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OPERATIONS MANAGEMENT ISSUES
In any business enterprise, products are produced or services are provided. For this, certain operations are carried out through a combination of raw material, processing or assembling the various components, using the services of workers, machines, tools and power. In any enterprise the items are produced or service is provided with a minimum waste of raw material and consumption of time and effort while assuring quality.
An operation may be defined as “the process of changing inputs into outputs thereby adding value to some entity”. Value is add to the entity by one or more of the following ways i.e.
1. Adding the form of inputs e.g. converting crude petroleum to petrol or converting raw food into a dish
2. Transporting the materials to where they are required i.e. taking out coal from mines and moving it to power stations.
While establishing the unit, an entrepreneur is required to pay attention to various aspects like size, location and layout as these affect the efficiency of the operations. Such factors should preferably be considerably the entrepreneur at the project planning stage and need to be taken care of at the project implementation stage.
l Size – The size of the unit refers to the production or installed capacity. The size is important as it determines the use of technology and in most cases the layout of the production process. The size of the plant should be fixed with due consideration to economy of scale. Size also encompass factors like land, building, etc. size of land should be such to take care of storage of raw materials, finished goods as well as construction of factory for processing / manufacturing. Its size should be such so as to take care of present and future requirements of expansion. This would also apply to the building which may be constructed or rented.
l Location – Proper location of an enterprise is crucial for its success. Raw material, skilled labour, and market are the factors that help production in a manufacturing unit. Location of manufacturing establishments would depend upon their type. Resource based units like agro-industry; nearness to the source of raw material is a definite advantage. Similarly for demand based industries location near the market is advisable and for skill based industry like gold embroidery location where such skilled workers are available is suitable. A unit to be located in a residential or commercial area has to take note of local bye-laws and should not be a nuisance to the neighborhood.
It is difficult to set down rules, whereby, the problem of location canbe programmed but there is a number of factors which should be considered. It is worth differentiation between the problems of location and of site, the location is the general area, and the site is the place chosen within the location. The decision on selecting, thus probably proceeds in two stages – in the first stage the general area is chosen and then a detailed survey of the area is carried out to find possible sites.
l Plant layout – Layout involves determining the space requirement for the facilities and arranging them in a manner to ensure steady flow of operations with minimum overall cost. In other words, a layout is a floor plan for ar5ranging the desired facilities, machinery, equipment in an optimum locations so as to permit the quickest flowof materials and manpower at the lowest cost and with the least amount of process handling from receipt of raw material to shipment of finished products.
Layout once made cannot be changed or modified easily and without incurring considerable cost on one hand and disrupting the operations on the other hand, therefore, layout decisions are strategic decisions and have to be considered at the time of planning a new venture. A good layout results in comfort, convenience, better appearance, safety, efficiency and profits. A poorly planned layout causes congestion, disruption in flow of man and materials, accidents, delays, rejections leading to frustration and inefficiency. Different type of industry will require different types of layout suiting to the specific operations of that industry e.g. in a production unit layout includes factory design that is layout of workshop, raw material stock yards, finished goods stores, generator, compressor room etc.
Irrespective of the type and level of layout, the following aspects are to be kept in view viz.
1. Maximum use of the available space
2. Compatibility with the production technology and product mix
3. Minimum movement of men and material
4. Provision of proper space for maintenance
5. Arrangement of proper in transit storage and stacking space
6. Promotes effective supervision
7. Proper lighting and ventilation
8. Provision of maximum flexibility
9. Safety of operators and other staff
10. Minimum handling of materials
11. Provision for future expansion
12. Security against fire, theft, deterioration etc.
13. Flexibility to accommodate changes in production volume and product mix
14. Should meet the specific requirements of the production process viz. air conditioning, air cooling, dust control, humidity control as may be required.
Besides, the factory building and the manufacturing process is required to be approved by the government and the local authorities. As such it would be wise to consult an experienced and knowledgeable person in the field, such as an industrial architect.
l Product design – The product or the service offered is the backbone of any enterprise. Therefore, what and how to produce is the first step in an operational system. The image of an enterprise and its profit making capacity are influenced by the product design. Product design once decided, continues for a long time, hence you should keep in mind the probable changes in environment, technology and consumer tastes for the next 5 years at least. It is said that more the time one spends on product design, better are one’s chances of success. The following considerations apply in designing a new product:
4. After sales service.
8. Quality of product.
9. Cost of product.
10. Product value.
11. Customer friendly features.
You can add to this list depending upon the nature of your product.
l Production design – After product design, comes production which is divided into the two phases of Scheduling and Inspection. Scheduling is important for batch production, as also for continuous process production, because the primary objective of scheduling is the smooth flow of materials through the production process. Simply stated, scheduling is a system of planning and keeping track of manpower, equipment and materials used. It decides when to start work on a given order and by what date it should be completed. Scheduling is usually done with timetables. An ideal master schedule indicates the total number of products to be produced per week or per month. However, the ideal schedule is seldom realised in actual practice because it is not always possible to ensure all variable inputs to be available at the right time and right quantity. Also, there are always some unforeseen problems that arise.
