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 and

R.B. KHANNA
Formerly Professor
Indian Institute of Planning and Management (11PM)
Jaipur

[;Ju1IT\Y7GJO@ ~D[illDG@dJ
Delhi-110092
2015
PRODUCTION AND OPERATIONS MANAGEMENT, Second Edition
R.B. Khanna

© 2015 by PHI Learning Private Limited, Delhi. All rights reserved. No part of this book may be
reproduced in any form, by mimeograph or any other means, without permission in writing from
the publisher.

ISBN-978-81-203-5121-9

The export rights of this book are vested solely with the publisher.

Fifth Printing (Second Edition) May, 2015

Published by Asoke K. Ghosh, PHI Learning Private Limited, Rimjhim House, 111, Patparganj
Industrial Estate, Delhi-110092 and Printed by Rajkamal Electric Press, 8-35/9, G.T. Kamal Road
Industrial Area, Delhi-110033.
 To
my dear wife SARO J
who stood by patiently when the demands of this book
took priority over her demands for my time
Contents

Preface xiii
Preface to the First Edition xv

Part I: The Why of Production and Operations Management

1. Operations Management-An Introduction 3-14
Learning Objectives 3
1.1 Introduction 3
1.2 Difference between Products and Services 5
1.3 What is Operations Management? 6
1.4 Brief History of Operations Management 7
1.5 Impact of Information Technology and Globalisation 10
1.6 Organisation of This Book 11
Concept Quiz 11
Questions 14

2. Operations Strategy and Competitiveness 15-27

Learning Objectives 15
2.1 Introduction 15
2.2 Business Strategy 16
2.3 Competitive Priorities 16
2.4 Order Qualifiers and Order Winners 19
2.5 Developing an Operations Strategy 20
2.6 Productivity and Competitiveness 21
2.7 Latest Trends 23
2.8 Summary 24
Concept Quiz 25
Questions 27

Part II: The What of Production and Operations Management

3. Product and Service Design 31-43
Learning Objectives 31
3.1 Introduction 31
V
vi Contents

3.2 Traditional Approach 32

3.3 Concurrent Design 33
3.4 Steps in The Design Process 33
3.5 Design for Manufacture and Assembly (DFMA) 37
3.6 Design of Services 37
3.7 Classification of Services 39
3.8 Technology and Design 40
3.9 Summary 40
Concept Quiz 41
Questions 43

4. Reliability, Maintainability, Availability and Value Analysis 44-57

Learning Objectives 44
4.1 Introduction 44
4.2 Failures 45
4.3 Reliability 46
4.4 Maintainability 47
4.5 Availability 48
4.6 Maintenance 49
4.7 Value Analysis 51
4.8 Summary 53
Concept Quiz 54
Questions 56

Supplement 1: Dynamic Programming 58-67

Introduction 58
Definitions 58
Summary 65
Questions 65

Supplement 2: Replacement Models 68-76

Introduction 68
Replacement of an Equipment which Deteriorates Over Time 68
Replacement of Items that Fail Completely 71
Summary 73
Questions 73

5. Product Quality 77-95

Learning Objectives 77
5.1 Introduction 77
5.2 Quality of Design 78
5.3 Quality of Conformance to Design 79
5.4 Costs of Quality 80
5.5 Total Quality Management 82
5.6 Quality Improvement and Employees 85
5.7 Tools for Identifying Quality Problems and Causes 86
5.8 ISO 9000:2000 89
5.9 Summary 92
Concept Quiz 92
Questions 95
 Contents vii

Part III: The How of Production and Operations Management

6. Process Design and Selection 99-118

Learning Objectives 99
6.1 Introduction 99
6.2 Factors Affecting Process Design 100
6.3 Processes Flow Structures 101
6.4 Process Selection 105
6.5 Group Approach 107
6.6 Other Manufacturing Technologies 108
6. 7 Process Design and Selection for Services 109
6.8 Summary 113
Concept Quiz 114
Questions 116

7. Work Study 119-147

Learning Objectives 119
7.1 Introduction 119
7.2 Behavioural Impact of Work Study 120
7.3 Method Study 120
7.4 Select 121
7.5 Record 121
7.6 Critical Examination 124
7.7 Develop 125
7.8 Install 125
7.9 Maintain 125
7.10 Ergonomics 127
7.11 Methods Improvement and Materials Handling 132
7.12 Work Measurement 132
7.13 Time Study 133
7.14 Activity Sampling 137
7.15 Predetermined Motion Time Systems 139
7.16 Synthetic Timings 140
7.17 Analytical Estimating 141
7.18 Summary 141
Concept Quiz 143
Questions 145

