complaints that were received. As a result,
there was a heavy reliance on inspection (sorting the good from the bad) rather than on
prevention. Identifying defective output and either fixing it (rework) or disposing of it (scrap)
incurred cost. It was therefore, believed that higher quality must be more costly. Quality
control managers often reported to manufacturing managers, who measured primarily on
output; consequently they had little or no power to either stop production, or delay the
shipment of faulty products.

Today, however, more and more companies are recognising that quality can be defined in
many ways.

4.2. Meanings and Dimensions of Quality

Meanings of Quality
 Webster’s Dictionary
 degree of excellence of a thing
 American Society for Quality
 totality of features and characteristics that satisfy needs
 Consumers’ Perspective
-Fitness for use
 how well product or service does what it is supposed to do
-Quality of design
 designing quality characteristics into a product or service
 Producers’ Perspective
-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 not
functioning according to specifications of its design

42
 Meaning
Meaningof
ofQuality
Quality

Producer’s
Producer’sPerspective
Perspective Consumer’s
Consumer’sPerspective
Perspective

Quality
Qualityof
of Conformance
Conformance Quality
Qualityof
ofDesign
Design

Production
Production Conformance to Quality characteristics Marketing
Marketing
specifications Price
Cost

Fitness
Fitnessfor
for
Consumer
ConsumerUseUse

Quality in general is the ability of a product or service to consistently meet or exceed

customer expectations. Or it is the degree to which the design specifications for a product are
appropriate to its function and use and the degree to which a product conforms to its design
specifications.

Dimensions of Quality: Manufactured Products

 Performance
 basic operating characteristics of a product; how well a car is handled or its
gas mileage
 Features
 “extra” items added to basic features, such as a stereo CD or a leather interior
in a car.
 Reliability
 probability that a product will operate properly within an expected time frame;
that is, a TV will work without repair for about seven years
 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 repair
person
 Aesthetics
 how a product looks, feels, sounds, smells, or tastes
 Safety
 assurance that customer will not suffer injury or harm from a product; an
especially important consideration for automobiles
 Perceptions
 subjective perceptions based on brand name, advertising, and the like

43
 Dimensions of Quality: Service
 Time and Timeliness
 How long must a customer wait for service, and is it completed on time?
 Is an overnight package delivered overnight?
 Completeness:
 Is everything customer asked for provided?
 Is a mail order from a catalogue company complete when delivered?
 Courtesy:
 How are customers treated by employees?
 Are catalogue phone operators nice and are their voices pleasant?
 Consistency
 Is the same level of service provided to each customer each time?
 Is your newspaper delivered on time every morning?
 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 customer’s questions?
Quality Management is the management function that is responsible for all aspects of a
product’s quality.
Better reputation
Increased market Higher
share revenue
Better
product Higher prices
High
Profit
Higher Less waste and
quality scrap
Fewer
defects Higher
lower
productivity
costs
Lower inspection
costs

Lower warranty
costs

Higher quality leads to higher profits

44
4.3. Benefits and Costs of Quality

Benefits of Quality
 Less waste and increased productivity
 Lower unit costs and improved productivity
 Reduced warranty costs
 Elimination of procedures for correcting defects
 Reduced administrations for dealing with customer complaints
 Reduced liability for defects
 Competitive advantage coming from enhanced reputation
 Large market share with less effort in marketing
 Enhanced motivation and morale of employees
 Removal of hassle and irritants for managers
Costs of Quality
- can be divided in to three major categories: cost of prevention, cost of
detection/Inspection, and cost of failure.
- The total quality cost is the sum of costs in the three categories.

