This page intentionally left blank Copyright © 2009, New Age International (P) Ltd., Publishers Published by New Age International (P) Ltd., Publishers All rights reserved. No part of this ebook may be reproduced in any form, by photostat, microfilm, xerography, or any other means, or incorporated into any information retrieval system, electronic or mechanical, without the written permission of the publisher. All inquiries should be emailed to [email protected] ISBN (13) : 978-81-224-2883-4 PUBLISHING FOR ONE WORLD NEW AGE INTERNATIONAL (P) LIMITED, PUBLISHERS 4835/24, Ansari Road, Daryaganj, New Delhi - 110002 Visit us at www.newagepublishers.com PREFACE Operations management has been recognised as an important factor in a country’s economic growth. The traditional view of manufacturing management is the concept of Production Management with the focus on economic efficiency in manufacturing. Later the new name Operations Management was identified, as service sector became more prominent. Rapid changes in technology have posed numerous opportunities and challenges, which have resulted in enhancement of manufacturing capabilities through new materials, facilities, techniques and procedures. Hence, managing a service system has become a major challenge in the global competitive environment. Operations Management has been a key element in the improvement and productivity in business around the world. Operations Management leads the way for the organisations to achieve its goals with minimum effort. Hence, the study of the subject at undergraduate and postgraduate level has more significance. This book on ‘Operations Management’ covers the complete syllabus of Bachelor of Engineering of Visvesvaraya Technical University, Karnataka, however the coverage is wide enough to include the requirements of Bachelor and Master Degree courses of other Indian universities and professional courses like MBA, PGDCA, BBA. Being student friendly is the unique feature of this book. The subject matter has been presented systematically in ten chapters, which can enable the reader master the topics covered without any additional guidance. Complete care has been taken to make the book error free. However, mistakes might have crept inadvertently. Readers finding any error are requested to bring it to our notice, for enabling us to rectify them in our future editions. We are grateful to Mr. Saumya Gupta, Managing Director and Mr. Sudarshan of New Age International (P) Limited Publishers for their commitment and encouragement in bringing out this book in time with good quality and for providing us the opportunity to share our knowledge with you. vvii CPonretefanctse The authors wish to express their sincere thanks to Principals and Managements of respective colleges. Our acknowledgements are also due to Dr. Poornima Anil Kumar and Mrs. Bharathi Suresh without whose support and sacrifice this work would not have been completed by the deadline. Finally, our acknowledgement is due to the Almighty who has blessed us with the knowledge, required for writing this book. S. Anil Kumar N. Suresh Contents vii CONTENTS Preface v 1. OPERATIONS MANAGEMENT CONCEPTS 1–26 1.1 Introduction 1 1.2 Historical Development 1 1.3 Concept of Production 3 1.4 Production System 3 1.5 Classification of Production System 4 1.5.1 Job-Shop Production 4 1.5.2 Batch Production 5 1.5.3 Mass Production 5 1.5.4 Continuous Production 6 1.6 Production Management 7 1.6.1 Objectives of Production Management 7 1.7 Operations System 7 1.7.1 A Framework of Managing Operations 8 1.8 Operations Management 9 1.9 Operations Management Objectives 11 1.10 The Strategic Role of Operations 13 1.11 Strategic Planning 15 1.11.1 Strategic Planning for Production and Operations 15 1.11.2 Strategic Planning Approaches for Production/Operations 15 1.11.3 Strategic Planning—Forced Choice Model 15 1.11.4 A Strategic Planning Operations Model 16 1.12 The Trend: Information and Non Manufacturing Systems 17 1.13 Productivity 18 1.13.1 Modern Dynamic Concept of Productivity 18 1.13.2 Factor Productivity and Total Productivity 18 1.13.3 Productivity Analysis 19 viii Contents 1.14 Factors Affecting Productivity 19 1.15 International Dimensions of Productivity 20 1.16 The Environment of Operations 20 1.17 Scope of Operations Management 21 Exercise 25 References 26 2. OPERATIONS DECISION-MAKING 27–51 2.1 Introduction 27 2.2 Management as a Science 27 2.3 Characteristics of Decisions 28 2.4 Framework for Decision-Making 28 2.5 Decision Methodology 30 2.5.1 Complete Certainty Methods 30 2.5.2 Risk and Uncertainty Methods 30 2.5.3 Extreme Uncertainty Methods 31 2.5.4 Decision-Making Under Uncertainty 31 2.5.5 Decision-Making Under Risk 33 2.6 Decision Support System 35 2.7 Economic Models 35 2.7.1 Break-even Analysis 35 2.8 Statistical Models 43 2.8.1 Equations for Discrete and Continuous Data 45 2.9 Decision Tree 46 Exercise 49 References 51 3. SYSTEMS DESIGN AND CAPACITY 53–60 3.1 Introduction 53 3.2 Manufacturing and Service Systems 53 3.3 Design and Systems Capacity 54 3.4 Capacity Planning 55 3.5 Process of Capacity Planning 55 3.6 Importance of Capacity Decisions 57 Exercise 60 References 60 4. FACILITY LOCATION AND LAYOUT 61–103 4.1 Introduction and Meaning 61 4.2 Need for Selecting a Suitable Location 61 4.3 Factors Influencing Plant Location/Facility Location 66 Contents ix 4.3.1 General Locational Factors 66 4.3.2 Specific Locational Factors for Manufacturing Organisation 70 4.3.3 Specific Locational Factors for Service Organisation 71 4.4 Location Theories 72 4.5 Location Models 73 4.5.1 Factor Rating Method 73 4.5.2 Weighted Factor Rating Method 74 4.5.3 Load-distance Method 75 4.5.4 Centre of Gravity 77 4.5.5 Break-even Analysis 78 4.6 Locational Economics 80 4.7 Plant Layout 81 4.7.1 Objectives of Plant Layout 81 4.7.2 Principles of Plant Layout 82 4.8 Classification of Layout 82 4.8.1 Process Layout 82 4.8.2 Product Layout 83 4.8.3 Combination Layout 84 4.8.4 Fixed Position Layout 85 4.8.5 Group Layout (or Cellular Layout) 85 4.9 Design of Product Layout 87 4.10 Design of Process Layout 91 4.11 Service Layout 94 4.12 Organisation of Physical Facilities 95 Exercise 102 5. FORECASTING DEMAND 105–128 5.1 Introduction 105 5.2 Forecasting Objectives and Uses 105 5.3 Forecasting Decision Variables 105 5.4 Forecasting Methods 106 5.4.1 Opinion and Judgmental Methods 106 5.4.2 Time Series Methods 106 5.5 Exponential Smoothing 112 5.5.1 Adjusted Exponential Smoothing 113 5.6 Regression and Correlation Methods 114 5.6.1 Regression 114 5.6.2 Correlation 117 5.7 Applications and Control of Forecast 119 5.7.1 Forecast Controls 119 Exercise 125 References 128