MANAGEMENT SCIENCE

UNIT 1 – INTRODUCTION TO PRODUCTION AND OPERATIONS

PRODUCTION OPERATIONS:
Definition :
Production

Production is a scientific process which involves transformation of raw material

(input) into desired product or service (output) by adding economic value.
Production can broadly categorize into following based on technique:
 Production through separation
 Production by modification or improvement
 Production by assembly

 Production through separation: It involves desired output is achieved

through separation or extraction from raw materials. A classic example of
separation or extraction is Oil into various fuel products.
 Production by modification or improvement: It involves change in
chemical and mechanical parameters of the raw material without altering
physical attributes of the raw material. Annealing process (heating at high
temperatures and then cooling), is example of production by modification or
improvement.
 Production by assembly: Car production and computer are example of
production by assembly.


Operations Management

As to deliver value for customers in products and services, it is essential for the
company to do the following:

1. Identify the customer needs and convert that into a specific product or
service (numbers of products required for specific period of time)
2. Based on product requirement do back-ward working to identify raw
material requirements
3. Engage internal and external vendors to create supply chain for raw
material and finished goods between vendor → production facility →
customers.

Overview of Manufacturing process:

Manufacturing refers to the processes of converting the raw materials into
useful products. This is normally accomplished by carrying out a set of
activities such as product design, selection of raw material, and materials
processing (Kalpakjian and Schmid 2001).

 Manufacturing is a system in which raw materials are transformed

into finished products while adding value in the process.
 While individuals traditionally added value to raw materials by
altering their structure, refining, and processing them into more
useful finished products, the 19th century Industrial Revolution led
to the mechanization of the manufacturing process.
 Manufacturing significantly contributes to the growth of the
economy based on its unique properties.
By adding value to raw materials, manufacturing creates wealth in the form of a
profit, rendering it a profitable venture. While people started to specialize in the
skills classical to manufacturing goods, other people provided businesses with
funds to acquire materials and equipment.

The characteristics of manufacturing processes and operations continue to

change over time. The type and amount of the workforce needed varies
depending on the nature of the desired finished product. At one extreme,
products are manufactured using more traditional processes, such as by hand or
through the use of basic equipment. The method is associated with traditional
artifacts comprising carpentry, metalwork, leatherwork, or textile production.
 Arrived from the Latin word “manu factus”, meaning “made by hand”.
 Manufacturing is the process of converting raw materials into products.
Three Phases Of The Manufacturing Process
1. Product design.
2. Selection of materials.
Functions of Production

1. Selection of Product and Design —

Selection of product and designing of the same plays a pivotal role in a business
venture. It is imperative for the company to approach the market with
economical and valuable products from time to time which shall ensure the
success and progress of the company.
A product that is to be produced by the company must be selected and designed
using value engineering and value analysis. The product should be selected only
after overall evaluation and assessment, after selection of the product the
selection of the design must follow.
2. Selection of Production Process —
The production process should be planned way before it actually starts. After
the selection of product is done and the design has been decided, thereafter
comes the selection of the production process. It is one of the important function
of production management.
The right production system must be selected, the man power required to
produce the same shall be estimated and recruited, the type of technology that
shall be used, the amount of capital that shall be required must be decided. The
machines that would be put into work, the engineering, the material handling
system, all shall be selected and prepared for a smooth and successful work
function.
3. Estimation of Right Production Capacity —
The selection of the right production capacity plays a huge role in production
management. For this, the right demand for the product shall be estimated, and
then it must match with the production capacity.
A wrongful estimation may affect the production of the product, as less or more
capacity than actually needed might create problems. The break-even analysis
for planning the production capacity may prove to be significant. The
production management team must be prepared with a planned layout for both
long term and short term production.
4. Production Planning —
One major function in production management is to plan the production
process. The production management hereby must decide on the routing and
scheduling.
Routing basically decides for the path of the production process, the sequential
operation that shall take place, whereas scheduling being the means to plan the
whole production process, as to when it shall be started, and when the
production activity shall come to an end.
5. Production Control —
Controlling the production process is the next job of paramount importance, that
the production manager shall handle. The production planning and the actual
process shall be tallied and if any deviations from the actual planning are found,
that must be met with necessary steps for its correction.
6. Quality and Cost Control —
Quality and cost control plays a huge role in the company’s upliftment, the
buyers want the products to be of top-notch quality at fair and low prices. The
production manager thus has to try to maintain the quality of the product and
should try to lower the production cost, as it shall in turn lower the cost of the
product.
7. Inventory Control —
Inventory control is also part of production management. The inventory level
must be monitored by the production manager. Overstocking and understocking
of inventories are not appropriate.
If there is an overabundance of materials, the working capital will be stifled,
and the materials can spoil, be wasted, or be misused. If there is a shortage of
inventory, manufacturing will be delayed, and deliveries will be disrupted.
Thus, the production manager shall effectively control the inventories.
8. Maintenance and replacement of Machines —
The production management ensures that machinery and equipment are
properly maintained and replaced. All the machinery that would be needed for
the production shall be checked prior to the actual production process.
The production manager must have a system in place for regular inspections,
oiling, washing, replacement, and repair of machines, machinery, and spare
parts, among other things. This helps to stop unforeseen technical breakdowns
and production halts.
9. Scheduling —
When it comes to taking a manufacturing process to the next stage, production
scheduling is crucial. The allocation of raw materials, labour, and processes to
manufacture goods for customers is known as the production schedule.
The objective of production scheduling is to make the manufacturing process
run as smoothly as possible by matching the production requirements with the
available resources in the most cost-effective way possible.
Solid management combined with the right production planning and scheduling
technique is needed for the best production. Even the simplest business can be
turned around without a solid plan to handle and schedule production.
Planning and Control:

Planning and control, often known as production planning and control, are
management functions that seek to determine: first, what market demands are
stating and second, reconcile how a company can fill those demands through
planning and monitoring.

Planning is required for day-to-day processes, like scheduling, dispatch

inspection, quality assessment, inventory control, supply and equipment
management. Control ensures that the execution of those items is done
optimally, both in terms of cost savings and efficiency.

Production Planning

Production planning is one part of production planning and control dealing with
basic concepts of what to produce, when to produce, how much to produce, etc.
It involves taking a long-term view at overall production planning. Therefore,
objectives of production planning are as follows:
  To ensure right quantity and quality of raw material, equipment, etc. are
available during times of production.
 To ensure capacity utilization is in tune with forecast demand at all the
time.
A well thought production planning ensures that overall production process is
streamlined providing following benefits:

 Organization can deliver a product in a timely and regular manner.

 Supplier are informed will in advance for the requirement of raw
materials.
 It reduces investment in inventory.
 It reduces overall production cost by driving in efficiency.
Production planning takes care of two basic strategies’ product planning and
process planning. Production planning is done at three different time dependent
levels i.e. long-range planning dealing with facility planning, capital
investment, location planning, etc.; medium-range planning deals with demand
forecast and capacity planning and lastly short term planning dealing with day
to day operations.
Production Control

Production control looks to utilize different type of control techniques to

achieve optimum performance out of the production system as to achieve
overall production planning targets. Therefore, objectives of production control
are as follows:

 Regulate inventory management

 Organize the production schedules
 Optimum utilization of resources and production process
The advantages of robust production control are as follows:
  Ensure a smooth flow of all production processes
 Ensure production cost savings thereby improving the bottom line
 Control wastage of resources
 It maintains standard of quality through the production life cycle.
Production control cannot be same across all the organization. Production
control is dependent upon the following factors:

 Nature of production( job oriented, service oriented, etc.)

 Nature of operation
 Size of operation
Production planning and control are essential for customer delight and overall
success of an organization.
*****Planning may be formal or informal. Formal planning is certainly
better than informal planning. No-planning is, however, worse than informal
planning. Too much formalization of plans is also dangerous since it tends to
introduce rigidities. A reasonable balance should be struck between formal and
informal planning.
The planning process in management involves four fundamental steps:

1. Establishing enterprise objectives,

2. Determining short-range objectives or operational goals,
3. Developing strategies, and
4. Formulating budgets or profit plans.
Objectives are statements of broad and long-range desired state of the enterprise
in the future. They represent purposes to which efforts of the enterprise should
be focused. They direct and motivate individuals for attaining
the organizational goals. Long-range objectives are generally the qualitative
expressions of the future intentions.
Goals represent the operational specifications of the broad objectives with time
and quantity dimensions. Goals are the quantified targets to be attained within
a specified period. Goals will specify when a new product should be introduced,
when the firm should invest in the new plant, or what rate of return it should
earn on its investment in the plant and so on. Strategies lay down the foundation
for attaining the objectives and goals of the enterprise. Strategies specify the
ways to achieve the goals operationally. Example being expanding sales
through price reduction and/or aggressive advertisement.
Budgeting or profit planning is the formalization of objectives, goals and
strategies for operational purposes. A budget or a profit plan is the formal
expression of the firm’s targets, stated in financial terms, generally for one
year. It is called the budget or the profit plan because it explicitly states the
goals in terms of time expectation and expected financial results for each major
segment of the entity. The budget permeates all levels of activities and unifies
the diverse activities of the enterprise. Budgets are generally based on standards
for costs and revenues. Budgets and standards are two strong arms of
management accounting.

Control Function of Management

Control follows planning. It is the process to ensure that plans are being
attained. It is a feedback system. It tells how effectively and efficiently
objectives, goals and plans are accomplished, what went wrong and what can be
done to assure adherence to planned activities in future. Control implies
measurement and evaluation of performance.
The principal steps involved in the control function are:

1. Comparison of actual performance against predetermined budgets and

standards;
2. Analysis of the variances from budgets and standards in order to
determine the underlying causes;
3. Initiating of an action that may correct the deficiencies indicated;
 4. Follow-up to appraise the effectiveness of the corrective action;
5. The feed back of the information to the planning process to improve
future planning and control activities.
Since control can be affected by individuals, the performance evaluation should
be reported to the responsible managers. Performance report should clearly
indicate to the manager what activities were controllable by him and what were
not. Control is effective if it is exercised before an event occurs. What has
happened in the past cannot be controlled now. For exercising control prior to
the occurrence of an event, budgets and standards should be developed by
seeking the participation of those who have to use them. The enterprise
objectives should be communicated to managers and they should understand
them.
Control would be effective only when performance is evaluated in an objective
manner. Budgets and standards, against which performance is evaluated, should
be realistic. Sometimes past performance is used as a benchmark to evaluate
current performance. This is not a fair measurement of performance since last
year’s performance may be out of line due to the changed
conditions. Management accounting, with its emphasis on objectivity and
fairness, provides a systematic way of developing budgets and standards and
comparing performance only against the scientifically formulated budgets and
standards.
Interface of Product life cycle :
Product Life Cycle :
The term product life cycle refers to the length of time a product is introduced
to consumers into the market until it's removed from the shelves. The life cycle
of a product is broken into four stages—introduction, growth, maturity, and
decline. This concept is used by management and by marketing professionals
as a factor in deciding when it is appropriate to increase advertising, reduce
prices, expand to new markets, or redesign packaging. The process of
strategizing ways to continuously support and maintain a product is
called product life cycle management.
Product life cycle management (PLM) is a comprehensive and integrated suite
of software solutions designed to support optimal decision-making during
product development. It is the only market solution that uses advanced planning
and optimization tools to address the entire product life cycle – from concept
development, to launch, to phase out. Product life cycle management maximizes
the speed, productivity and the financial return of the product development
process.
Product life cycle management is part of a total strategy to achieve effective and
more profitable manufacturing. Manufacturing operations need PLM systems
that manage product specifications and recipes, provide production history,
create complete product genealogies and track total product quality.

How Product Life Cycles Work :

Products, like people, have life cycles. A product begins with an idea, and
within the confines of modern business, it isn't likely to go further until it
undergoes research and development (R&D) and is found to be feasible and
potentially profitable. At that point, the product is produced, marketed, and
rolled out.
As mentioned above, there are four generally accepted stages in the life cycle
of a product—introduction, growth, maturity, and decline.

 Introduction: This phase generally includes a substantial investment in

advertising and a marketing campaign focused on making consumers
aware of the product and its benefits.
 Growth: If the product is successful, it then moves to the growth stage.
This is characterized by growing demand, an increase in production, and
expansion in its availability.
  Maturity: This is the most profitable stage, while the costs of producing
and marketing decline.
 Decline: A product takes on increased competition as other companies
emulate its success—sometimes with enhancements or lower prices. The
product may lose market share and begin its decline.
When a product is successfully introduced into the market, demand increases,
therefore increasing its popularity. These newer products end up pushing older
ones out of the market, effectively replacing them. Companies tend to curb
their marketing efforts as a new product grows. That's because the cost to
produce and market the product drop. When demand for the product wanes, it
may be taken off the market completely.