Scheduling is generally based upon a forecast of sales. It should ensure that raw materials used in production are available when needed, otherwise delays in production will result in non-meeting of schedules. Raw materials should be available right on time, not too early, nor too late. Scheduling decisions may be centralised, where a central office called the production control office issues job assignments. It can be decentralised, where each and every department prepares its own schedule. In practice, enterprises combine both methods for scheduling to avail of their benefits.
Schedules can be prepared by using charts and graphs or by operational research methods. A Gantt chart, which is a horizontal bar chart, is a means to visualise the planning of production. Operations research methods involve mathematical formulae and analysis. PERT & CPM (Progressive Evaluation Review Technique & Critical Path Method) are popular operation research methods, which break the work into its various component parts and then these parts are related to each other in a network. Using this method we can determine the total amount of time needed to complete the job and activities where delays in performance may arise.
Product inspection ensures the quality of the product produced. Earlier there used to exist a separate department called the Inspection Department. Now the trend is for the production department to inspect their own products. Normally there is stage inspection, right from the stage of receipt of material to the stage of final packing, so that any error can be corrected at that stage itself. There are various methods of inspection, ranging from visual inspection to critical inspection using modern sophisticated equipment.
l Inventory Control – A business requires to keep inventories of raw materials, goods in progress, and finished goods, both in stock and in transit. It has many advantages viz.
1. Materials are readily available when required for production or use
2. Quantity discounts results in large orders
3. The finished goods inventory allows a firm to meet the requirements of the customers promptly
4. The demand may fluctuate over time and the finished goods inventory helps in reducing the impact of such fluctuations on the process of production.
In order to decide when to order an inventory, one has to decide
1. Order lead time: Average time that elapses between placing an order and receiving the goods
2. Usage rate: The average rate at which the inventory is drawn down over a period, and
3. Reorder point: The level at which a new order must be ploaced so that the inventory is replenished before the stock reaches zero level.
A re-order point is estimated by using the formula
Reorder Point = Usage Rate X Lead Time
To know which items constitute the bulk of the value of total inventory, a technique commonly known as the ABC analysis is used. The steps involved in ABC analysis are:
1. For each item calculate the total cost
2. Arrange these items in progressively decreasing order
3. Calculate and write the cumulative total cost
4. Then compute the percent of cumulative total to total cumulative and percent of cumulative total to total number of items
Inventory is also classified as
Fast moving items: This is indicated by high inventory turnover ratio. These are the items of high demand and sufficient stock is to be maintained for smooth and uninterrupted operation.
Slow moving items: Low turnover ratio indicates slow turnover. Such items are maintained at the minimum level.
Dormant or obsolete items: these refer to items having no demand. An item not issued for 2-3 years can be completely weeded out.
Quality control – Quality refers to the intended use and the price of a product. A technically excellent product may be prohibitively costly, and there is no point in making a product that the customers cannot afford o buy. Quality, thus, is a relative term and must be viewed as such.
Even though we all talk of quality, it is not easily defined. One of the accepted definitions if quality is ‘fitness for use’. An equally good definition is ‘conformance to requirements’. Quality is thus a relative to use than as a general characteristic. If a product or service lives up to expectations, it is of high quality. Merely extra fine finish or use of stronger material than required does not add to quality. Quality is very difficult to measure.
Quality is an overall concept and is distributed throughout the organisation. Cost of quality is not only the cost of Quality Control department. Cost of bad workmanship, wastages, rework etc are also to be included in cost of quality.
“Quality is free, but it is not a gift”, which sums up the opinion that effective, permanent quality improvement, though difficult to achieve, yet pays for itself in increased productivity. The Entrepreneur is to ensure that the level of quality is to be maintained consistently i.e. the variations in the quality of products / services must be kept within the specified tolerance limits.
A typical quality control programme includes;
1. prevention of the occurrence of a fault
2. detection of it as soon as it occurs, and
3. rectifying it at the earliest.
Recently the concept of Quality Circles has been a runaway success in Japanese industries. A quality circle is a group of employees whose assignment is to identify problems, formulate solutions, and present their results to management with suggestions for implementation. It is getting increasingly popular with employees and management in
While the benefits, both tangible and intangible, of quality control are many, there are also costs involved in the process. As the quality control is made rigorous, the costs tend to increase. One has to strike a balance between the costs and the benefits arising out of quality control. This balance will depend upon the quality control needs of a particular organisation.