Cost of Quality

Control costs Failure costs

Prevention Appraisal
costs costs Internal External
failure Cost failure Cost

i) Cost of prevention
These are costs associated with the development of programs to prevent defectives from
occurring in the first place. The quality of product is set at the design stage, so the best way
to guaranteeing quality is by designing, a good product in the first phase. Prevention costs
cover all aspects of quality that are designed in to product, together with costs incurred to
ease production and reduce a chance of making a defect. They include direct costs for the
product itself, such as using the use of better materials, investment in machinery, inclusion of
features to ensure quality, while indirect costs include employee training, pilot runs, testing
prototypes, improvement projects.
ii) Appraisal costs
These are costs of making sure the designed quality is actually achieved. As units move
through their processes, they are inspected to make sure they actually reach the quality
specified in the design. Related costs include sampling, inspecting, testing machinery for

45
maintenance. The appraisal costs also cover administration and audits for quality
programmes. Generally the more effort that is put in to quality control, the higher is the
quality of the product, and the higher are the costs needed to achieve this.
iii) Cost of Failure
These are costs associated with the failure of a defective part. It pertains to non-conformance
and nonperforming products. Failure costs are of two types:
a) Internal failure costs – Costs associated with producing defective products that are
identified prior to shipping, which are traced somewhere in the process. As product passes
goes through various operations, it may be inspected and those do not meet the specified
quality are scrapped, returned to an earlier point in the process, or repaired. Internal failure
cost could be direct including loss of material, wasted labour, wasted machine time, extra
testing, duplicated efforts while indirect costs include higher stock levels, longer lead time,
extra capacity needed to allow for scrap and rejections, loss of confidence, etc.

b) External failure costs – These are total cost of making defective units that are not detected
within the process, but are recognized by customers that the product is faulty. These are costs
that the organization incurs after delivering the product to the customer. These are often the
highest cost of quality management and are the ones that should be avoided. These costs
include:
 Customer complaint costs
 costs of investigating and satisfactorily responding to a customer complaint
resulting from a poor-quality product
 Product return costs
 costs of handling and replacing poor-quality products returned by customer
 Warranty claims costs
 costs of complying with product warranties
 Product liability costs
 litigation costs resulting from product liability and customer injury
 Lost sales costs
 costs incurred because customers are dissatisfied with poor quality products
and do not make additional purchases.

4.4. Total Quality Management (TQM)

Total Quality management is defined as a continuous effort by the management as well as

employees of a particular organization to ensure long term customer loyalty and customer
satisfaction. Remember, one happy and satisfied customer brings ten new customers along
with him whereas one disappointed individual will spread bad word of mouth and spoil
several of your existing as well as potential customers.

You need to give something extra to your customers to expect loyalty in return. Total quality
management is a structured effort by employees to continuously improve the quality of their
products and services through proper feedbacks and research. Ensuring superior quality of a
product or service is not the responsibility of a single member. Every individual who receives
his /her paycheck from the organization has to contribute equally to design foolproof

46
processes and systems which would eventually ensure superior quality of products and
services.

Total Quality management is indeed a joint effort of management, staff members,

workforce, and suppliers in order to meet and exceed customer satisfaction level. You can’t
just blame one person for not adhering to quality measures. The responsibility lies on the
shoulder of everyone who is even remotely associated with the organization. W. Edwards
Deming, Joseph M. Juran, and Armand V. Feigenbaum jointly developed the concept of total
quality management. Total Quality management originated in the manufacturing sector, but
can be applied to almost all organizations.

Total quality management ensures that every single employee is working towards the
improvement of work culture, processes, services, systems and so on to ensure long term
success. In general, it is a philosophy that involves everyone in an organization in a continual
effort to improve quality and achieve customer satisfaction.

 Encompasses entire organization, from supplier to customer.

 Stresses a commitment by management to have a continuing, company-wide, drive
toward excellence in all aspects of products and services that are important to the
customer.

Total Quality management can be divided into four phases: plan, do, check and act (also
called PDCA) cycle.

Planning Phase- planning is the most crucial phase of total quality management. In this
phase employees have to come up with their problems and queries which need to be
addressed. They need to come up with the various challenges they face in their day to day
operations and also analyze the problem’s root cause. Employees are required to do
necessary research and collect relevant data which would help them find solutions to all the
problems.

Doing Phase- in the doing phase, employees develop a solution for the problems defined in
planning phase. Strategies are devised and implemented to overcome the challenges faced by
employees. The effectiveness of solutions and strategies is also measured in this stage.