While a new product needs to be explained, a mature one needs to be

differentiated.
The stage of a product's life cycle impacts the way in which it is marketed to
consumers. A new product needs to be explained, while a mature product needs
to be differentiated from its competitors.
Stages of the product life cycle :
Each stage has its costs, opportunities, and risks, and individual products differ
in how long they remain at any of the life cycle stages. While there are differing
opinions regarding if there are four, five, or six stages of the product life cycle,
each option includes the following steps.
1. Development
The product development stage is the research phase before a product launch.
Technically, this falls outside the definition of the product life cycle, but it’s a
vital step to be aware of. In short, it’s used to determine the viability of a
product, confirm when it should go to market and how to approach your official
launch.
At this stage, costs are accumulating with no corresponding revenue. Some
products require years and large capital investment to develop and then test their
effectiveness. Since risk is high, outside funding sources are limited.
Existing companies often fund research and development from revenue
generated by current products. For startup businesses, this stage is typically
funded by the entrepreneur from their own personal resources. For those
developing a new product, it may be wise to land on a minimum viable
product (MVP) as early as possible.
This can be as minimal as a sketch or as complex as a sample or prototype
version of the product itself. You just need enough to show how your product
will work to potential investors and customers. The earlier you can validate its
market potential, the more likely you’ll be to land investment and launch.
2. Introduction
The introduction stage is when your product is first launched in the
marketplace. It’s where you step beyond the product itself to develop a
market for the product and build product awareness. Here, you’ll work to carve
out a target market, conduct a market analysis to understand the competitive
landscape, and ideally land your first few sales.
Marketing costs are high at this stage, as it is necessary to reach out to potential
customers. The best approach when promoting a new product is to focus on
testing distribution channels and messaging. While your advertising budget may
be hefty, you can strategically leverage it to identify marketing channels that
lead to higher conversions.
This is also the stage where intellectual property rights protection is obtained.
Depending on your market position, product pricing may be high to recover
costs associated with the development stage. It also may be lower, meaning
you’ll initially be running at a loss until you gain traction. This is where landing
initial funding efforts and mapping out your cash runway are vital to the success
of your product.
3. Growth
In the growth stage, the product has been accepted by customers, and you are
now striving to increase market share. That means that demand and revenue are
growing, ideally at a steady rate. How long you achieve steady growth fully
depends on your product, the current market landscape, and the adoption rate of
customers.
If you’re entering an already crowded market with a product, you’ll likely see
competitors react fairly quickly. If you’ve entered a market with less
competition or are first to market in a breakout industry, you’ll likely see a
slower response by new or current entrants.
In either case, your response during this phase is to fine-tune your messaging,
solidify your brand presence and expand into new distribution channels. This
also may be the time to consider adding additional services to support and
further differentiate your product. Things like support services, add-ons, or
insurance packages are just a few options to consider. Having these additions
available, or at least in progress, can better help you react to competitors and
extend the return on investment (ROI) from a given customer.
4. Maturity and saturation
The mature stage is when sales will level off. This doesn’t mean you aren’t still
growing, you just won’t see the same level of rapid growth as before. Typically
at this point, you will begin to lower prices, offer free additions or make other
adjustments to keep your products competitive.
At the same time, you’ve also become more efficient. Production costs tend to
decline, costly mistakes in the manufacturing process can now be avoided. Even
your marketing expenditure is likely more refined and effective at this stage. So,
while you may not be growing in volume, you’re likely at your most profitable
in this stage.
However, it’s worth remembering that your competitors have likely now
solidified their own offerings in this stage. This means that they have taken a
portion of the market, further leading to the flattened growth of your own
product. Most consumers are likely already using a version of your product and
have begun developing brand preferences.
This is when any adjustments to advance your product or the services that
accompany it, should be made. If you’ve hit the point where any real
adjustments simply aren’t possible, then your messaging, services, and add-ons
should take full focus.
You may only be able to make incremental changes but can still look to market
it as a refresh accompanied by new features or benefits. Video game consoles
are a great example of this, where incremental updates to hardware are often
touted to sell new consoles. The Nintendo Switch OLED edition is the latest
example, where the only update is a new, slightly larger, and crisper screen.
5. Decline
The decline stage of the product life cycle is associated with decreasing revenue
due to market saturation, high competition, and changing customer needs.
Companies at this stage have several options:

 Discontinue the product

 Sell the manufacturing rights to another business
 Find new uses for the product
 Tap into new markets
It’s at this stage, where you’ll really need to weigh the costs and benefits
associated with each option. Are you really capable of revising the product? Are
there other features you simply haven’t tapped into? Is there a market you
haven’t looked into that could benefit from your product?
If you can, look to run different forecasting scenarios during this time to see
what each decision could lead to depending on product performance. Hopefully,
you have other products to help support your business when one declines.
Ideally, you’ll have multiple products or iterations running at different points in
the product lifecycle.
Interface of Process life cycle :
When a user executes a process, it goes through several phases before
termination. These phases may vary from OS to OS. Common process
lifecycles can have two, five, or seven states.

The Two-State Model

The simplest process lifecycle model consists of only two states: running and
not running. So in this model, either a process is running on the CPU or not
running:

When a new process is created, the process goes into the not running state.
Initially, the process is stored in a program called the dispatcher. When the
dispatcher realizes that the CPU is free, it allows the process to move to the
CPU. When the dispatcher allows the process to use CPU, the process goes to
the running state.
When the CPU is free, the CPU scheduler is responsible for selecting a process
and send it to the CPU. The CPU scheduler picks the processes according to the
scheduling scheme used by the operating system.
The Five-State Model
The five-state process lifecycle is the extended version of the two-state model.
The two-state model works efficiently when all the programs that are in the not
running stage, ready for execution. But in some operating systems, some
processes may not be ready to go to the running state due to the non-availability
of some I/O operations. Such problems can be solved by splitting the not
running states into two states:

The start or new state represents that the process is just being created. The
program is in the dispatcher and waiting to be moved into the main memory. As
soon as the process moves into the main memory, it changes the state from start
to ready.
When a process is in the main memory and waiting for the CPU, it’s in the
ready state. When the CPU becomes free, the process moves into the CPU for
further execution.
If a process is in the running state, then it’s currently being executed in the
CPU.
After completing the execution in the CPU, a process may not goes to the
termination stage. Instead, it may wait for the completion of some I/O
operations, or synchronization signal, etc. In such cases, the process moves to
the waiting stage. When the CPU becomes free again, the process goes to the
ready state. From the ready state, the process reaches the running state.
Finally, when a process has finished its execution or may be aborted by the user
for some reason, it goes to the termination stage.

The Seven-State Model

An extended version of the five-state model is the seven-state model. There are
two new states added in this model: suspend ready and suspend wait. Let’s see
the state diagram:

Sometimes processes that are in the ready state may get swapped from the main
memory, and the CPU scheduler moves the processes into external storage with
a status of suspending ready. The processes can transit back to the ready state
whenever the processes are moved into the main memory.
Processes that are in the waiting state may be moved into secondary storage due
to the lack of main memory. The processes then landed in the suspend wait
stage. From this stage, a process can either go back to the waiting stage, or it
can go to the suspend ready stage.
The process management life cycle is a model for the continuous
implementation and improvement of processes and business process
management. The life cycle consists of the following six phases:

1. Process strategy – Develop a plan for process improvement.

2. Process documentation – Document the processes currently in use.
3. Process optimization – Optimize processes based on the defined
process strategy.
4. Process implementation – Introduce the optimized processes into the
existing process landscape.
5. Process execution – Employees carry out the new processes and record
their performance.
6. Process controlling – Use the recorded performance data and key
figures to check whether guideline values are being achieved or whether
there are bottlenecks and thus potential for further improvement.
Why is the process management life cycle so important?
The process management life cycle represents a structured procedure for the
management and improvement of processes, making process management
easier overall. It ensures the responsible persons know what has to be done in
each phase and what’s coming next. In addition, the cycle is helpful for a
company just starting to use strategic, systematic process management, as it
clearly lays out all the necessary steps. And for companies that already practice
process management, the process management life cycle allows them to check
which phase they are in, what has to be considered, and whether all relevant
information and persons have been included. This step-by-step approach guides
companies, helping them ask the right questions to improve their processes and
see business results.
Process design:

Process development for process design can be summarized through following

steps:

1. Process Requirement: The very 1st step is to collect and gather

information to give structure with the end objective. That is to make
process requirement document highlighting various stages, risk and
stakeholders for production. This will include assessment of available
technology, raw material requirement, factory/plant layout and demand
forecast.
2. Team Building: Once the process requirements are finalized, for each
objective, a team is finalized based on skill level and experience.
Function of the team is to get familiarize with the whole process.
3. Planning and Implementation: Process planning team will develop
module; policies and procedure require for production, which are after
required approval internal as well as external is implemented.
 4. Audit: A regular audit is carried out to ensure that process thus
implemented is in line and delivering value to customers.
5. End of Life: Over a course of time there may be enhancement of the
product or product may get discontinued in these circumstances, process
thus develop is discontinued.
6. A successful process design has to take into account the appropriateness
of the process to overall organization objective. Process design requires a
broad view of the whole organization and should not have a myopic
outlook. And the process should deliver customer value with constant
involvement of the management at various stages.
7. In order to achieve a good process design, effective process strategy is
required, which deals with a singular line items required to manufacture
the end product. Effective process strategy deals with raw material
procurement, customer participation, technology investment, etc.
8. Over a period of time process design has undergone change and new
concepts like Flexible Manufacturing Systems have been developed,
which delivers efficient and effective production design and analysis.
The importance of process design
Because each step in a new process represents a task that can be assigned to an
experienced individual, team, or department, process design plays an important
role in quality assurance.

As part of that role, it can be used to:

 Identify weak links and potential bottlenecks in internal activities
 Show where automation might improve a new business procedure
 Enhance workflow understanding for new team members

Think about this for a minute.

What happens when you don’t make a point of standardizing the steps in a
common work process?

In many cases, the individuals involved simply carry out their assigned duties
and respond to new situations based on their level of experience or personal
workstyle. Unfortunately, that can lead to random results that are as likely to
prioritize convenience as they are to meet the best interests of the process end
user.

You could encourage team members to memorize verbal or text-based

recommendations for specific workflow procedures.
But on the whole, engaging in visual process design and execution is the best
way to eliminate temptations to improvise when time is short, or take an
unscripted approach that can result in poor quality or inconsistent outcomes.

Objectives of process design

1. Normalize outcomes
Process design normalizes workflow outcomes by helping you identify
individual tasks that are integral to meeting a specific goal. Because of its
structured approach, the design process necessitates thorough research into any
new procedure, resulting in a stripped down, stable, and improved workflow.
Example: You can use process design to regulate outcomes for the manufacture
of products, delivery of services, or dispatch of goods.
2. Encourage efficiency

Process design lets you both build in and improve efficiencies across business
procedures. The faster it becomes for teams or individuals to work through a
particular process, the more time they’ll save. Process design also lets you
maximize resource use so you can keep costs to a minimum.
Example: Because process design ensures adequate time, money, personnel,
and materials are available for any workflow you regularly engage in, it can
prevent process-reliant projects from stalling.
3. Avoid chaos

In larger companies especially, certain processes may be spread across multiple

teams or departments. Systematizing a repeated set of tasks through process
design keeps a disjointed approach from muddling day-to-day operations.
Example: Many organizations use process design to establish best practices and
achieve uniform training procedures.
4. Ensure accountability

Whether a process is internal or external, building in accountability checkpoints

at various stages helps maintain a certain level of quality. Process design also
results in more professional interactions that ultimately boost client confidence.
Example: Use business process mapping to enhance your process design, show
who’s responsible for what, and establish standards that will govern your
workflow.
5. Streamline collaboration

One of the most important objectives of process design – and one that’s often
overlooked – is the fostering of better communication and collaboration. Laying
out a new workflow visually inevitably makes it easier for everyone involved to
contribute to its creation, put it to work, and teach it to others when needed.
Example: Developing and documenting new work processes with the help of a
flowchart promotes idea sharing, problem solving, and transparency in
communications with customers and other stakeholders.

Project :
Project management is the use of specific knowledge, skills, tools and
techniques to deliver something of value to people. The development of
software for an improved business process, the construction of a building,
the relief effort after a natural disaster, the expansion of sales into a new
geographic market
A project is defined as a sequence of tasks that must be completed to attain a certain
outcome. According to the Project Management Institute (PMI), the term Project refers
to ” to any temporary endeavor with a definite beginning and end”. Depending on its
complexity, it can be managed by a single person or hundreds.
Characteristics of a project
A project is a set of interdependent tasks that have a common goal. Projects have the
following characteristics:

1. A clear start and end date – There are projects that last several years but a
project cannot go on forever. It needs to have a clear beginning, a definite end,
and an overview of what happens in between.
 2. A project creates something new – Every project is unique, producing
something that did not previously exist. A project is a one-time, once-off
activity, never to be repeated exactly the same way again.
3. A project has boundaries – A project operates within certain constraints of
time, money, quality, and functionality. We’ll see more about this in later
sections.
4. A project is not business as usual – Projects are often confused with
processes. A Process is a series of routine, predefined steps to perform a
particular function, say, expense reimbursement approvals. It’s not a one-off
activity. It determines how a specific function is performed every single time.
Project life cycle – 5 stages
Often, projects are divided into five project phases each of which comes with a distinct
set of tasks, objectives, and a particular deadline. Dividing a project into different
phases enables teams to stay on track throughout their entire life cycle.

1. Initiation
The first phase in a project’s life cycle is called project initiation. Here, a project
officially launches. It is named, and a broad plan is defined. Goals are identified, along
with the project’s constraints, risks, and shareholders. At this point, shareholders decide
if they want to commit to the project.
Depending on the project, studies may be conducted to identify its feasibility. For IT
projects, requirements are usually gathered and analyzed during the initiation phase.

2. Planning
A roadmap that will guide teams from creating a project plan throughout the project’s
execution and closure phases is developed comprehensively during the planning stage.
Deadlines must be set, and resources must be allotted. Breaking down tasks into
smaller, manageable activities makes it easier to manage project risks, costs, quality,
time, and so on.
Learn more about how to implement an effective project roadmap.
At the same time, breaking down tasks into digestible pieces will empower everyone
involved to accomplish the project on time and stay within budget.

3. Execution
The project plan is implemented during the project execution phase. At this point,
teams will work on the deliverables to ensure that the project meets the necessary
requirements.
Everyone usually gathers for a meeting to mark the official start of the project, where
teams can get acquainted with each other and discuss their roles in the success of the
project. Modes of communication and project management tools are identified before
the project plan is executed.
Learn how kickoff meetings can help you steer your projects toward success right from
the start.
In addition, team members familiarize themselves with the necessary status meetings
and reports that will be conducted throughout this phase to collect project metrics. The
project execution phase is a critical point in a project’s life cycle as it will help
everyone determine if their efforts will ultimately be fruitful or not.

4. Monitoring and Controlling

The project monitoring and controlling phase happen at the same time as the execution
phase. It’s the job of the project manager to oversee operations and make sure that
everything is headed in the right direction, according to plan.
Aside from overseeing the project’s performance, project managers have to monitor
resources, manage risks, head status meetings, and reports, etc. If unforeseen issues
arise, the project manager may have to make adjustments to the plans, as well as the
project schedule.