8. Process Quality-Statistical Quality Control 148-182

Learning Objectives 148
8.1 Introduction 148
8.2 Process Capability 150
8.3 Six Sigma Quality 151
8.4 Process Control 151
8.5 Process Control for Attributes-p Charts 152
8.6 Process Control for Attributes-c Charts 154
8.7 Process Control for Variables-X and R Charts 155
8.8 Using Control Charts 160
8.9 Acceptance Sampling 162
8.10 Operating Characteristics Curve 163
viii Contents

8.11 Average Outgoing Quality Limit (AOQL) 166

8.12 Sampling Plans 167
8.13 Solution by Computer Package 168
8.14 Summary 175
Concept Quiz 177
Questions 179

Part IV: The Where of Production and Operations Management

9. Facility Location 185-209
Learning Objectives 185
9.1 Introduction 185
9.2 The Why of Location Decision Problems 186
9.3 Factors Affecting Facility Location 186
9.4 Factor Rating Analysis and Forced Decision Matrix 189
9.5 Economic Analysis 192
9.6 Load Distance Methods 199
9.7 Locating Service Facilities 203
9.8 Summary 203
Concept Quiz 204
Questions 206

10. Facility Layout 210-238

Learning Objectives 210
10.1 Introduction 210
10.2 Factors Affecting Layout 211
10.3 Basic Production Layout Formats 212
10.4 Process Layout 213
10.5 Systematic Layout Planning 217
10.6 Product Layout 219
10.7 Line Balancing 219
10.8 Machine Balancing in Group Technology 226
10.9 Service Layout 229
10.10 Summary 230
Concept Quiz 232
Questions 234

11. Capacity and Equipment Selection 239-256

Learning Objectives 239
11.1 Introduction 239
11.2 Capacity 240
11.3 Decision Tree Analysis 240
11.4 Allocation of Capacities Through Linear Programming 244
11.5 Simulation 247
11.6 Economic Analysis for Equipment Selection 247
11.7 Equipment Balancing 248
11. 8 Summary 250
Concept Quiz 252
Questions 253
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 Contents ix
Supplement 3: Simulation 257-283
Introduction 257
Steps Involved in Monte Carlo Simulation 258
Summary 278
Questions 278

Part V: The When of Production and Operations Management

12. Forecasting 287-314
Learning Objectives 287
12.1 Introduction 287
12.2 Types of Forecasts 288
12.3 Qualitative Methods of Forecasting 288
12.4 Time Series Analysis 289
12.5 Simple Moving Average 290
12.6 Weighted Moving Average 291
12.7 Exponential Smoothing 292
12.8 Causal Methods 295
12. 9 Linear Regression 295
12.10 Multiple Regression 298
12.11 Decomposition of Time Series 301
12.12 Measures of Forecasting Accuracy 304
12.13 Selecting A Forecasting Method 306
12.14 Summary 309
Concept Quiz 310
Questions 312

13. Aggregate Production Planning 315-337

Learning Objectives 315
13.1 Introduction 315
13.2 Production Planning System 315
13.3 Aggregate Production Planning 317
13.4 Production Planning Strategies 318
13.5 Aggregate Planning Techniques 319
13.6 Linear Programming Approach 324
13. 7 Transportation Model Approach 327
13.8 Other Methods 330
13. 9 Aggregate Planning for Services 330
13.10 Yield Management 331
13.11 Summary 333
Concept Quiz 333
Questions 335

14. Material Management and Inventory Control 338-366

Learning Objectives 338
14.1 Introduction 338
14.2 Material Management 339
14.3 Objectives of Materials Management Department 339
14.4 Centralisation Versus Decentralisation 341
14.5 Inventory Management 341
14.6 Costs Associated with Inventory 342
X Contents

14.7 EOQ Model 344

14.8 EOQ Model-Discounts and Price Breaks 346
14.9 EOQ Model-Eliminating the Instant Receipt Assumption 348
14.10 A Practical Approach-When Costs are not Known 349
14.11 Selective Inventory Control-ABC Analysis 352
14.12 Ordering Systems 356
14.13 Fixed Order Quantity System 357
14.14 Fixed Interval System 359
14.15 Other Systems 360
14.16 Simulation 360
14.17 Summary 360
Concept Quiz 361
Questions 363

15. Material Requirements Planning 367-386

Learning Objectives 367
15.1 Introduction 367
15.2 Material Requirements Planning (MRP) 368
15.3 MRP System Structure 369
15.4 Master Production Schedule (MPS) 370
15.5 Bill of Materials 371
15.6 Inventory Status 372
15.7 MRP Procedure 373
15.8 Capacity Requirements Planning 375
15.9 Lot Size 377
15.10 Summary 380
Concept Quiz 382
Questions 384