Checking Phase- checking phase is the stage where people actually do a comparison
analysis of before and after data to confirm the effectiveness of the processes and measure
the results.

Acting Phase- in this phase employees document their results and prepare themselves to
address other problems.

Total quality management can be summarized as a management system for a customer-

focused organization that involves all employees in continual improvement. It uses strategy,
data, and effective communications to integrate the quality discipline into the culture and
activities of the organization.

47
Here are some essentials of total quality management:

 Customer-focused. The customer ultimately determines the level of quality. No

matter what an organization does to foster quality improvement—training employees,
integrating quality into the design process, upgrading computers or software, or
buying new measuring tools—the customer determines whether the efforts were
worthwhile.
 Total employee involvement. All employees participate in working toward common
goals. Total employee commitment can only be obtained after fear has been driven
from the workplace, when empowerment has occurred, and management has provided
the proper environment. High-performance work systems integrate continuous
improvement efforts with normal business operations. Self-managed work teams are
one form of empowerment.
 Process-centered. A fundamental part of TQM is a focus on process thinking. A
process is a series of steps that take inputs from suppliers (internal or external) and
transforms them into outputs that are delivered to customers (again, either internal or
external). The steps required to carry out the process are defined, and performance
measures are continuously monitored in order to detect unexpected variation.
 Integrated system. Although an organization may consist of many different
functional specialties often organized into vertically structured departments, it is the
horizontal processes interconnecting these functions that are the focus of TQM.
o Micro-processes add up to larger processes, and all processes aggregate into
the business processes required for defining and implementing strategy.
Everyone must understand the vision, mission, and guiding principles as well
as the quality policies, objectives, and critical processes of the organization.
Business performance must be monitored and communicated continuously.
o Every organization has a unique work culture, and it is virtually impossible to
achieve excellence in its products and services unless a good quality culture
has been fostered. Thus, an integrated system connects business improvement
elements in an attempt to continually improve and exceed the expectations of
customers, employees, and other stakeholders.
 Strategic and systematic approach. A critical part of the management of quality is
the strategic and systematic approach to achieving an organization’s vision, mission,
and goals. This process, called strategic planning or strategic management, includes
the formulation of a strategic plan that integrates quality as a core component.
 Continual improvement. A major thrust of TQM is continual process improvement.
Continual improvement drives an organization to be both analytical and creative in
finding ways to become more competitive and more effective at meeting stakeholder
expectations.
 Fact-based decision making. In order to know how well an organization is
performing, data on performance measures are necessary. TQM requires that an
organization continually collect and analyze data in order to improve decision making
accuracy, achieve consensus, and allow prediction based on past history.
 Communications. During times of organizational change, as well as part of day-to-
day operation, effective communications plays a large part in maintaining morale and

48
 in motivating employees at all levels. Communications involve strategies, method,
and timeliness.

Elements of Total Quality Management

Some of the important elements of total quality management are: (i) Management’s
commitment to quality (ii) Customer satisfaction (iii) Preventing rather than detecting defects
(iv) Measurement of Quality (v) Continuous improvement (vi) Corrective action for root
cause (vii) Training (viii) Recognition of high quality (ix) Involvement of Employees and (x)
Benchmarking.

(i) Management’s commitment to quality

If an organization is serious about implementing TQM, the lead has to be taken by the top
management with full commitment. It must initiate quality improvement programmes. The
top management should continue all the efforts and provide the resources to continue quality
improvement programmes. This is provided by collecting, reporting and use of quality
related cost information.

(ii) Customer satisfaction

TQM is designed in such a manner so as to meet the expectations of customers. In the present
era, customer is the king. It must be recognized that customers are the most important
persons for any business. The very existence of an organization depends on them. They are
the life blood of a business and deserve the most courteous and affectionate treatment.

(iii) Preventing rather than detecting defects

TQM checks the poor quality products or services rather than simply to detect and sort out
defects. “Prevention rather than detection” is the main characteristic of TQM. Some of the
important techniques of TQM which aim at the prevention of defects rather than the detection
of the defects are statistical process control, continuous process improvement and problem
solving and system failure analysis etc.