5. Closing
The final phase of the project management life cycle known as the project closure
phase isn’t as simple as delivering the output itself. Project managers have to record all
deliverables, organize documents in a centralized location, and hand over the project to
the client or the team responsible for overseeing its operations during the project
closure phase.
Not only that, but teams come together for a final meeting to discuss the insights
they’ve learned and to reward the hard work of each member.
UNIT -II PLANT MANAGEMENT AND WORK STUDY
Capacity Planning:
Capacity planning refers to the process of deciphering how much resource
you’re going to need to meet demand. This “demand” can be for any unit of
time: the coming week, next season, or even in a year’s time.
Some things that fall under capacity planning are:

 Employing staff to meet coming demand

 Having enough resources
 Securing everything needed to complete the work ahead
In short, capacity planning is all about preparing yourself and your business for
the future, whatever that looks like for you. With it, you’ll know how to scale,
create better design, and even identify bottlenecks in the supply chain before
they happen.
Capacity planning is a process that balances the available resources to meet
customer demand or the project capacity requirements. Capacity, in project
management and manufacturing terms, is the most work that can be done over a
certain timeframe.
In project management, the capacity planning process is very important because
it’s related to critical project management knowledge areas such as:
Resource management
Time management
Team management
Work Management
Types of Capacity Planning
Capacity planning itself can be split into three types: workforce, product, and
tool. Together they ensure that you have the right amount of three main
resources for the short- and long-term.
 Workforce Capacity Planning
This capacity planning strategy ensures that you have the workforce needed to
meet demand. It’s all about having the right number of workers and hours
available to not just complete jobs but complete them well. Should you need to
hire more workers (or possibly downsize) you’ll know how far in advance you
need to start making changes to accommodate the length of the recruiting and
onboarding process.

 Product Capacity Planning

This capacity strategy ensures that your business is equipped with the right
number of products or resources needed to fulfill deliverables. For example, a
pet store needs things like food, pet toys, and equipment like carriers, leashes,
and cages. These are all things which are required to fulfill demand.

 Tool Capacity Planning

Finally, this type of capacity planning strategy ensures that your business is
equipped with the necessary tools. Such tools may include machinery, vehicles,
assembly line parts, and anything else needed to create and deliver your product
or service in a timely manner.
There are three basic steps to capacity planning.
1. Measure
First, you’ll need to measure your resource capacity. How many deliveries can
each of your drivers make in a given period? How many orders can fit onto each
of your trucks? How many hours does it take your fleet manager to plan 50
deliveries? It’s important to answer these types of questions as accurately as
possible because the rest of your plan will be based on these numbers.

2. Analyze
Once you have accurate measurements, you can spend time analyzing this
information and determining whether or not you have insufficient capacity or
excess capacity, or if you’re fully utilizing all available resources. Making
graphs will help you understand the numbers and make demand
forecasting easier.

3. Formulate
The final step is taking all of the information you’ve gathered and formulating a
plan. You can make calculations to see how much it will cost to fund new
projects or hire a full-time employee vs. bringing on seasonal part-time workers.
You could also calculate the ROI for upgrading a piece of machinery or adding
assembly lines to your production facilities. The formulation stage helps you see
what the likely outcomes are for various options, so you can make the best
decision.
Capacity Planning Benefits
Production capacity planning is an important strategic planning process for
many reasons. Here are some of the main benefits of effective capacity
planning.
Reduces costs
Prevents Stock-Outs
Reduces Production Lead Time
Eliminates Excess Capacity
Helps with Supply Chain Management: A clear understanding of your project
capacity requirements will help you get the right amount of resources, which is
beneficial for your supply chain.
Helps with Resource Management: Having the right production capacity to
meet your capacity requirements is key to optimizing resource planning and
resource allocation.

Factory Location:
Choosing and selecting a factory location rightfully is a difficult task for
entrepreneurs, especially for beginners. A right plant location is a ‘make or
break’ decision from an owner’s point of view.
The location of the business is the most important factor influencing its success
or failure. It is a long-term decision which should take into consideration not
only the present requirements of the organization but also its future expansion
plans. Choosing an inappropriate factory location may be very difficult and
expensive to rectify.
The location of a plant has a bearing on the layout of machinery and equipment
as well as on the process of production. There is no ideal location for all firms
or even for one firm at all times. The choice of location depends on several
important factors. It is influenced by the kind of products being manufactured,
the costs of production and distribution.
A sound business plan should be the foundation of your site-selection process,
detailing facts including the goods the plant will produce, the number of goods
the plant will produce, five years of production planning, future growth
expectations.
The objective of a locational plan is to find out the optimum or best location for
the particular plant. Such a location not only results in the lowest cost per unit
but also facilitates the orderly growth of the firm. In this article, we intend to
explore 14 things to consider in selecting a factory location.
s
14 Things To Consider In Selecting Factory Location for Manufacturing
Products

#1. Availability of Raw Materials

Raw materials are the basic components of finished products. This is one of the
most important considerations when selecting a factory location.
If your required raw materials are perishable items, then you must tend to locate
the plant nearer to the raw material source. Otherway, it also reduces the
transportation cost which affects hugely the cost of the production.

#2. Proximity to Market

Every finished product needs to go to the market for consumer consumption.
Here also transportation overhead increases the cost of the finished product.
In case you are initiating a fully export-oriented plant, the availability of
processing facilities gains importance in deciding the location of one’s industry.
Export Promotion Zones (EPZ) are such examples.

#3. Infrastructural Facilities

This is important in view of the fact that all supporting services required for the
successful operation of the plant. The availability of communication facilities is
also an important part of the infrastructure.
Existing vibrant infrastructure in the vicinity is much preferred than the need-
based infrastructure getting developed after the plant commissioning.

#4. Government Policy

The Government offers several incentives, concessions, tax holidays for a few
years, cheaper power supply, factory shed, etc., to attract the entrepreneurs to
set up industries in less developed and backward areas. In this scenario, you
must prioritize this factor in selecting a factory location.
#5. Neighbours
Neighbours play the sometimes vital role in getting licenses permissions from
different Govt. authority. If you are establishing the plant near a domestic area,
then authorities may ask you to get a ‘No Objection’ from your neighbours.

#6. Availability of Manpower

Local availability of skilled and semi-skilled manpower will add to the efficient
running of the plant. Besides, you must study labor relations through turnover
rates, absenteeism, and liveliness of trade unionism in a particular area.

#7. Availability Of Utilities

Utilities like electricity, water resources, etc. play an important role in almost
every factory operations. Stable and uninterrupted power is a required
magnitude, without fluctuations in voltage and frequency is important for the
successful operation of the plant.

#8. Local Laws, Regulations, and Taxation

You must check prior to the laws related to the pollution control board. In food
products, you must check the FPO regulations. In the case of the wood industry,
you must maintain the distance from forestry. Taxation is also an important
factor as well as State Subject.
In some highly competitive consumer products, its high quantum may turn out
to be the negative factor while its relief may become the final deciding factor
for some other industry.

#9. Ecology & Pollution

Nowadays, there is a great deal of awareness towards the maintenance of
natural ecological balance. Regarding the effect of pollution from the specific
type of plants, social obligations are to be met.
The nature of the site selected should preferably have some advantages to meet
these requirements. You must be careful about effluent disposal, in the cases it
needed.

#10. Distance from Your Residence

Yes, it’s important. In a small scale factory operation, an entrepreneur self-plays
a vital role. You should not select a place that has adequate distance from your
own residence.

#11. Competition
If you are dealing with an innovative product and your plant is in an industrial
zone, then you might face competition in manufacturing automation from other
companies.

#12. Incentives, Land costs. Subsidies for Backward Areas

In some cases, the Government offers several incentives, concessions, tax
holidays, cheaper lands, assured and cheaper power supply, price concessions
for departmental (state) purchases, etc. to make the backward areas also
conducive for setting up industries. You must take into consideration these
issues in selecting a factory location.

#13. Climatic Conditions

Climatic conditions affect both people and manufacturing activity. Additionally,
certain industries require a specific type of climatic conditions to produce their
goods. For example, jute and textile manufacturing industries require high
humidity.

#14. Political conditions

The stability of the political environment is essential for industrial growth. It
builds confidence and political instability causes a lack of confidence among the
prospective and present entrepreneurs to venture into the industry which is filled
with risks.
Hence, the most advantageous location is that at which the cost of gathering
material and fabricating it plus the cost of distributing the finished product to
the customers will be at a minimum. The choice of an optimum location
requires a judicious balancing of all these factors.

Plant layout :
The efficiency of production depends on how well the various
machines; production facilities and employee’s amenities are located in a plant.
Only the properly laid out plant can ensure the smooth and rapid movement of
material, from the raw material stage to the end product stage.
Plant layout encompasses new layout as well as improvement in the
existing layout. It may be defined as a technique of locating machines,
processes and plant services within the factory so as to achieve the right
quantity and quality of output at the lowest possible cost of manufacturing. It
involves a judicious arrangement of production facilities so that workflow is
direct.
DEFINITION
A plant layout can be defined as follows:
Plant layout refers to the arrangement of physical
facilities such as machinery, equipment, furniture etc. with in the factory
building in such a manner so as to have quickest flow of material at the lowest
cost and with the least amount of handling in processing the product from the
receipt of material to the shipment of the finished product.
According to Riggs, “the overall objective of plant layout is to design
a physical arrangement that most economically meets the required output –
quantity and quality.”
 According to J. L. Zundi, “Plant layout ideally involves allocation of
space and arrangement of equipment in such a manner that overall operating
costs are minimized.
Types of layout:
As far as small business is concerned, it requires a smaller area or space and can
be located in any kind of building as long as the space is available and it is
convenient. Plant layout for Small Scale business is closely linked with the
factory building and built up area. From the point of view of plant layout, we
can classify small business or unit into three categories:
1. Manufacturing units
2. Traders
3. Service Establishments
1. Manufacturing units
In case of manufacturing unit, plant layout may be of four types:
(a) Product or line layout
(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout
(a) Product or line layout:
Under this, machines and equipments are arranged in one line depending upon
the sequence of operations required for the product. The materials move form
one workstation to another sequentially without any backtracking or deviation.
Under this, machines are grouped in one sequence. Therefore materials are fed
into the first machine and finished goods travel automatically from machine to
machine, the output of one machine becoming input of the next, e.g. in a paper
mill, bamboos are fed into the machine at one end and paper comes out at the
other end. The raw material moves very fast from one workstation to other
stations with a minimum work in progress storage and material handling. The
grouping of machines should be done keeping in mind the following general
principles.
a) All the machine tools or other items of equipments must be placed at the
point demanded by the sequence of operations
b) There should no points where one line crossed another line.
c) Materials may be fed where they are required for assembly but not
necessarily at one point.
d) All the operations including assembly, testing packing must be included in
the line
(b) Process layout:
In this type of layout machines of a similar type are arranged together at one
place. E.g. Machines performing drilling operations are arranged in the drilling
department, machines performing casting operations be grouped in the casting
department. Therefore the machines are installed in the plants, which follow the
process layout. Hence, such layouts typically have drilling department, milling
department, welding department, heating department and painting department
etc. The process or functional layout is followed from historical period. It
evolved from the handicraft method of production. The work has to be allocated
to each department in such a way that no machines are chosen to do as many
different job as possible i.e. the emphasis is on general purpose machine.
(c) Fixed Position or Location Layout :
In this type of layout, the major product being produced is fixed at one
location. Equipment labour and components are moved to that location. All
facilities are brought and arranged around one work center. This type of layout
is not relevant for small scale entrepreneur. The following figure shows a fixed
position layout regarding shipbuilding
(d) Combined layout :
Certain manufacturing units may require all three processes namely intermittent
process (job shops), the continuous process (mass production shops) and the
representative process combined process [i.e. miscellaneous shops]. In most of
industries, only a product layout or process layout or fixed location layout does
not exist. Thus, in manufacturing concerns where several products are produced
in repeated numbers with no likelihood of continuous production, combined
layout is followed. Generally, a combination of the product and process layout
or other combination are found, in practice, e.g. for industries involving the
fabrication of parts and assembly, fabrication tends to employ the process
layout, while the assembly areas often employ the product layout. In soap,
manufacturing plant, the machinery manufacturing soap is arranged on the
product line principle, but ancillary services such as heating, the manufacturing
of glycerin, the power house, the water treatment plant etc. are arranged on a
functional basis.
2. Traders
When two outlets carry almost same merchandise, customers usually buy in the
one that is more appealing to them. Thus, customers are attracted and kept by
good layout i.e. good lighting, attractive colours, good ventilation, air
conditioning, modern design and arrangement and even music. All of these
things mean customer convenience, customer appeal and greater business
volume. The customer is always impressed by service, efficiency and quality.
Hence, the layout is essential for handling merchandise, which is arranged as
per the space available and the type and magnitude of goods to be sold keeping
in mind the convenience of customers. There are three kinds of layouts in retail
operations today.
1. Self service or modified self service layout
2. Full service layout
3. Special layouts
The self-service layouts, cuts down on sales clerk’s time and allow customers
to select merchandise for themselves. Customers should be led through the store
in a way that will expose them to as much display area as possible, e.g. Grocery
Stores or department stores. In those stores, necessities or convenience goods
should be placed at the rear of the store. The use of color and lighting is very
important to direct attention to interior displays and to make the most of the
stores layout.
All operations are not self-service. Certain specialty enterprises sell to fewer
numbers of customers or higher priced product, e.g. Apparel, office machines,
sporting goods, fashion items, hardware, good quality shoes, jewelry, luggage
and accessories, furniture and appliances are all examples of products that
require time and personal attention to be sold. These full service layouts provide
area and equipment necessary in such cases.
Some layouts depend strictly on the type of special store to be set up, e.g. TV
repair shop, soft ice cream store, and drive-in soft drink stores are all examples
of business requiring special design. Thus, good retail layout should be the one,
which saves rent, time and labour.
3. Services centers and establishment
Services establishments such as motels, hotels, restaurants, must
give due attention to client convenience, quality of service, efficiency in
delivering services and pleasing office ambience. In today’s environment, the
clients look for ease in approaching different departments of a service
organization and hence the layout 106 should be designed in a fashion, which
allows clients quick and convenient access to the facilities offered by a service
establishment.
Sequencing of Operations:
It is to plan the order of the operation by process, regarding the fixed orders
through the Operation Order Release Planning. It is to grasp the progress status
of the operation, to consider the priority, setup time, and etc., and to make an
operation sequencing list.
Sequencing can be viewed as a special kind of problem commonly encountered
in production shops where various types of products are to be processed over
various combinations of machines.