16. Operations Scheduling 387-416

Learning Objectives 387
16.1 Introduction 387
16.2 Approaches To Scheduling 388
16.3 Objectives 389
16.4 Loading 389
16.5 Priority Rules 393
16.6 n Jobs 2 Stations 397
16.7 n Jobs 2 Stations-Different Sequence 398
16.8 n Jobs m Stations 399
16.9 2 Jobs Through m Stations in Random Order 402
16.10 Monitoring and Control 402
16.11 Employee Scheduling for Services 405
16.12 Summary 406
Concept Quiz 407
Questions 410

17. Supply Chain Management 417-429

Learning Objectives 417
17.1 Introduction 417
17.2 Supply Chain Management (SCM) 418
17.3 Information in the Supply Chain 419
 Contents xi
17.4 Suppliers 421
17.5 Distribution 423
17.6 Distribution Centres and Warehousing 423
17.7 Transportation 425
17.8 Managing the Global Supply Chain 425
17. 9 Summary 425
Concept Quiz 427
Questions 429

18. Enterprise Resource Management 430-439

Learning Objectives 430
18.1 Introduction 430
18.2 Enterprise Resource Planning (ERP) 431
18.3 ERP Implementation 433
18.4 ERP Implementation Methodology 434
18.5 ERP and Related Business Software 435
18.6 Summary 436
Concept Quiz 437
Questions 438

19. Just-in-Time Production System 440-451

Learning Objectives 440
19.1 Introduction 440
19.2 Jit Philosophy 441
19.3 Elimination of Waste 441
19.4 Respect for People 446
19.5 JIT Implementation Requirements 447
19.6 Summary 448
Concept Quiz 449
Questions 451

20. Queuing Theory 452-475

Learning Objectives 452
20.1 Introduction 452
20.2 Queuing and Cost Behaviour 453
20.3 Definitions for Queuing Systems 453
20.4 Single Channel, Single Server Queuing Model (M/M/1) 456
20.5 Economic Aspects of Queuing 461
20.6 Solution Through Computer Package (WinQSB) 462
20.7 Summary 469
Concept Quiz 470
Questions 472

21. Project Planning and Control I-Network Models 476-532

Learning Objectives 476
21.1 Introduction 476
21.2 Network Analysis 477
21.3 Critical Path Method (CPM) 477
21.4 Definitions 479
21.5 Rules and Conventions 480
21.6 Drawing a Network 480
xii Contents

21.7 Calculating Earliest Start Time 482

21.8 Calculating Latest Finish Time (LFT) 483
21.9 Floats (Slacks), Critical Activities and Critical Path 485
21.10 Activity on Node (AON) Network 488
21.11 Crashing a Project 493
21.12 Resource Levelling 498
21.13 Control of Project Costs 500
21.14 Programme Evaluation and Review Technique (Pert) 502
21.15 Updating a Network 505
21.16 Difference Between Pert and CPM 509
21.17 Solution by Computer Packages 509
21.18 Solved Examples 513
21.19 Summary 521
Concept Quiz 522
Questions 524

22. Project Planning and Control II-Line of Balance 533-541

Learning Objectives 533
22.1 Introduction 533
22.2 Summary 538
Concept Quiz 538
Questions 539

Part VI: The Who of Production and Operations Management

23. Human Resources in Operations Management 545-557

Learning Objectives 545
23.1 Introduction 545
23.2 Human Resources and Operations Management 546
23.3 Acquisition of Human Resources 547
23.4 Training and Development 548
23.5 Performance and Retention 550
23.6 Latest Trends 553
23. 7 Summary 554
Concept Quiz 555
Questions 557

Case Studies 559-576

Appendix A-The Standard Normal Probability Distribution 577-578
Appendix B-Values of E-1 for Computing Poisson Probabilities 579
Appendix C-Table of Random Numbers 580-581
Answers to Concept Quiz and Selected Questions 583-600
Bibliography 601-604
Index 605-609
Preface