(iv) Measurement of Quality

Quality is a measurable entity and we must know what current quality levels are i.e. where
we are or where we stand in respect of the quality and what quality levels we are aspiring for
or where we are going.

(v) Continuous improvement

TQM comprises of a continuous process of improvement covering people, equipment,

suppliers, materials and procedures. It includes every aspect of an operation in an
organization. In Japan the word “Kaizen” is used to describe the continuous process of
improvement.

49
(vi) Corrective action for root cause

TQM aims at preventing repetition of problems by identifying the root causes for their
occurrence and developing means and corrective actions to solve the problems of the root
level. Failure analysis and problem solving skills are very useful techniques in this regard.

(vii) Training

Proper training programmes have to be undertaken to train the employees for the use of TQM
concepts and techniques. Employees have to be provided regular training for continuous
improvement.

(viii) Recognition of high quality

TQM aims at developing long term relationships with a few high quality suppliers rather than
those suppliers who supply the inferior goods at the low cost.

(ix) Involvement of Employees

Involvement of employees means that every employee is completely involved at every step
of production process which plays an active role in helping the organization to meet its
targets. Employee involvement and empowerment can be assured by enlarging the
employee’s job so that responsibility and authority is moved to the lowest level possible in
the organization.

(x) Benchmarking

Benchmarking is a systematic method by which organizations can measure themselves

against the best industry practices. Benchmarking aims at developing best practices that will
lead to better performance. It helps a company to learn and incorporate the best practices into
its own operations. Benchmarking is a technique of distinguishing an organization’s efforts
with the best performance in the field and also to suggest how the gap between the two
performances can be removed. Thus, benchmarking is a technique of continuous
improvement.

4.4.1. Comparison of Six Sigma and Total Quality Management

Both Six Sigma and total quality management are effective tools for quality management but
a thin line of difference does exist between them. Although the methodologies and
procedures involved in both the two appear quite similar but there are certain major
differences.

Six-Sigma is a relatively newer concept than total quality management but not exactly its
replacement. The basic difference between total quality management and Six Sigma is that

50
the main focus of total quality management is to maintain existing quality standards whereas
Six Sigma primarily focuses on making small necessary changes in the processes and
systems to ensure high quality.

The process of total quality management does reach to a saturation level after a certain period
of time. After reaching the saturation stage, no further improvements in quality can be made.
Six Sigma on the other hand seldom reaches the saturation stage by initiating a next level
quality process. The process of total quality management involves improvement in existing
policies and procedures to ensure high quality. Six-Sigma focuses on improving quality by
minimizing and eventually eliminating defects from the system.

The process of total quality management ensures that every single member associated with
the organization is working towards the improvement of existing processes, systems, services
and work culture for long term quality products/services. Six Sigma, on the other hand
focuses on first identifying and eventually removing various defects and obstacles which
might come in the way of organization’s success. In a layman’s language total quality
management emphasizes on improving the existing policies and making necessary changes in
the systems to ensure superior quality products and services. Organizations practicing Six
Sigma are focused on removing errors and defects to ensure high quality products.

Total Quality management is a less complicated process than Six Sigma. Six-Sigma involves
specially trained individuals whereas total quality management does not require extensive
training. The process of Six Sigma creates special levels for employees who are only eligible
to implement the same. Employees trained for Six Sigma are often certified as “Green Belts”
or “Black Belts” depending on their level of proficiency. Six-Sigma requires participation of
only certified professionals whereas total quality management can be referred to a part time
activity which does not require any special training. Six-Sigma can be implemented by
dedicated and well trained professionals.

Six-Sigma is known to deliver better and effective results as compared to total quality
management. The process of Six Sigma is based on customer feedbacks and is more accurate
and result oriented. Customer feedbacks play an important role in Six Sigma. Experts predict
that six sigma will outshine total quality management in due course of time.