In Sequencing we are concerned with a situation where the effectiveness

measure is a function of the order or sequence in which a series of tasks or jobs
are performed. Suppose we have n jobs (1,2,3,---,n), each of which has to be
processed or performed one at the time on each of m machines A,B,C,---. The
order (sequence) of processing each job through the machines as well as the
actual or expected time required by the jobs on each of the machine is also
given. The effectiveness in terms of cost, times or mileage etc. can be measured
for any given sequence of jobs at each machine and our aim is to select the most
suitable sequence (which optimizes the effectiveness measure) among all
theoretical possible sequences whose number will be (n!) m. Although
theoretically it is always possible to select the best sequence by testing each one
but it is practically impossible due to large number of computations. Hence we
have to compute effectiveness for each of (n!) m sequences before selecting the
most suitable one. But this is practically impossible to do.

Basic Assumptions of Sequencing Problem

o No machine can process more than one operation at a time.
o Each job once started on a machine is to be performed up to its
completion on that machine.
o A job is an entity i.e. even though the job represents a lot of individual
parts, no lot may be processed by more than one machine at a time.
o The time intervals for processing are independent of the order in which
the operations are performed.
o There is only one of each type of machine.
o A job is processed as soon as possible subject only to ordering
requirements.
 o All jobs are known and are ready to start processing before the period
under consideration begins.
o The processing times are on different machines are independent of the
order of the job in which they are to be processed.
o The time taken by the jobs in moving from one machine to another is
very negligible and is taken as equal to zero.

N-Jobs with one,two and three facilities:

When a number of jobs are given to be done and they require processing on two
or more machines, the main concern of a manager is to find the order or
sequence to perform these jobs. We shall consider the sequencing problems in
respect of the jobs to be performed in a factory and study the method of their
solution. Such sequencing problems can be broadly divided in two groups. In
the first one, there are n jobs to be done, each of which requires processing on
some or all of the k different machines. We can determine the effectiveness of
each of the sequences that the technologically feasible (that is to say, those
satisfying the restrictions on the order in which each job must be processed
through the machines) and choose a sequence which optimizes the
effectiveness. To illustrate, the timings of processing of each of the n jobs on
each of the k machines, in a certain given order, may be given and the time for
performing the jobs may be the measure of effectiveness. We shall select the
sequences for which the total time taken in processing all the jobs on the
machines would be the minimum.

In this unit we will look into solution of a sequencing problem. In this lesson the
solutions of following cases will be discussed:
a) n jobs and two machines A and B, all jobs processed in the order AB.
b) n jobs and three machines A, B and C all jobs processed in the order
ABC
 c) Problems with n jobs and m machines.

Processing of n jobs through two machines

The simplest possible sequencing problem is that of n job two machine
sequencing problem in which we want to determine the sequence in which n-
job should be processed through two machines so as to minimize the total
elapsed time T. The problem can be described as:
a) Only two machines A and B are involved;
b) Each job is processed in the order AB.
c) The exact or expected processing times A1,A2,A3, --- , An ; B1,B2,B3, --- ,
Bn are known and are provided in the following table

Job(s)
Machine
1 2 3 -- - i -- - n
A A1 A2 A3 -- - Ai -- - An
B B1 B2 B3 -- - Bi -- - Bn

The problem is to find the sequence (or order) of jobs so as to minimize the total
elapsed time T. The solution of the above problem is also known as Johnson�s
procedure which involves the following steps:
Step 1. Select the smallest processing time occurring in the list A1,A2,A3,
--- , An ; B1,B2,B3, --- , Bn if there is a tie, either of the smallest
processing times can be selected.
Step 2. If the least processing time is Ar , select the rth job first. If it is Bs,
do the sth job last as the given order is AB
Step 3. There are now (n-1) jobs left to be ordered. Repeat steps I and II
for the remaining set of processing times obtained by deleting the
processing time for both the machines corresponding to the job
already assigned.
 Step 4. Continue in the same manner till the entire jobs have been
ordered. The resulting ordering will minimize the total elapsed
time T and is called the optimal sequence.
Step 5. After finding the optimal sequence as stated above find the total
elapsed time and idle times on machines A and B as under:
Total The time between starting the first job in the optimal
elapse sequence on machine A and completing the last job in the
d optimal machine B.
time
=
Idle (Time when the last job in the optimal sequence on
time sequences is completed on machine B)- (Time when the
on last job in the optimal sequences is completed on machine
machi A)
ne A
=
Idle (Time when the first job in the optimal sequences is
time completed on machine A)+
on
machi
ne B
=
The Johnsons procedure can be illustrated by following examples:

Example 1

There are nine jobs, each of which must go through two machines P and Q in
the order PQ, the processing times (in hours) are given below:
Job(s)
Machine
A B C D E F G H I
P 2 5 4 9 6 8 7 5 4
Q 6 8 7 4 3 9 3 8 11

Find the sequence that minimizes the total elapsed time T. Also calculate the
total idle time for the machines in this period.

Solution
The minimum processing time on two machines is 2 which correspond to task A
on machine P. This shows that task A will be preceding first. After assigning
task A, we are left with 8 tasks on two machines
Machine B C D E F G H I
P 5 4 9 6 8 7 5 4
Q 8 7 4 3 9 3 8 11

Minimum processing time in this reduced problem is 3 which correspond to

jobs E and G (both on machine Q). Now since the corresponding processing
time of task E on machine P is less than the corresponding processing time of
task G on machine Q therefore task E will be processed in the last and task G
next to last. The situation will be dealt as

A G E

The problem now reduces to following 6 tasks on two machines with processing
time as follows:
Machine B C D F H I
P 5 4 9 8 5 4
Q 8 7 4 9 8 11
Here since the minimum processing time is 4 which occurs for tasks C and I on
machine P and task D on machine Q. Therefore, the task C which has less
processing time on P will be processed first and then task I and task D will be
placed at the last i.e., 7th sequence cell.
The sequence will appear as follows:
A C I D E G

The problem now reduces to the following 3 tasks on two machines

Machine B F H
P 5 8 5
Q 8 9 8

In this reduced table the minimum processing time is 5 which occurs for tasks B
and H both on machine P. Now since the corresponding time of tasks B and H
on machine Q are same i.e. 8. Tasks B or H may be placed arbitrarily in the
4th and 5th sequence cells. The remaining task F can then be placed in the
6th sequence cell. Thus the optimal sequences are represented as

A I C B H F D E G
or
A 1 C H B F D E G

Further, it is also possible to calculate the minimum elapsed time corresponding

to the optimal sequencing A → I → C → B → H → F → D → E → G.
Job Machine A Machine B
Sequence Time In Time Out Time In Time Out
A 0 2 2 8
I 2 6 8 19
 C 6 10 19 26
B 10 15 26 34
H 15 20 34 42
F 20 28 42 51
D 28 37 51 55
E 37 43 55 58
G 43 50 58 61

Hence the total elapsed time for this proposed sequence staring from job A to
completion of job G is 61 hours .During this time machine P remains idle for 11
hours (from 50 hours to 61 hours)and the machine Q remains idle for 2 hours
only (from 0 hour to 2 hour ).

Processing of n Jobs through Three Machines

The type of sequencing problem can be described as follows:
a) Only three machines A, B and C are involved;
b) Each job is processed in the prescribed order ABC
c) No passing of jobs is permitted i.e. the same order over each machine
is maintained.
d) The exact or expected processing times A1,A2,A3, --- , An ; B1,B2,B3, --
- , Bn and C1,C2,C3, --- , Cn are known and are denoted by the following
table

Job(s)
Machine 1 2 3 -- - i - - n
-
A A1 A2 A3 -- - Ai -- - An
B B1 B2 B3 -- - Bi -- - Bn
C C1 C2 C3 Ci Cn
Our objective will be to find the optimal sequence of jobs which minimizes the
total elapsed time. No general procedure is available so far for obtaining an
optimal sequence in such case. However, the Johnsons procedure can be
extended to cover the special cases where either one or both of the following
conditions hold:

a) The minimum processing time on machine A ≥ the maximum processing

time on machine B.

b) The minimum processing time on machine C ≥ the maximum processing

time on machine B.
The method is to replace the problem by an equivalent problem involving n jobs
and two machines. These two fictitious machines are denoted by G and H and
the corresponding time Gi and Hi are defined by

Gi = Ai + Bi

and Bi + Ci

Work study:
“Work study is a generic term for those techniques, method study and work
measurement which are used in the examination of human work in all its
contexts. And which lead systematically to the investigation of all the factors
which affect the efficiency and economy of the situation being reviewed, in
order to effect improvement.”
Framework of work study
The concept & various techniques of method analysis & work
measurement:
Advantages of Work Study
Following are the advantages of work study:
1.It helps to achieve the smooth production flow with minimum
interruptions.
2.It helps to reduce the cost of the product by eliminating waste and
unnecessary operations.
3.Better worker-management relations.
4.Meets the delivery commitment.
5.Reduction in rejections and scrap and higher utilization of resources of
the organization.
6.Helps to achieve better working conditions.
7.Better workplace layout.
8.Improves upon the existing process or methods and helps in
standardization and simplification.
9.Helps to establish the standard time for an operation or job which has
got application in manpower planning, production planning.
Steps Involved in Work Study:
The steps of work study are:
(i) It selects the jobs which are to be studied;
(ii) It examines critically the recorded facts which are already done;
(iii) It records from direct observations all the matters which are happened;
(iv) It defines new method;
(v) It also installs the new method;
(vi) It also maintains the new standard;
(vii) It develops most economic and appropriate methods;
(viii) It measures the work content in the method, that is selected and compute a
standard time.
Types of Work Study:

1. Method Study:
According to ILO, method study is “the systematic recording, analysis and
critical examination of existing and proposed ways of doing work and the
development and application of easier and more effective method”. In short, it is
a systematic procedure to analyse the work to eliminate unnecessary operations.

2. Time And Motion Study:

According to ILO, Time Study means “a technique for determining as
accurately as possible from a limited number of observations the time necessary
to carry out a given activity at a different standard of performance”. In other
words, “time study is the art of observing and recording time required to do
each detailed element of an individual operation.” Practically, it studies the time
taken on each element of a job.
Motion study, on the other hand, is the study of the body motion used in
performing an operation, with the thought of improving the operation by
eliminating unnecessary motion and simplifying necessary motion and thus
establishing the most favourable motion sequence for maximum efficiency.
METHODS ANALYSIS
Methods analysis is the study of how a job is done. Whereas job design shows
the structure of the job and names the tasks within the structure, methods
analysis details the tasks and how to do them.

Process concerned with the detailed process for doing a particular job.

Methods analysis is used by companies when developing new products or

services and for improving the efficiency of methods currently in use. Suppose
your restaurant has an accepted procedure for communicating a customer's
dinner choices to the kitchen without errors. Methods analysis documents this
accepted procedure, including specific notations that identify customer
preferences. The result is a standard operating procedure your restaurant can use
for training new employees and for evaluating the performance of existing
employees.

Methods analysis consists of the following steps:

1. Identify the operation to be analyzed.
2. Gather all relevant information about the operation, including tools,
materials, and procedures.
3. Talk with employees who use the operation or have used similar
operations. They may have suggestions for improving it.
4. Chart the operation, whether you are analyzing an existing operation or a
new operation.
5. Evaluate each step in the existing operation or proposed new operation.
Does the step add value? Does it only add cost?
6. Revise the existing or new operation as needed. ...

Work Measurement :
Work measurement is also called by the name ‘time study’. Work measurement
is absolutely essential for both the planning and control of operations. Without
measurement data, we cannot determine the capacity of facilities or it is not
possible to quote delivery dates or costs. We are not in a position to determine
the rate of production and also labor utilization and efficiency. It may not be
possible to introduce incentive schemes and standard costs for budget control.
Objectives of Work Measurement
The use of work measurement as a basis for incentives is only a small part of its
total application. The objectives of work measurement are to provide a sound
basis for:
1.Comparing alternative methods.
2.Assessing the correct initial manning (manpower requirement planning).
3.Planning and control.
4.Realistic costing.
5.Financial incentive schemes.
6.Delivery date of goods.
7.Cost reduction and cost control.
8.Identifying substandard workers.
9.Training new employees.
Techniques of Work measurement in Production Management
For the purpose of work measurement, work can be regarded as:
1.Repetitive work: The type of work in which the main operation or
group of operations repeat continuously during the time spent at the
job. These apply to work cycles of extremely short duration.
2.Non-repetitive work: It includes some type of maintenance and
construction work, where the work cycle itself is hardly ever repeated
identically.
Various techniques of work measurement are:
1.Time study (stop watch technique),
2.Synthesis,
3.Work sampling,
 4.Predetermined motion and time study,
5.Analytical estimating.
Time study and work sampling involve direct observation and the remaining are
data based and analytical in nature.
1.Time study:
A work measurement technique for recording the times and rates of
working for the elements of a specified job carried out under specified
conditions and for analyzing the data so as to determine the time
necessary for carrying out the job at the defined level of performance.
In other words measuring the time through stop watch is called time
study.
2.Synthetic data:
A work measurement technique for building up the time for a job or
pans of the job at a defined level of performance by totaling element
times obtained previously from time studies on other jobs containing
the elements concerned or from synthetic data.
3.Work sampling:
A technique in which a large number of observations are made over a
period of time of one or group of machines, processes or workers.
Each observation records what is happening at that instant and the
percentage of observations recorded for a particular activity, or delay,
is a measure of the percentage of time during which that activities
delay occurs.
4.Predetermined motion time study (PMTS):
A work measurement technique whereby times established for basic
human motions (classified according to the nature of the motion and
conditions under which it is made) are used to build up the time for a
job at the defined level of performance. The most commonly used
PMTS is known as Methods Time Measurement (MTM).
5.Analytical estimating:
A work measurement technique, being a development of estimating,
whereby the time required to carry out elements of a job at a defined
level of performance is estimated partly from knowledge and practical
experience of the elements concerned and partly from synthetic data.
UNIT – III PURCHASE & STORES MANAGEMENT
Purchase Management:
Purchase management is a business discipline that enables companies to
manage the activities and relationships that make up the purchasing functions
necessary to do business. At its core purchase management is all about saving
money, increasing profits and it is an important function for
any wholesale, distribution or manufacturing business.
Efficient purchase management provides a prime opportunity for wholesalers to
clear bigger profits by controlling costs of the inventory stock needed to run
their business. To deliver the greatest profitability for an organisation it is
crucial that products and services are purchased at the best price and quality
available.
To ensure the most cost-effective outcomes, purchasing strategies are necessary
and should be developed in line with a basic purchasing cycle to best manage all
the necessary functions from one centralised location.