The overwhelming response to the first edition of the book has inspired me to present
the second edition. The changes in this book are based on the feedback and suggestions
from my colleagues and my readers which I gratefully acknowledge.
While essentially retaining the flavour of the first edition, I have added a concept quiz
to every chapter of the book. A section on Maintenance has been added to Chapter 4 and
a new section covering the nuances of Activity on Node Networks has been incorporated
in Chapter 21. This has been done keeping in view the fact that most computer softwares
which are in use today for network analysis and project management, draw networks in
an 'activity on node' format. This will help the reader to interpret computer solutions
with ease.
A separate section on short case studies has been introduced. The section contains
ten progressively built up case studies so that readers can exercise their minds on
real-life situations.
The text has been suitably amended and enhanced wherever needed.
A revised CD containing Power Point presentations for all chapters, answers to selected
questions and case notes for case studies is available as resource material for instructors.
I look forward to continuing support from my colleagues and readers and shall
welcome any suggestions for further improvement so that I can fully satisfy the
needs and requirements of my readers. The suggestions/feedback can be sent at
[email protected] and [email protected].
R.B. KHANNA

xiii
Preface to the First Edition

Organisations exist to fulfil the needs of society, or we may say the needs of customers.
The fulfilment of these needs is through products and services. All organisations, are
engaged in the manufacture of products or the provision of services. The production or
operations activity employs the bulk of the assets, most of the manpower and a large
portion of the capital. It is imperative that these resources are managed properly.
Management students tend to view production and operations management as
something more suitable for engineering students than for themselves. But this is not true.
Engineers deal with technical aspects of production. They are rarely, if ever, concerned
with customers or come in direct contact with them. Production operations deal with
the designing of products and services, the procurement of the required resources and
the transformation of these resources to products or services. There are also inseparable
linkages to other managerial functions.
The success of an organisation depends on the success of its production or operations.
If production operations fail, the organisation loses its very reason for existence. Expertise
in marketing, finance and human resources alone is not enough to run a successful
organisation. The production function, even though viewed as a cost centre, is mainly
responsible for the profits of the company. The failure of the production or operations function
will result in the non-production of any thing that the organisation can market or sell.
There is a lot of literature available on the subject but most of it is of Western origin
and is replete with examples from the Western world. Some of these are difficult to relate
to, as they do not fit into the Indian environment. I have attempted to write this book
from an Indian's point of view. The language has been kept as simple as possible and
examples have been cited from the Indian context wherever possible.
The book adopts a novel approach to the subject. It attempts to answer the Why,
What, How, Where, When and Who of production operations management. Accordingly
the book is divided into six parts.
Part I deals with the 'Why' of production operations management. It explains the
importance of production operations management and its linkages with other managerial
functions. The part comprises an introductory chapter and a chapter dealing with
production operations strategy and its connection to the overall strategic framework of
the organisation.
xv
xvi Preface to the First Edition

Part II of the book deals with the 'What' of production operations management. It
delves on what to produce (the product). This part has chapters dealing with product
design; reliability, maintainability and value analysis; and product quality.
Part III of the book concentrates on the 'How' aspects-how to produce (the process).
It deals with process design and process selection for production systems and service
operations; work study and work measurement; and process quality control.
Part IV deals with the 'Where' aspects (the plant). It dwells on facility location; facility
layout and plant capacity.
Part V of the book deals with the 'When' of production operations management.
It covers the planning, scheduling and control aspects (the programmes). It contains
chapters dealing with forecasting; aggregate planning process; materials and inventory
control; materials requirement planning; and operations scheduling. The modern aspects
of supply chain management, enterprise resource planning and just-in-time production
are also covered in detail. Control techniques like network analysis and line balancing
receive due coverage in this section.
Part VI of the book deals with the 'Who' or the personnel aspect of production
operations management. It lays emphasis on the acquisition of the right kind of people,
their training and development and the steps necessary to ensure their performance and
retention in the organisation.
The book has annexures dealing with dynamic programming, simulation and
replacement models.
The text is suitably embellished with practical lifelike situations and examples.
Mathematical techniques are fully explained. Keeping in view the ever increasing use of
computers, I have attempted to explain the use of software and special packages designed
to handle production operations problems. The book contains over a hundred solved
problems.
The book is designed to fulfil the needs of management students and the mathematical
portions have been kept as simple as possible so that those with a non-mathematical
background can understand the techniques. It covers topics included in the Production
Operations Management course of most MBA programmes. The book would also serve
as a ready reference for practising managers.
Since the book is primarily designed to serve as a textbook, an instructor's manual
is available from the publisher on request. The CD contains PowerPoint slides for each
chapter and solutions for all the chapter-end numerical problems.
I would also like to thank my colleagues who provided the necessary encouragement
and my students who have inspired me to write this book.
Suggestions for improvement to the text are most welcome and shall be gratefully
acknowledged.
R.B. KHANNA
 I keep six honest serving-men
(They taught me all I knew);
Their names are What and Why and When
and How and Where and Who.

RUDYARD KIPLING
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