4.4.2. Kaizen

“Kaizen” refers to a Japanese word which means “improvement” or “change for the better”.
Kaizen is defined as a continuous effort by each and every employee (from the CEO to field
staff) to ensure improvement of all processes and systems of a particular organization. Work
for a Japanese company and you would soon realize how much importance they give to the
process of Kaizen. The process of Kaizen helps Japanese companies to outshine all other
competitors by adhering to certain set policies and rules to eliminate defects and ensure long
term superior quality and eventually customer satisfaction.

51
Kaizen works on the following basic principle.

“Change is for good”.

Kaizen means “continuous improvement of processes and functions of an organization

through change”. In a layman’s language, Kaizen brings continuous small improvements in
the overall processes and eventually aims towards organization’s success. Japanese feel that
many small continuous changes in the systems and policies bring effective results than few
major changes.

Kaizen process aims at continuous improvement of processes not only in manufacturing

sector but all other departments as well. Implementing Kaizen tools is not the responsibility
of a single individual but involves every member who is directly associated with the
organization. Every individual, irrespective of his/her designation or level in the hierarchy
needs to contribute by incorporating small improvements and changes in the system.

Five S of Kaizen

“Five S” of Kaizen is a systematic approach which leads to foolproof systems, standard

policies, rules and regulations to give rise to a healthy work culture at the organization. You
would hardly find an individual representing a Japanese company unhappy or dissatisfied.
Japanese employees never speak ill about their organization. Yes, the process of Kaizen
plays an important role in employee satisfaction and customer satisfaction through small
continuous changes and eliminating defects. Kaizen tools give rise to a well organized
workplace which results in better productivity and yield better results. It also leads to
employees who strongly feel attached towards the organization.

Let us understand the five S in Detail:

1. SEIRI - SEIRI stands for Sort Out. According to Seiri, employees should sort out and
organize things well. Label the items as “Necessary”, ”Critical”, ”Most Important”,
“Not needed now”, “Useless and so on. Throw what all is useless. Keep aside what all
is not needed at the moment. Items which are critical and most important should be
kept at a safe place.
2. SEITION - Seition means to organize. Research says that employees waste half of
their precious time searching for items and important documents. Every item should
have its own space and must be kept at its place only.

52
 3. SEISO - The word “SEISO” means shine the workplace. The workplace ought to be
kept clean. Necessary documents should be kept in proper folders and files. Use
cabinets and drawers to store your items.
4. SEIKETSU-SEIKETSU refers to Standardization. Every organization needs to have
certain standard rules and set policies to ensure superior quality.
5. SHITSUKE or Self Discipline - Employees need to respect organization’s policies
and adhere to rules and regulations. Self discipline is essential. Do not attend office in
casuals. Follow work procedures and do not forget to carry your identity cards to
work. It gives you a sense of pride and respect for the organization.

Kaizen focuses on continuous small improvements and thus gives immediate results.

Quality Circle
 Group of 6-12 employees from same work area who Meet regularly to solve work-
related problems
 Facilitator trains & helps with meetings
Essential conditions for success of quality at circle:
 Well educated workforce( competent, motivated)
 Employees are willing to exchange views
 Employees see themselves as working for the good of the organization
 Management who are willing to share information about operations
 Senior management who implement the suggested improvements.

4.5. Statistical Quality Control

In the last section, we learned that total quality management (TQM) addresses organizational
quality from managerial and philosophical viewpoints. TQM focuses on customer-driven
quality standards, managerial leadership, continuous improvement, quality built into product
and process design, quality identified problems at the source, and quality made everyone’s
responsibility. However, talking about solving quality problems is not enough. We need
specific tools that can help us make the right quality decisions. These tools come from the
area of statistics and are used to help identify quality problems in the production process as
well as in the product itself.