Benefits of purchase management

Purchase management is a system that creates customised approval rules
providing the ability to hasten approvals and order placement for the timely
receipt of inventory stock.
Purchase management streamlines the purchasing and inventory control process
of an organisation for greater efficiency and lower costs.
Purchasing management is the management of the purchasing process and
related aspects in an organization.
A purchasing management department can be formed and operated by one or
more employees in order to ensure that all services, goods, supplies, and
inventory needed for the organization to operate are ordered and kept in stock,
as well as control inventory levels and costs associated with purchasing the
items.
Purchase Order Management :
Purchasing Management (PM) can affect product cost. PM ensure all of the
goods, supplies and inventory needed to operate the business are ordered and
kept in stock. PM also control the cost of goods ordered, control inventory
levels, build a strong relationship with vendors.
Objectives:
1. keep expense low
2. maintain and keep up to date of all transactions
3. avoid stock out situation
4. Send to the customer on the RIGHT quantity, quality, time, place, price,
contract, transport, source and payment terms.
Sources of Supply:
Vendor selection and rating:
Scientific purchasing involves identification, development and at times creation
of the appropriate sources of supplier of materials their evaluation and selection
of the capable and willing vendor. This is a challenging task because it is not
easy to discover all the sources that exist at a particular point of time. Even if all
the sources are identified, some sources may not be feasible to be tapped due to
time, distance, quantity and quality constraints.
Selection of the suitable supplier is both a right as well as a responsibility of the
purchase department. It can contribute substantially to the fundamental
objectives of the business enterprise. It is a continuous job. The decision is not
to be taken once for all. The decision tends to be a complex one. It is not that
the supplier bidding the lowest price is the best supplier. In fact varied
economic and non-economic factors are considered while evolving the optimum
decision.
Different strategies are developed for acquiring different types of materials. The
selection of supplier for standardized products will differ substantially from that
for the non standardized products. A different consideration would be involved
in acquiring the capital equipment, indirect materials, tools, stationery etc.
Sources of supplier: The best buying is possible only when the decision maker
is familiar with all possible sources of supply in general, and their respective
terms and conditions in particular. The purchase department should try to locate
the appropriate sources of the supplier of various types of materials. This is also
known as the “survey stage”. A survey of the following will help in developing
the possible sources of supply.
1) Specialized trade directories
2) Regional directories of chambers of commerce or such organizations;
3) Assistance of professional bodies or consultants
4) The purchaser’s handbook or the buyer’s guide;
5) The manufacturers’ and / or distributors catalogue.
6) Direct mailing of advertising literature
7) The advertisement in dailies such as “buyers’ guide” section,
8) The advertisement in specialized journals;
9) The new product and process announcements as published in dailies (e.g.
Economic Times) and magazines (e.g. Purchase).
10) Visit by supplier’s agent
11) Film slide or movies
12) Trade fair exhibitions
The survey should be conducted by the purchase department in consultation
with the Engineering, R and D, Inspection and such other departments which
may contribute to a refined decision. It should be noted that this task is not
confined to mere identification of existing sources. Sometimes, it becomes
necessary even to develop a source where none had been previously available.
The survey stage is a positive function in the sense that it attempts to add more
and more suppliers in the list, while the development of the approved list of
suppliers is the negative process in the sense that a short listing is made out of
the available exhaustive list of the suppliers that match to the requirements of
the buyer.
1. MANUFACTURERS AND VENDORS
When you work with manufacturers and vendors, you’re working with the
source of the supply chain. They research, develop, and produce the product
you purchase. Effectively, sourcing your materials from the manufacturer
means you’re not paying any additional businesses for the handling and storing
of the product.
Many manufacturers create the materials after they’ve been ordered. This can
create a longer wait time than what you’ll receive with wholesalers and
distributors. But, if what you need isn’t something readily available or mass-
produced, manufacturers can create large volume orders to the exact
specifications you need. Manufacturers are ideal when efficiency and intricacy
are top priorities.
2. WHOLESALERS AND DISTRIBUTORS
Wholesalers and distributors are known for purchasing supplies in bulk, storing
them, and selling off in smaller quantities to businesses and retailers. They
specialize in carrying standard sizes in high volumes.
Since the product is already created, you may have limited options, but the
order turn times will be shorter.
3. INDEPENDENT AND TRADE SHOW REPS
Independent craftspeople who create their own pieces often sell their work
independently or partner with representatives who help sell their final product.
Independent craftspeople are known for one-of-a-kind intricacy, along with
handmade detailing.
Sourced materials from an independent craftsperson are typically ideal for
projects involving low-volume purchasing where turn times are a lower priority.
4. IMPORTERS
When you hear talks of overseas manufacturing, the suppliers who import and
export those manufactured goods are known as importers. Importers purchase
their materials from one country, and then they sell those same materials in a
different country.
When you source materials through importers, high-volume orders in standard
sizes are where you’ll find the most benefit. The high-volume helps to offset the
costs incurred through shipping and transporting the materials. It’s not
uncommon to buy from a wholesaler or distributor who sources from importers
as well.
Selection :
The materials selection process for a component or joint between components
involves these steps:
Identify the design requirements
Identify the materials selection criteria.
Identify candidate materials.
Evaluate candidate materials.
Select materials.
While each step might seem obvious, there are many organizations that do not
have the structure in place to follow each step. Consequently, they end up
selecting sub-optimum materials. The remainder of this article gives a brief
overview of each step of the materials selection process. Future articles will
provide more details about each step of the process.
Step 1: Identify the design requirements
The design requirements include the following items:
Performance requirements
Reliability requirements
Size, shape, and mass requirements
Cost requirements
Manufacturing and assembly requirements
Industry standards
Government regulations
Intellectual property requirements
Sustainability requirements
Identifying as many of the requirements as possible is critical for increasing the
likelihood of learning whether potential materials exist. For many products,
some of these requirements are not applicable, making the information
gathering process easier. Regardless, as the number of requirements increases,
the chance of finding a set of potential materials decreases.
Step 2: Identify materials selection criteria
The materials selection criteria are specific materials properties derived from
the requirements identified during Step 1. For example, for a component that
must support a specific load, the minimum yield stress that is required for the
component’s material can be determined. This will be one of the material
selection criteria.
Step 3: Identify candidate materials
Use the materials selection criteria to rule out materials that will not satisfy all
the materials selection criteria. When evaluating whether a material might be
appropriate for the application, be sure to consider the materials’ range of
values for the properties of interest. Do not rely upon nominal properties values.
Step 4: Evaluate candidate materials
There may be candidate materials for which there insufficient data available to
indicate whether the materials satisfy certain selection criteria. These materials
will have to be analyzed and tested to determine whether they do meet the
selection criteria.
Step 5: Select materials
Select the materials that satisfy all the materials selection criteria at the lowest
cost. Remember, cost includes the cost of the material and the cost to fabricate a
component or form a joint between components.
Evaluation of vendors:
When evaluating vendors and suppliers, you’ll need to make both quantitative
and qualitative assessments to ensure a purchasing process that works for your
organization. It's a good idea to track metrics on an ongoing basis to confirm
contracts are still beneficial.
Vendor evaluation is important as it can reduce supply chain costs and improve
the quality and timeliness of the delivery of items to your company. The skill in
evaluating vendors is to determine which criteria are important and the
weighting that these criteria are given.
It is important to remember that these criteria may be different for each item
you are sourcing and possibly different between regions or countries.
Objective data is useful to compare the information that you can obtain from
each purchase order and goods receipt, but sometimes the subjective data that
your purchasing agents can provide such as customer service and the
willingness of the vendor to accommodate your requirements is as or more
important in a vendor evaluation.
Optimizing your supply chain means that you and your company are delivering
your customers what your customers want when your customers want it— and
doing that by spending as little money as possible. A robust vendor evaluation
practice will help start that process off by guaranteeing lowest costs, highest
quality and on-time delivery.

Different Methods of Vendor Evaluation

There is no single vendor evaluation method that covers every circumstance. To
evaluate vendors, take into consideration your business and the vendor
classification, as well as whether the vendor is a prospect or already under
contract, and if you're conducting a post-award review.
Following is a list of common methods that you may use to conduct your
vendor evaluation:
Commercial: When considering the commercial side of any potential vendor or
supplier, keep in mind their reputation, market dominance, market and
advertising presence, awards, ability to deliver promptly, and existing clients.
Technical: A technical evaluation is centered on standards for compliance,
innovation, technical equipment, and scientific capabilities.
Records: In this type of vendor evaluation, you collect data from public
sources, such as financial records, industry news items, and award notices.
Before-the-Fact: In this type of evaluation, the evaluator plans and starts
gathering data from public data sources and vendor or supplier endorsement or
reviews early in the history of the project. Replies to RFIs and RFPs with
substantiating documents should provide many of the necessary answers, too.
After-the-Fact: For this evaluation, review a first engagement or shipment and
assess performance and process. Ask critical stakeholders about successes,
failures, and operations. Responses provide data for decisions, future planning,
and discussions after an event is complete.
By performing these vendor analysis methods based on criteria and data, you
will have support in making evidence-based decisions. Remember that in
today’s competitive business environment, you shouldn’t simply be solving for
cost — the price for poor quality or delivery can be too high in the end.
Methods of Vendor Rating:
Vendor rating is when the suppliers are provided with a status or a title based
on several factors. Factors could be credibility, delivery time, price, quality of
the goods supplied, and a set of such mixed variables.
The vendor ratings are based on the vendor’s performance. They can have
several levels: good, average best, or anything that the firm decides.
Quality
The quality of the products or goods vendor supplies is the main factor. The
vendor can maintain good quality by improving production and having quality
planning in the supply chain. Quality factor consists following things.
The supplier should obey and follow the terms and conditions mentioned in the
purchase order.
The vendor’s products or services must meet the specifications mentioned in the
request for proposal and purchase order.
The product failure rate should be within the appropriate limit.
The vendor should do proper repair or rework.
He should provide an adequate time duration for replacement.
Rate the quality of the product by considering two factors. They are quality
acceptance and certification.
Quality acceptance means material purchased by the vendor should pass at the
first inspection level only so that we can consider that the quality of the product
is good.
The material should have some quality certification like ISO(International
Organization for Standardization) certification, IRS, ABS, DQA(WP), and
DQA(N).
Quality rating depends on two factors
Certification (i.e. firm is ISO certified or certified by IRS, ABS, DQA(WP),
DQA(N), PSU, etc)
Quality Acceptance (i.e. Material is accepted during first inspection or second
or third inspection, etc.)
The combination of above factors gives the overall quality rating of any vendor
for particular item.

Price
A company always wants to get the materials at less expense to reduce its
manufacturing cost to increase its profit. Hence the vendor needs to set a
competitive price for his products. Compare the price of the present vendor with
other vendors and compare the present price of the material with the average
price of the material for a chosen period.
Delivery Rating: Rate the delivery performance of the vendor by comparing the
actual delivery date with the predetermined delivery date.
Service rating: Rate the service based on the support provided by the vendor
during post and pre-purchase orders and consider the warranty period.
Price rating is calculated on comparing the present price with average/least
price for a selected time period.
It includes the following things.
Stable price: The price of the product or service must be stable over time.
Accurate price: There should not be much difference between the purchase
order and invoice prices.
Prior notice about price changes: He should inform about price changes in
advance.
Billing: He must provide easily readable and understandable bills.
Delivery :The supplier has to develop the ability to deliver the goods on a
scheduled date. This factor consists following things.
Lead time: Lead time is between the actual delivery day and order placement
day. The shortest lead time helps to get a good impression on the supplier. The
vendor should deliver products on or before the promised date.
Quantity: He must deliver the correct amount of products as mentioned in the
contract.
Packing and documentation: Packing of the products must be suitable, studied,
and undamaged. The vendor should provide proper documents along with the
delivered products.
Emergency delivery: The vendor must have the ability to deliver products in
case of some emergency requirements.
Service :It is one of the crucial criteria for the supplier. He has to provide good
service by providing an updated catalog, pricing information, technical
information, etc.
The vendor must have the ability to handle complaints effectively.
The vendor should provide technical support for installation, maintenance, and
repair.
Emergency support: The supplier should support in the emergency condition of
product failure or repair.
Resolve the problems: The supplier should find the solution for the problem on
time.
The vendor rating system is a by-product of the just-in-time approach.
Compare the price of the present vendor with other vendors and compare the
present price of the material with the average price of the material for a chosen
period.
Delivery Rating: Rate the delivery performance of the vendor by comparing the
actual delivery date with the predetermined delivery date.
Service rating: Rate the service based on the support provided by the vendor
during post and pre-purchase orders and consider the warranty period.
Delivery Rating
Delivery rating of any supplier is calculated by comparing the actual delivery
with the contractual delivery date. Depending on the number of days the
delivery is delayed with respect to contractual delivery date, various Ratings
have been defined.
Service Rating
Service rating for particular supplier is given by individual project officer. This
rating is given on basis of support rendered by vendor both pre & post PO
including trials, Guarantee period.
Overall Rating
This is a combination of all above factors. Different weightages can be given for
above four factors out of 100. The combination of all above factors gives the
overall performance of the vendor.
METHODS OF VENDOR RATING :
Methods of vendor rating are –
Point method.
Cost Ratio method.
Point method.
Vendor rating is the total of the points for all the factors together and they can
be grouped as –
Excellent keep it
Satisfactory
Poor
to be discontinued
Vendors can be arranged decending order, the no.1 rank getting all the
preference for future orders etc.
The performance is affected by –
the relationship governed by status i.e. size of the vendor
vendor - vendor equal status
vendor - big manufacturer
vendor - is small manufacturer
technically in capable due to personnel inspection method or due to inefficient
methods or equipments.
lack of communication in terms of interpretations, use of gauge, etc.
Stores Management:
Store management is the actual handling of items received, held, and issued
from a store. For small retailers, store administration will focus on inventory
management. By maintaining optimal inventory levels, you can meet customer
needs while minimizing unnecessary costs and achieving sales goals. However,
this work becomes more complex with larger stores and includes:
Receiving items and materials
Returning defective or damaged stocks
Keeping records of incoming and outgoing items
Maintaining inventory levels precisely to avoid overstocking or overstocking.
Store management is concerned with ensuring that all the activities involved in
storekeeping and stock control are carried out efficiently and economically by
the store personnel. In many cases this also encompasses the recruitment,
selection, induction and the training of store personnel, and much more.
The basic responsibilities of store are to act as custodian and controlling agent
for the materials to be stored, and to provide service to users of these materials.
Proper management of store systems provide flexibility to absorb the shock
variation in demand, and enable purchasing to plan ahead.
Since the materials have a cost , the organization is to manage the materials in
store in such a way so that the total cost of maintaining materials remains
optimum.
Store needs a secured space for storage. It needs a proper layout along with
handling and material movement facilities such as cranes, forklifts etc, for safe
and systematic handling as well as stocking of the materials in the store with an
easy traceability and access. It is to maintain all documents of materials that are
able to trace an item , show all its details and preserve it up to its shelf life in the
manner prescribed or till it is issued for use. Store is to preserve the stored
materials and carry out their conservation as needed to prevent deterioration in
their qualities. Also store is to ensure the safety of all items and materials whilst
in the store which means protecting them from pilferage, theft, damage,
deterioration, and fire.
The task of storekeeping relates to safe custody and preservation of the
materials stocked, to their receipts, issue and accounting. The objective is to
efficiently and economically provide the right materials at the time when it is
required and in the condition in which it is required. The basic job of the store is
to receive the materials and act as a caretaker of the materials and issue them as
and when they are needed for the activity of the organization.
Once the material has been received and cleared through inspection and
accepted for use, it needs safe custody of the stores. The role of custody is to
receive and preserve the material. A stage comes when the material is needed
for use. Store at that time releases the material from its custody to the user
department and the process is called ‘issue of goods. It might also happen that
after partial use , some materials having useable value in future are returned to
the store and thus they also become part of the custody again.
According to Afford and Beatty___,” Store management is that aspect of
material control concerned with the physical storage of goods”.
According to Maynard___,” Store management is to receive materials, to
protect them while in storage from damage and unauthorized removal, to issue
the materials in the right quantities, at the right time to the right place and to
provide these services promptly and at least cost”.

Functions of Stores :
Store personnel are responsible for carrying out the following functions.
1. Receipt of incoming materials
2. Supervision of unloading of materials and tallying of materials
3. Checking for damages or shortages and preparation of the report
 4. Filling of ‘goods inward’, ‘day book’, or ‘daily collection’ register
5. Completion of vendors consignment note (challan)
6. Making arrangement for inspection and getting the inspection completed
7. Preparation of ‘goods receipt note’ (GRN)
8. Preparation of ‘goods rejection memo’ (in case of rejection of materials)
9. Sending of materials to the respective stores
10. Sending of the relevant documents to the respective departments
11. Ensuring all storage and material handling facilities are in proper working
order
12. Ensuring good housekeeping and cleanliness in the storage space
13. Checking, counting and tallying of materials before issue
14. Making prompt entries in ‘Bin card’ or stock card
15. Ensuring correct documentation of material receipts and material issues
16. Ensuring safe and proper handling of materials so as not to damage them
17. Ensuring proper record keeping and correct accounting of materials
18. Ensuring regular stock verification
19. Ensuring that rules and regulations relating to physical custody and
preservation of materials are followed
20. Ensuring safety of materials and personnel
Receipt: To receive and account for the inventories that are received.
Storage: To receive and safely keep the inventory and avoid loss on account
of damage, deterioration and pilferage.
Retrieval: It ensures the materials are easily accessed and space is optimally
utilized. It further ensures that the materials are retrieved as and when
required.
Issue: The demand arising on account of the consuming departments is
satisfied upon the receipt of the goods.
Records: To record the receipts and the issues.
Housekeeping: Emphasis is given on neatness and cleanliness and the same is
kept in a manner that the receipts, issue, and storage are satisfactory.
Surplus Stock: The surplus stock should be properly disposed of.
Verification: To avoid loss of stock, physical verification should be timely
conducted.
Coordination and Cooperation: To provide for interface with the inspection
and the production department
Material control :
Definition: Material control is a management activity that administers how the
inventory employed in the production process is procured, acquired, handled
and utilized. It is a process that requires planning, organization an auditing of all
the elements employed in certain productive activity.
“Material control is a systematic control over purchasing, storing and
consumption of materials, so as to maintain a regular and timely supply of
materials, at the same time, avoiding overstocking.”
“Material control refers to the management function concerned with acquisition,
storage, handling and use of materials so as to minimise wastage and losses,
derive maximum economy and establish responsibility for various operations
through physical checks, record keeping, accounting and other devices. ”
In simple words, material control refers to the various measures adopted to
reduce the amount of loss of materials at the time of receiving, storing and
issuing the raw materials. Material control in practice is exercised through
periodical records and reports relating to purchase, receipt, inspection, storage
and issuing direct and indirect materials. Proper control over material can
contribute substantially to the efficiency of a business.
Functions
Production Control - As production schedules are generated through demand
analysis, the materials that are needed are determined. It is important to find
readily available materials to make sure that production flows smoothly.
Purchasing - As production management hands off the materials that are
needed, the parts are then purchased from various and frequent suppliers.
Locating quality materials at a reasonable price can reduce overall cost within
the materials management process.
Transportation - Arrangement of transportation has to be done in a quick and
efficient manner. The type of transportation can vary based off of the operation,
depending on how frequently materials are bought.
Receiving - This area of materials management takes the initiative in unloading
and counting materials. This is where the parts are distributed to the correct
locations and where the process ends.
Stores management or management
This involves physical control of materials, preservation of stores, minimization
of obsolescence and damage through timely disposal and efficient handling,
maintenance of store records, proper location and stocking. A store is also
responsible for the physical verification of stocks and reconciling them with
book figures. A store plays a vital role in the operations of a company.
4. Inventory control or management
Inventory generally refers to the materials in stock. It is also called the idle
resource of an enterprise. Inventories represent those items, which are either
stocked for sale or they are in the process of manufacturing or they are in the
form of materials, which are yet to be utilized. The interval between receiving
the purchased parts and transforming them into final products varies from
industries to industries depending upon the cycle time of manufacture. It is,
therefore, necessary to hold inventories of various kinds to act as a buffer
between supply and demand for the efficient operation of the system. Thus,
effective control on inventory is a must for the smooth and efficient running of
the production cycle with the least interruptions.
Quality Control and Inspection: - Quality control is the control of quality
during manufacturing. Inspection consists of comparing the actual products
against previously laid down standards and specifications.
Disposal of Surplus, Obsolete and Scrap stock: - if surplus, obsolete and
scrap stock is held in possession, this involves inventory carrying, storage and
security costs. Hence, this should be disposed of as soon as possible.
Classification of Materials
Classification is the systematic division, grouping, or categorization of
materials or items based on some common characteristic.
Classification of materials can be performed on different bases (e.g., nature,
manufacturing process, value, and purpose). To identify materials that are
purchased and stored for commercial purposes, they should be properly
classified.
The department in charge of storage should closely study and monitor the
materials, ensuring their safe custody, meticulous handling, and protection from
damage, fire, pilferage, and spoilage.
A broad classification of materials is shown below, based on their nature, use,
and service.
Raw Materials
Consumable Stores
Machinery and Plant
Factory and Office Equipment
Inflammable Stores
Chemicals
Furniture and Fixtures
Scrap Materials
Packaging Materials
General Stores
On the Basis of Nature of Materials
Raw Materials: Raw materials include all those materials which are purchased
from the original producer or other manufacturers and are used directly in
producing. The firm’s product For example, cotton and yarn are raw materials
for cotton textile mills for they help in producing the final product-cloth. Cotton
is purchased from the original producer, i.e., cotton grower, whereas yarn is
procured from other manufacturers, i.e., spinners. The product in one trade may
become the raw material for the other trade.
Machinery and Equipment: All the machinery, both power and hand-driven,
such as, presses, lathe machines, typewriters, electric motors, fans, and other
machines used in the production and other departments, is classified as such.
Tools also come under this category, and they are issued on loan basis to the
various departments for a definite period, generally till their life-time.
Consumable Items: Those materials used in the manufacturing process which
cannot be used for the second time for the same purpose since their utility for
the purpose in question has ceased and the shape changed are referred to as
consumable items. Coal, coke, mineral oil, lubricants, cotton waste, paints,
varnishes, oxygen, stationery items like pencil, paper, carbon papers, ink, etc.,
are a few examples of the consumable items.
Chemicals: Substances obtained after undergoing certain processes in
chemistry according to a formula devised for the purpose may be known as
chemicals. They should be stored, preserved and issued very cautiously after a
careful scrutiny and proper analysis since their use involves risk even to life.
Items like carbide, acids, etc., can be classified under the head.
Inflammable Items: Items highly susceptible to fire, such as petrol, kerosene,
films, dopes and paints, fall under the category. Due to their hazardous nature,
they are generally stored as far away as possible from the main building with
complete fire-fighting arrangements standing by
Fuel Stock: These are also consumable items. But there is a slight difference
between the two in respect of their uses. When an item is directly used for
production and is a fuel for the furnace, oven, etc., it is classed as fuel stock. It
is a necessary item for completing, rather starting, the manufacturing process
and of course one of the important items in a manufacturing unit, but it can
never constitute the finished product. However, sometimes it may rightly be
taken as a raw material. Coal is a fuel stock but is also a raw material for an iron
and steel industry.
Furniture: Movable contents of a house or a room like chairs, tables, almirahs,
benches, stools, etc., are furniture items. Their repairs, renewals and
replacements also require proper maintenance of records since they are issued
temporarily on loan basis.
Scrap Materials: On the expiry of life of a particular item, the residue is called
the scrap. Such material as is left over as waste in the process of production is
also known as scrap. The scrap is sold out in the market so as to fetch some
value out of it. Kabadis are the best purchasers of scrap in this country.
Packaging Materials: These include all kinds of wrapping materials, such as
paper wood carvings, sawdust, straw, etc., Containers like boxes, crates, drums
and bottles, protective coatings, such as, wax, grease, as also plastic cans, bags,
etc.
General Items: This category includes all those items which do not fall under
any of the above categories of items. In a large undertaking, general stores
section is separated from other stores under an independent in charge since they
cover a large number of items,. Which, although not directly linked with the
production processes, are required for day-to-day smooth and efficient running
of the enterprise? Cleaning materials like soap, brooms, and uniforms for the
staff, stationery and all other items of general use are handled in the general
stores department.
On the Basis of Usability of Materials
Serviceable, Unserviceable and Obsolete Items: Serviceable items are those
items which go temporarily out of order. After repairing and replacement they
may become serviceable again and their usable life may thus be extended for
some more time. Unserviceable items are those items which have outlived their
life. No amount of repairs, renewals or replacements can bring them back to
their usable life. They are thus fit only for disposal as scrap. Obsolete items are
those items which have gone out of date because of new inventions in design,
use, etc., and which cannot profitably be used again.
Finished and Semi-finished Items: Finished items are those goods which have
been manufactured in complete form by the production department and are
ready for sale. On the other hand, semi-finished items are those which have not
yet been manufactured completely and need some further processing before
they can be put to sale in the market. They are thus taken back by the
production department for turning them into a final product.
Dead Stock Items: This term is generally used in government departments.
Furniture, equipments, machinery and other items which have some definite life
and which cannot be written off before the expiry dates of their life are classed
as dead stock items. They are issued temporarily on loan basis to their users.
Unused Items: These are not stock items in the real sense of the term. These
cannot be used in the production unit, because, being defective, damaged
beyond use, or because of some other reason they have been rendered unusable.
Sometimes unused stocks are mistaken for scrap and unserviceable materials.
But this is not the real position. Scraps are generally left out items from the
production unit. They cannot be used, as either they are less in quantity or less
in measurement, weight, etc. But unserviceable items are movable items which
have been rendered unserviceable by constant use and are now beyond repair.

Codification of Materials
After classifying and grouping the various items in an organization’s stores, it is
useful to codify them.
Codification is the process of assigning a number or symbol to each store item,
along with a name, in order to make it easy and convenient to identify.
The codification of store items thus leads to time-saving and labor efficiencies.
Different kinds of store codes are used today. Most have been specially
designed to suit the requirements of a particular organization.
These codes may be based on the nature of stock items, the purpose for which
the items are used, or on any other basis that is viewed as suitable according to
the local circumstances.
Also, the accurate identification of the materials may require a lengthy
description. This can be complicated and, hence, may add to the confusion.
Codification is necessary because it involves the assignment of logical and
systematic numbers or alphabets (or both) to help in the simple but accurate
identification of the materials.
Advantages of Codification
The main advantages of codification include:
1. Avoidance of long and unwieldy descriptions
2. Accurate and logical identification of items
3. Avoidance of duplication
4. Standardization of purchasing and storage
5. Reduction of variety
6. Effective planning and high-quality production
7. The use of codification also leads to efficiencies in the following areas:
8. Purchasing
9. Recording
10. Accounting
11. Computerizing pricing
12. Costing
13. Indexing
14. Inspection
 15. Systems of Codification
In materials departments, four main systems of codification are commonly used.
Alphabetical System
In the alphabetical codification system, alphabetical codes rather than numerical
codes are applied to items.
Each item in the storehouse is first classified and grouped based on its nature,
use, and other factors. In turn, the items are analyzed to create a unique and
descriptive alphabetical identifier.
For example, under an alphabetical codification system, iron ore may be
assigned the code IN-O, whereas iron bars may be assigned the code IN-BA.
Numerical System
In a numerical system, the codes assigned to materials are numerical. Numbers
are allotted as codes, which is useful for future expansion. For example, iron ore
may receive the code of 05—10 and iron bars may have 11—67.
Decimal System
Codes in a decimal system consist of numbers, but instead of dashes in between
two numbers, decimals (i.e., periods or full stops) are placed.
This makes the codes more flexible and makes future expansion a
straightforward affair. For example, iron may be assigned the code 11.67.02 and
iron bars may have 11.67.03.
Combined Alphabetical and Numerical System
Hybrid systems exist that combine all three of the above. Codes in a hybrid
system may look like IN–05.10 (e.g., for iron ore) and IN-11.6 (e.g., for iron
bars), and so on.
Bins and Racks
Bins
A bin is a compartment or a separated portion of a cabinet or pigeon-hole used
to store a specific material.
A bin card is used to show, at a glance, the quality and quantity of the materials
stored inside. It functions as a materials movement record and as a
replenishment index.
A bin card is a brief version of the stock ledger pertaining to an item. It serves
the purpose of a ready-reckoner for the binned item. As such, it is a kind of
mirror for the bin.
A specimen of a bin card is shown below.