Statistica1 Quality Control (SQC) is the term used to describe the set of statistical tools
used by quality professionals. Statistical quality control can be divided into three broad
categories:

1. Descriptive statistics are used to describe quality characteristics and relationships.

Included are statistics such as the mean, standard deviation, the range, and a measure
of the distribution of data.
2. Statistical process control (SPC) involves inspecting a random sample of the output
from a process and deciding whether the process is producing products with

53
 characteristics that fall within a predetermined range. SPC answers the question of
whether the process is functioning properly or not.
3. Acceptance sampling is the process of randomly inspecting a sample of goods and
deciding whether to accept the entire lot based on the results. Acceptance sampling
determines whether a batch of goods should be accepted or rejected.

The tools in each of these categories provide different types of information for use in
analyzing quality. Descriptive statistics are used to describe certain quality characteristics,
such as the central tendency and variability of observed data. Although descriptions of
certain characteristics are helpful, they are not enough to help us evaluate whether there is a
problem with quality. Acceptance sampling can help us do this. Acceptance sampling helps
us decide whether desirable quality has been achieved for a batch of products, and whether to
accept or reject the items produced. Although this information is helpful in making the
quality acceptance decision after the product has been produced, it does not help us identify
and catch a quality problem during the production process. For this we need tools in the
statistical process control (SPC) category.

The quality control tools do not only measure the value of a quality characteristic. They also
help us identify a change or variation in some quality characteristic of the product or process.
Variation in the production process leads to quality defects and lack of product consistency.
The Intel Corporation, the world’s largest and most profitable manufacturer of
microprocessors understands this. Therefore, Intel has implemented a program it calls “copy-
exactly” at all its manufacturing facilities. The idea is that regardless of whether the chips are
made in Arizona, New Mexico, Ireland, or any of its other plants, they are made in exactly
the same way. This means using the same equipment, the same exact materials, and workers
performing the same tasks in the exact same order. The level of detail to which the “copy-
exactly” concept goes is meticulous. For example, when a chip making machine was found to
be a few feet longer at one facility than another, Intel made them match.

When water quality was found to be different at one facility, Intel instituted a purification
system to eliminate any differences. Even when a worker was found polishing equipment in
one direction, he was asked to do it in the approved circular pattern. Why such attention to
exactness of detail? The reason is to minimize all variation. Now let’s look at the different
types of variation that exist.

Sources of Variation: Common and Assignable Causes

If you look at bottles of a soft drink in a grocery store, you will notice that no two bottles are
filled to exactly the same level. Some are filled slightly higher and some slightly lower.
Similarly, if you look at blueberry muffins in a bakery, you will notice that some are slightly
larger than others and some have more blueberries than others. These types of differences are
completely normal.

No two products are exactly alike because of slight differences in materials, workers,
machines, tools, and other factors. These are called common, or random, causes of
variation. Common causes of variation are based on random causes that we cannot identify.
These types of variation are unavoidable and are due to slight differences in processing.

54
An important task in quality control is to find out the range of natural random variation in a
process. For example, if the average bottle of a soft drink called Cocoa Fizz contains 16
ounces of liquid, we may determine that the amount of natural variation is between 15.8 and
16.2 ounces. If this were the case, we would monitor the production process to make sure
that the amount stays within this range. If production goes out of this range—bottles are
found to contain on average 15.6 ounces—this would lead us to believe that there is a
problem with the process because the variation is greater than the natural random variation.

The second type of variation that can be observed involves variations where the causes can
be precisely identified and eliminated. These are called assignable causes of variation.
Examples of this type of variation are poor quality in raw materials, an employee who needs
more training, or a machine in need of repair. In each of these examples the problem can be
identified and corrected. Also, if the problem is allowed to persist, it will continue to create a
problem in the quality of the product. In the example of the soft drink bottling operation,
bottles filled with 15.6 ounces of liquid would signal a problem. The machine may need to be
readjusted. This would be an assignable cause of variation. We can assign the variation to a
particular cause (machine needs to be readjusted) and we can correct the problem (readjust
the machine).

4.6. Inspection vs. Statistical Quality Control

Inspection is the art of determining actual conformity of product to the specifications laid
down for it. It is a tool to control the quality of a product. Thus, inspection means checking
the acceptability of the manufactured product. It measures the quality of a product or service
in terms of predefined standards. Product quality may be specified in terms of strength,
hardness, shape, surface finish, etc.