Racks
A rack is a fixed or movable frame of either wood or metal bars.
Racks are used to keep materials inside a store. They are just like almirahs,
whether open or closed. Racks are mostly used to hold general store items, and
they are in common use.
Racks are commonly applied to store tubes, bars, sheets, plates, cables, drums,
and other items. Other racks acks may also be specially designed.
Process of Codification:
Codification is a process of representing each item stored in hospital medical
store by athree digits number, each one of which indicate the group, the
subgroup, the type andthe dimension of the item.Many organizations in
the public and private sectors, railways and DGS & D, have theirown system of
codification, varying from eight to thirteen digits.
 The first two digits normally represent the major groups, such as raw
materials, spareparts, sub-contracted items, tools, oil, stationery, medicines etc.
The next two digitsindicate the sub-groups.
Dimensional characteristics of length, width, head diameter usually
constitute thefurther three digits and the last digit is reserved for minor
variations.
The codification could be thought of on the basis of source of purchasing where
itemsobtained from one source of purchasing are grouped together and
given codes. The
codification could also be built on are grouped together and given codes.
The Codification of hospital items could also be built on the basis of
alphabetical listing. It can also be done by numerical digits or by a basis
of alphabetical listing .It can also be done by numerical digits by a combination
of English Letters and numerical.
The universal decimal classification of codification which is used in libraries,
introduces decimal for identifying items.

Codification should be compact, concise, consistent and flexible enough

toaccommodate new items.

As fa r a s p o s s ib le u n i fo r m d i me ns io n s , s a y t h e me t r ic s y s te m
s h o u ld b e adopted.

It should be meaningful and oriented towards the needs of an

individualorganization. The groupings should be logical, holding similar
parts near toone another.
Each digit must be significant enough to represent some characteristics
oraspect of the item. Two fundamental systems are described in detail in
thefollowing paragraphs
CODIFICATION
An article of stores is identified by its simple description or nomenclature.
Difficulty arises when the same article is known by different names. For
example, chipping goggles, grinder goggles, or white goggles are one item but
may be stored separately under same nomenclature as different items. One
storekeeper might classify an item as Sal Ammoniac, whereas a research
chemist might identify it under the name of Ammonium Chloride, only to be
told that it is not available. A classic example comes from the U.K. An electric
firm found that a simple item of a screw with a width of 3/8” and length of 6”
had as many as 118 names depending on the type of usage and the department
using the screw.
A few names are: (a) Plunger, (b) dowel pin, (c) roller, (d) locating peg, (e)
drive pin (f) pinion spindle, (g) pin mould holding, (h) motor drive spindle, (i)
trip arm pin, (j) armature stud etc.
Two firms in Western India have been able to reduce the variety of lubricating
oils from 30 and 32 to 9 and 7 respectively. At a control depot of State Road
Transport Authority, 583 hardware items were reduced to 105 through
codification. In a large electrical firm, it was found that excessive stocks of
copper items were due to designers specifying too many sizes. A planned
reduction of say 20 per cent in number of items would not only reduce the
material cost, but would also correspondingly bring about reduction in routine
work, stores purchase, inspection, production and accounts. In short, a
rationalized system of codification would reduce the number substantially and
at the same time make their identification an easier job avoiding lengthy
description and confusion.
The need for Codification arises because of the following reasons:
(i)Speed, (ii) Unambiguity, (iii) Saving of Effort, (iv) Space Saving on forms,
(v) Ease of classification, (vi) Mechanization.
Characteristics of Codes
As far as possible uniform dimension say, the metric system should be adopted.
i)Code should be Simple.
ii) Code should be unique.
iii) Coding should be compact, concise and consistent.
iv) Code should be sufficiently flexible to meet future demands.
Basic Requirements of a Code
i)Identify commodities
ii) Name commodities
iii) Specify commodities
iv) Classify commodities
v)Indicate inter-relationships between commodities
vi) Indicate the source of origin of commodities
vii) Refer specifically to an individual and unique commodity
STANDARDIZATION
Mass production techniques of industrial production are based on the principle
of uniformity and interchangeability of many parts, components and material
used in the production process. Standard products can be manufactured on a
mass scale and their production cost can be kept minimum. Standardisation
leads to cheaper and easier procurement and cost of replacement can also be
reduced. In our country Indian Standards Institution (ISI) is the national body
which deals with standardisation at national level. There are various committees
dealing with different industries who formulate national standards. ISI in
collaboration with NTH (National Test House) and with the help of their control
laboratories they issue the ISI certification mark, which is a third party and is
accepted nationally as a proof of standard quality. Some of the international
standards are British Standard (BS), American Standards Association (ASA) or
the American Society for Testing Materials (ASTM). However, all the
industrially advanced countries in the world have their own national standards.
International Standards Organization (ISO) with its HQ at Geneva, issues
international specifications. India being a member of ISO adopt, Standard are
meant for economy,
efficiency and convenience while there may be a general acceptance as to be
desirability of standardization, there is no possibility of complete
standardization.
Simplification
The concept of simplification is closely related to standardization.
Simplification is the process of reducing the variety of products manufactured.
Simplification is concerned with the reduction of product range, assemblies,
parts, materials and design.
Advantages of Simplification
Following are the advantages of simplification:
Simplification involves fewer, parts, varieties and changes in products; this
reduces manufacturing operations and risk of obsolescence.
Simplification reduces variety; volume of remaining products may be increased.
Simplification provides quick delivery and better after-sales services.
Simplification reduces inventory and thus results in better inventory control.
Simplification lowers the production costs.
Simplification reduces price of a product.
Simplification improves product quality.
STANDARDIZATION
The process of standardisation logically leads to simplification or variety
reduction. This implies reducing unnecessary varieties and standardising to the
most economical sizes, grades, shapes colour types of parts and so on. In large
organization handling lakhs of item, it is quite possible that there are several
effectiveness. Nevertheless these continue to be in stock for historical reasons.
The items can be analysed for their frequency of usage over the past few years.
Such frequency or movement analysis would bring out items which are seldom
used or not used at all. On the basis of this analysis the organization could set
the standards to replace these items. • The concept of simplification is closely
related to standardisation. • Simplification is the process of reducing the variety
of products manufactured (known as variety reduction). • Simplification is
concerned with the reduction of product range, assemblies, parts materials and
design. • A manufacturer may reduce the number of different types of radio sets
from a dozen to three or four to simplify his range. • Simplification makes a
product, assembly or design, simpler, less complex or less difficult. •
Simplification removes the superfluous. It decreases variety of size; for example
a garment factory making T-shirts in size 16, 16 ¼, 16 ½, 16 ¾, 17, 17 ¼., can
eliminate superfluous sizes such 16 ¼, 16 ¾, etc. and thus simplify its
production line. • The availability of suitable standards assist in simplification.
Designing a product and its manufacturing is not a simple matter of assembling
standard parts. Furthermore, operations of many a companies consist of
manufacturing products to special according to specifications of customers over
which they have virtually no control. Such, inherent limitations imposed by
such special factors frequently results in complete standardization. Yet, every
effort should be made to follow it: In the field of stores and material
management, standardisation enables industry to proceed on scientific lines to
locate factors influencing preparation of inventory control programmes, for
achieving economy of materials and parts, avoiding wastages, disposal of
unwanted stores and reduction in stock. Again through standardisation and
variety reduction, rationalized codification becomes easier. The role of
standardisation and variety reduction in inventory simplification has therefore
real significance in industrial materials management field. The standards could
cover variety of industries, such as engineering, textile, chemical,
pharmaceutical and agricultural as well as education. Certain points to
remember regarding standardisation are: • Standards are at the basis of all mass
production. They make possible thousands of different articles to be placed
within the each of everybody. • When one purchases a new spark plug for a
Scooter or Car, he knows that it will screw into the engine head all right. Why?
Because spark plug threads are standardized. • Standards convey the sense that
there are only certain specific sizes made and sold. • Standards are carefully
established specifications for products, materials. • Standardisation means
producing maximum variety of products from minimum variety of (i.e.
standardized) materials, parts, tools and processes. • Standardisation is the way
which leads to economical products. Standardisation usually means that non-
standard products will not be produced except when a customer orders them to
be made. Standardisation is the process of establishing standards or units of
measure by which extent, quality, quantity value, performance, etc. may be
compared and measured. Steps involved in standardisation procedure are as
follows: a) With the help of market research, sales statistics, etc. decide what to
sell in future. b) Then, define a standard range of products. c) From the range,
ask the designer to develop minimum variety of components to match the range.
d) Introduce new materials, components, etc. if necessary. 14.6
ADVANTAGES OF STANDARDIZATION Let us discuss some advantages of
standardisation in material management. 1) All sections of a company benefit to
some degree from standardization. • Design department • Fewer specifications,
drawings and part lists have to be prepared and issued. Thus more item is
available to develop new designs or to improve established designs. 9 Retrieval
and Transaction Processing System Better resources utilization. • Lesser design
mistakes and design alterations. • Less qualified personnel can handle routine
design work. 2) Manufacturing department • Lower unit costs. • Better quality
products. • Better, methods and tooling. • Better services of production control,
stock control, purchasing, etc. • Fewer tool changes and process set-ups. •
Increased interchangeability of parts. • Better utilization of manpower and
equipments. • Longer production runs are possible with fewer changeovers;
wider use of automation and mechanization. • The operations can be analyzed
and broken down into short repetitive cycles which can be easily mastered. 3)
Marketing department • Marketing section gets better quality products of proven
design at reasonable prices. This leads to a greater sales volume. • Increased
margin of profit. • Less pressure of after-sales-services. • Better product
deliveries. • Easy availability of spare parts. 4) Production planning section •
Scope for improved methods, processes and layouts. • Opportunities for more
efficient tool design. • Greatly reduced pre-production planning activities.
Fewer issues of new planning cards. 5) Production control department • Well
proven design and methods improve planning and control. • Fewer delays arise
from waiting for materials, instructions, tools, etc. • Accurate delivery promises.
6) Purchase and stock control section • Holding stock of standard items, (i.e.,
less variety of materials and components) means less paper work and fewer
requisitions and orders. • Storage and part location can be improved. • Because
of large purchase quantities involves, favorable purchase contacts can be made.
• Newer techniques can be used for better control of stocks. 7) Quality control
department • Better inspection and quality control is possible. • Operators
become familiar with the work and produce jobs of consistent quality. • Quality
standards can be more clearly defined
Applications of Standardisation Standardisation can be applied to a major
extent in the following fields: 1) Finished products, e.g., cars and televisions. 2)
Sub-assemblies and components, e.g., automobile gearboxes and autoelectirc
bulbs. 3) Material Standardisation, e.g., both of direct materials (plain carbon
and alloy steels, are welding electrode core wires, etc.) and indirect materials
(such as oils and greases). 4) Production equipment standardisation, e.g., that of
machine tools, presses, welding equipments, etc.
Economic Order Quantity:
Economic order quantity (EOQ) is the ideal order quantity a company should
purchase to minimize inventory costs such as holding costs, shortage costs, and
order costs. This production-scheduling model was developed in 1913 by Ford
W. Harris and has been refined over time. The formula assumes that demand,
ordering, and holding costs all remain constant.
2DS
The formula for EOQ is: Q= √
H

where:
Q=EOQ units
D=Demand in units (typically on an annual basis)
S=Order cost (per purchase order)
H=Holding costs (per unit, per year)
EOQ is an important cash flow tool. The formula can help a company control
the amount of cash tied up in the inventory balance. For many companies,
inventory is its largest asset other than its human resources, and these
businesses must carry sufficient inventory to meet the needs of customers. If
EOQ can help minimize the level of inventory, the cash savings can be used for
some other business purpose or investment.
The EOQ formula determines a company's inventory reorder point. When
inventory falls to a certain level, the EOQ formula, if applied to business
processes, triggers the need to place an order for more units. By determining a
reorder point, the business avoids running out of inventory and can continue to
fill customer orders. If the company runs out of inventory, there is a shortage
cost, which is the revenue lost because the company has insufficient inventory
to fill an order. An inventory shortage may also mean the company loses the
customer or the client will order less in the future.
Variables[edit]

= total annual inventory cost

 = purchase unit price, unit production cost

= order quantity

= optimal order quantity

= annual demand quantity

= fixed cost per order, setup cost (not per unit, typically cost of ordering
and shipping and handling. This is not the cost of goods)

= annual holding cost per unit, also known as carrying cost or storage cost
(capital cost, warehouse space, refrigeration, insurance, opportunity cost (price
x interes), etc. usually not related to the unit production cost)
Economic order quantity is a key metric for your organization’s sustainability
because ordering too much can lead to high holding costs and take resources
away from other business activities, like marketing or R&D, that could further
boost sales or reduce costs.
Inventory is a type of working capital. Working capital represents business
assets needed for regular operations. But too much working capital can eat into
your profits, and it also represents a big opportunity cost.
EOQ may not be extremely helpful when managing your office supply closet.
It's most important when looking at large, high volume or expensive purchases.
As your orders and inventory grow and scale, EOQ has a greater impact on
profits.
Benefits
Improved Order Fulfillment: When you need a certain item or something for
a customer order, optimal EOQ ensures the product is on hand, allowing you to
get the order out on time and keep the customer happy. This should improve the
customer experience and may lead to increased sales.
Less Overordering: An accurate forecast of what you need and when will help
you avoid overordering and tying up too much cash in inventory.
Less Waste: More optimized order schedules should cut down on obsolete
inventory, particularly for businesses that hold perishable inventories that can
result in dead stock.
Lower Storage Costs: When your ordering matches your demand, you should
have less products to store. This can lower real estate, utility, security, insurance
and other related costs.
Quantity Discounts: Planning and timing your orders well allows you to take
advantage of the best bulk order or quantity discounts offered by your vendors.
Economic order quantity (EOQ) is a term for the ideal quantity a company
should purchase to minimize its inventory costs, like shortage or carrying costs.
The overall goal of economic order quantity is to decrease spending; its formula
is used to identify the greatest number of units needed (per order) to reduce
buying.
One of the primary gains of the EOQ model is customized recommendations for
your particular company. At times, EOQ may suggest investing in a larger order
to take advantage of discount bulk buying and to cut down on total costs
associated with multiple shipments.
Calculating Economic Order Quantity (EOQ)
Calculating economic order quantity requires some math that might seem
complicated at first, however once you get the variables from your inventory
management system, it’s easy to plug in the numbers and calculate EOQ. When
you use a robust ERP, these calculations may all be handled for you, including
order costs like inventory ordering costs, holding costs and stockout costs.
Three Variables Used to Calculate EOQ
There are several variations of the formula used to calculate EOQ. One popular
EOQ formula is based on these variables, also called inputs:
D = Annual Demand in units
S = Order cost
H = Holding costs (per unit, per year)
Economic Order Quantity (EOQ) Formula
EOQ = √ [2DS/H]
Factors that affect Economic Order Quantity
Reorder point
It is the time when you need to reorder another set of stock or replenish the
existing stock. EOQ always assumes that you order the same quantity at each
reorder point.
Purchase order lead time
This is the time period from placing the order until the ordering is delivered.
EOQ assumes that the lead time is understood.
Purchasing cost per unit
The cost per unit never changes, over the period of time, even though the
quantity of the order is changed. EOQ always assumes that you pay the same
amount per product, every time.
Stockouts
There are no chances for stockouts. You have to always maintain enough
inventory to avoid stockout costs. This clearly states that you always have to
strictly monitor your customer demand along with your inventory levels,
carefully.
Quality costs
EOQ never focuses on the quality costs, rather the carrying costs.
Demand
It’s about how much the customer wants the product for a specific time period.
Relevant ordering cost
The cost per purchase order.
Relevant carrying cost
The cost involved in the entire maintenance and carrying the stock, for the
specific period.
Selective Inventory Control
Selective Inventory Control is an essential part of Materials Management.
Selective inventory control is emphasized on variations in methods of control
from item to item based on a selective basis. We can not apply uniform control
since it’s expensive and gives diffused effect. For this purpose, we can use some
criterion such as lead time, consumption, criticality, cost of the items,
procurement difficulties etc. The following classification can be used for the
selective treatment of various types of materials.