Inspection can be either preventive or corrective. Preventive inspection is concerned with

discovering defects, the cause of defects, and helping in the removal of such causes.
Corrective (remedial) inspection, on the other hand, deals with sorting out good parts from
the bad ones. Its primary purpose is to discover the defective parts that have already been
manufactured and prevent their use in the final product. Many firms use both types of
inspection, but the emphasis is often on preventive inspection. The idea is to prevent the
inferior parts from further processing down the production line. This, in turn, will reduce the
labour cost.
Inspecting all the items is very time consuming and costly affair. An alternative to this is
statistical control (SQC) which is a type of inspection based on probability and mathematical

55
 techniques. In many instances it may be used in place of ordinary inspection procedures. Its
objective, like that of inspection, is to control quality level of product without doing 100
percent inspection. SQC uses statistical methods to gather and analyze data in the
determination and control of quality. It is based on sampling, probability, and statistical
inference, i.e., judging an entire lot by the characteristics of a sample.

The question often raised is ‘whether a sample always reflects the true characteristics of the
production lot’. The answer is no. However, the sampling may be the only way to estimate
the quality of a lot. For example, the only way to determine the life of an electric bulb is to
burn it until it burns out or the only way to test a rifle shell is to fire it. In each of these cases,
inspection is destructive, and sampling is obviously required if the product is to be marketed.

Any Inspection procedure involving 100% inspection needs huge expenditure of time, money
and labor. Expenditure on inspection always considered as ‘dead weight cost’. Moreover, due
to boredom and fatigue involved in repetitive inspection process there is a possibility to over
look some defective item even by most efficient and competent inspectors. Eventually in such
cases 100% inspection cannot be planned.

The alternative inspection is statistical sampling inspection in which items sampled using
different sampling techniques. In such method from the whole lot some items are selected for
inspection and detection. Thus whole lot is accepted if the sample items confirm to the
specifications otherwise it is rejected. The method of accepting or rejecting a lot on the bases
of a sample is known as acceptance sampling or sampling inspection.
Terms Used in Acceptance Sampling
1. Average out Going Quality (AOQ): AOQ is the fraction of defectives in the outgoing lots
after sampling inspection. It is defined as:

2. Accepted Quality Level (AQL): is the maximum proportion of defectives which the
customers find acceptable. It is the fraction of defective that can be tolerated without
serious effect upon further processing or on customer relations. It is the maximum

56
 percent of defectives that for the purpose of sampling inspection can be considered
satisfactory. The percentage of defects at which consumers are willing to accept lots
as “good”.
3. Rejectable Quality Level (RQL): This prescribes the dividing line between good and
bad items. Items at this level of quality are considered to be poor and have low
probability of acceptance. The probability of accepting a lot at RQL represents consumer
risk. It’s also known as Lot Tolerance Percent Defective (LTPD).
4. Operations Characteristics Curve (OC Curve): The following four situations can
happen when we go for acceptance sampling plans.
i. We accept good lots iii. We reject bad lots.
ii. We may accept bad lots iv. We may reject good lots.
In vast majority cases, we do accept good lots and reject bad lots when we apply acceptance
sampling plans. In rare case, we may accept bad lots even though the quality of the lot is bad,
based on sampling evidence. When the good lot is rejected the error is known as Type-I error
and the risk of rejecting a good lot based on sample evidence is known as producer risk ()
which should be kept as low as possible.

When the bad lot is accepted as a good lot based on the sample evidence the error is known
as type-II error and the risk of accepting a bad lot as good is known as consumer
risk()which again should kept as low as possible. Type-I and Type-II errors can be
minimized by increasing sample size (n). Ideal OC curve is possible only by 100%
inspection. Operation Characteristics (OC) curve shows how well an acceptance plan
discriminates between good and bad lots. The following graph shows OC curve.

57
The first thing to notice about the OC curve in the figure is the shape; the
curve is not a straight line. Notice the roughly “S” shape. As the lot
percent nonconforming increases, the probability of acceptance
decreases, just as you would expect.

58