No. Classification Full-Form Criterion Employed

Usage Value (i.e.

Always Better Consumption per
1 ABC Analysis
Control period x price per
unit)

Vital Essential Loss of Production or

2 VED Analysis
Desirable Criticality of the item

Unit Price i.e. does

HML High Medium
3 not take consumption
Analysis Low
into account

4 SDE Analysis Scarce Difficult Procurement

 Easy Difficulties

Government
GOLF Source of
5 Ordinary Local
Analysis procurement
Foreign

Seasonal Off
6 SOS Analysis Seasonality
Seasonal

Fast Slow Non

7 FSN Analysis Issues from stores
Moving

8 XYZ Analysis Inventory Investment

ABC Analysis:- ABC analysis stands for Always Better Control Analysis. It is
an inventory management technique where inventory items are classified into
three categories namely: A, B, and C. The items in A category of inventory are
closely controlled as it consists of high-priced inventory which may be less in
number but are very expensive. The items in B category are relatively lesser
expensive inventory as compared to A category and the number of items in B
category is moderate so control level is also moderate. The C category consists
of a high number of inventory items which require lesser investments so the
control level is minimum.
VED Analysis VED stands for Vital Essential and Desirable. Organizations
mainly use this technique for controlling spare parts of inventory. Like, a higher
level of inventory is required for vital parts that are very costly and essential for
production. Others are essential spare parts, whose absence may slow down the
production process, hence it is necessary to maintain such inventory. Similarly,
an organization can maintain a low level of inventory for desirable parts, which
are not often required for production. It attempts to classify the items used into
three broad categories, namely Vital, Essential, and Desirable. The analysis
classifies items on the basis of their criticality for the industry or company. Vol-
7 Issue-1 2021 IJARIIE-ISSN(O)-2395-4396 13495 www.ijariie.com 338 
Vital: Vital category items are those items without which the production
activities or any other activity of the company, would come to a halt, or at least
be drastically affected.  Essential: Essential items are those items whose stock
– out cost is very high for the company.  Desirable: Desirable items are those
items whose stock-out or shortage causes only a minor disruption for a short
duration in the production schedule. The cost incurred is very nominal. VED
Analysis is very useful to categorize items of spare parts and components. In
fact, in the inventory control of spare parts and components it is advisable, for
the organization to use a combination of ABC and VED Analysis. Such control
system would be found to be more effective and meaningful. FAST, SLOW &
NON-MOVING (FSN) Analysis:- This method of inventory control is very
useful for controlling obsolescence. All the items of inventory are not used in
the same order; some are required frequently, while some are not required at all.
So this method classifies inventory into three categories, fast-moving inventory,
slow-moving inventory and non-moving inventory. The order for new inventory
is placed based on the utilization of inventory. XYZ Analysis XYZ analysis is
one of the basic supply chain techniques, often used to determine the inventory
valuation inside the stores. It's also strategic as it intends to enable the Inventory
manager in exercising maximum control over the highest stocked item, in terms
of stock value. The XYZ analysis is a way to classify inventory items according
to variability of their demand.  X class items which are critically important and
require close monitoring and tight control – while this may account for large
value these will typically comprise a small percentage of the overall inventory
count.  Y class are of lower criticality requiring standard controls and periodic
reviews of usage. Z class require the least controls, are sometimes issues as
“free stock” or forward holding. GOLF Classification:- The letter stands for
Government, Ordinary, Local and Foreign. There are mainly imported items
which are canalized through the State Trading Corporation (STC) Minerals and
Metals Trading Corporation, etc. Indian Drugs and Pharmaceutical Ltd (IDPL),
Mica trading corporation etc. These are special procedures of inventory control
which may not applicable to ordinary items as they require special procedures.
ABC Analysis:
ABC analysis is a basic inventory management technique that has been used in
business management for a long time. This technique is also popularly known
as “Always Better Control” which is used to exercise control over inventories.
Under this method various items of inventory are divided into some groups.
These groups are often marked A, B, and C – hence the name.
ABC-analysis is a method originating from material requirements planning, it
allows to classify materials by their portion of the overall value of materials.
The basic idea underlying ABC analysis is that every item of inventory is not
equally important from the view point of control.
Certain items are large in numbers but are not of high values, while certain
items are very few in numbers but are costly ones. Therefore, items that are
perceived as having highest priority is assigned an A, those are of average
importance are labeled as B and relatively unimportant items with lowest
priority are labeled C.
ABC analysis underlines a very important principle “Vital Few: Trivial Many”.
ABC analysis, therefore, on the basis of cost and its consumption, tends to
segregate items into three categories as mentioned above. Each category should
be handled in a different way, with more attention being devoted to category A,
less to B, and least to C.
Under ABC analysis, generally for the purpose of controlling inventory,
items are classified as follows:

The purpose of classifying inventory in to A, B and C category is to identify

where to expend money on inventory and where should be saved. Where care
should be taken more and where inventory doesn’t demand extra care. During
application of this concept, following points should be always considered by a
retailer.
These are:
1. Category ‘A’ items are subject to strict inventory control. Therefore,
continuous cooperation and interaction is must so that the time spent on placing
the order and receiving the inventory should be minimum to the extent possible.
2. For category ‘B’ items moderate control should be used. As category ‘B’
items are subject to an intermediate inventory control.
3. Due to low usage value and low costs ‘C’ items should be procured
infrequently and in sufficient quantities. Therefore, strict control is not
recommended. Such items are normally kept in an open area inside the store,
from where customers can take them according to their requirement. But a
periodic monitoring mechanism is established for such items, and quantities
almost double the EOQ are ordered at one time.
ABC analysis is frequently combined with ‘Pareto’ analysis. The ‘Pareto’
principle is also used in logistics and procurement for the purpose of optimizing
stock of goods, as well as costs of keeping and replenishing that stock.
Assumptions of ABC Analysis:
1. Demand is known with certainty
2. Demand is relatively constant over time
3. No shortages are allowed
4. Lead time for the receipt of orders is constant
5. The order quantity is received at once
3. VED Analysis:
Just like ABC Analysis for classification of inventories, there is an inventory
management technique called VED. In VED analysis inventory items are
classified depending upon their criticality in terms of their effect on production
function. The degree of criticality states that whether the item of inventory is
vital, or essential or desirable for the retail store. This classification of dividing
inventory is known as VED analysis, where V stands for vital, E stands for
essential and D stands for desirable items.
Objective:
The VED analysis is applied to determine the criticality of an item for
displaying in a retail store and its immediate effect on overall buying and other
services. It is specially used for material management. Under this analysis, for
‘V’ items, a large stock of inventory is usually maintained, while for ‘D’ type
items, minimum stock is sufficient.
VED analysis is an inventory management technique that classifies inventory
based on its functional importance. It categorizes stock under three heads based
on its importance and necessity for an organization for production or any of its
other activities. VED analysis stands for Vital, Essential, and Desirable.
It is of utmost importance to any organization to maintain an optimum level of
inventory. Maintaining inventory has its costs, and hence, this analysis
bifurcates inventory in three parts to help in managerial decisions on inventory
maintenance. There are four types of costs to maintain stock which are:
Item cost
This is the cost or price of the inventory items. It is the actual purchase value of
holding stock. Therefore, it will be high with more inventory and vice-versa.
Ordering / Set-up Cost
The purchase of inventory involves certain costs. These may include
transportation charges, packing charges, etc.
Holding Costs
After the purchase of inventory items, there are a few costs too. These may be
related to storage, insurance charges of stock or inventory, labor costs
associated with the handling of stock, etc. Moreover, it includes any damage,
leakage, or pilferage of the stock in hand.
Stock Out Cost
These costs are the result of an inventory item running out of stock. It includes
loss of production due to a spare part getting out of stock. Moreover, this may
delay the product sale. Also, the product itself may get out of stock. Such losses
are a part of the stockout cost.
VED analysis is a crucial tool to understand and categorize inventory according
to its importance. Because of it, the management can optimize costs by
investing more in the vital and essential categories of stock and lesser in the
desirable category of inventory.
FNS:
This classification works like this:
F = Fast Moving
S = Slow Moving
N = Non-moving
FSN analysis is based on the assumption that all items of inventory are not
required all the time in stores. Some items are required on regular basis and
some once in a while. Therefore, Fast moving items must be kept nearer to the
point of issue and similarly Non- moving items can be kept in a remote place as
they are required occasionally.
Therefore for the purpose of controlling items under FSN analysis, ‘F’ type
items need to be reviewed on regular basis while ‘S’ type items may be
examined further and their disposal can be considered.
To conduct FSN analysis, the date of receipt or the last date of issue, whichever
is later, is considered to determine the number of months, which have lapsed
since the last transaction.
Black Champion U. Miller has explained the term ‘Inventory’ as
“expandable physical articles held for resale, for use in manufacturing a product or
for consumption in carrying on business activity”
Industries in the modern world are facing extreme pressure as the trends and
likings of consumers change even before they are able to predict it. Inventory and
warehouse managers need to respond proactively as the trends change in fact they
are needed to be a step ahead of the consumer.
Although it is a bitter truth, it’s true that the industry with good demand
forecasting and inventory management techniques can any day overtake a
company with better quality products but having flawed demand forecasting
abilities.
Inventory management’s goal is to increase profits and performance of the entire
supply chain and order fulfillment process by articulately forecasting demand,
reducing inventory carrying cost, managing quality, and increasing the value of
the inventory. Moreover, they should ensure that the products inside are the ones
that would generate profits.
Online or offline retailers will never invest money in holding an inventory that
doesn’t bring in revenues frequently. For making a profit in any business the
retailers need moving inventory that gets sold quickly and frequently. And
therefore, you need to analyze the movements and functioning of products
through the supply chain and order fulfillment process.
In this write-up, I will be discussing one of the inventory classification techniques
or aka inventory analysis technique called the FSN technique. FSN technique
helps you to identify and do the analysis of the fast-moving, slow-moving, and
non-moving inventory/products. So if you want to know how to do, FSN analysis
read on-
What is Fast – Moving, Slow – Moving and Non – Moving Inventory
Management Technique
Also known as the FSN analysis, FSN meaning Fast-moving, the slow-moving
and non-moving in inventory management. FSN is one of the inventory
management techniques and it is about segregating products based on their
consumption rate, quantity, and the rate at which the inventory is used.
Fast-moving inventory, as the name suggests, comprises the stock that moves
quickly and needs to be replenished very often. Generally, the stock that lies in
this category has an inventory turnover ratio of more than 3 and constitutes around
10-15% of the total inventory.
Slow-moving inventory is the inventory that crawls slowly through the supply
chain and has an inventory turnover ratio between 1-3. It is generally 30-35% of
the total stock.
The inventory that rarely moves with the inventory turnover ratio below 1 and
makes 60-65% of the total stock is called the Non-moving inventory.
FSN Analysis
Inventory can be classified based on different parameters like consumption rate,
average stay, annual demand percentage, reorder frequency, and how repeatedly
the products are used or moved from their location.
To figure out which product falls under which category you need to calculate the
parameters mentioned above, like average stay and consumption rate during a
period.
The formula for the average stay and consumption rate is –
Average stay = cumulative no. of inventory holding days [or unit of time] ÷ (total
quantity of items received + opening balance)
Consumption rate = Total issue quantity ÷ Total period duration
After the calculation of the average stay and consumption rate is done, then the
calculation of cumulative average stay and cumulative consumption rate is carried
out, followed by deriving the percentages of both. And then, with the help of these
percentages, we can identify and segregate the products into FS & N.
Cumulative average stay = average stay of item + average stays of all items that
stay longer in inventory than itself
Cumulative consumption rate = consumption rate of item + consumption rate of
all items consumed faster than itself
Percentage average stay = (cumulative average stay of item ÷ cumulative average
stay of all items) x 100
Percentage consumption rate = (cumulative consumption rate of item ÷
cumulative consumption rate of all items) x 100
According to cumulative average stays –
Fast-moving products are 10% or less of the average cumulative stay.
Slow-moving stocks are 20% of the average cumulative stay.
Non- moving items constitute around 70% of the average cumulative stay.
This means that the fast-moving products stay only 10% or less of the average
stay of the inventory and hence travels quickly through the supply chain.
According to consumption rates the FSN can be categorized as –
Fast-moving inventory is 70% of the average consumption rate
Slow-moving inventory is 20% of the average consumption rate
Non-moving inventory is 10% or less of the average consumption rate.
The consumption rate of the F products will always be high because of the
apparent reason that they are sold quickly and have a higher inventory turnover
ratio.
To make sure that FSN analysis is accurate, you need to take both averages stays
in inventory and consumption rate of the products into account. This determines
the final FSN status of the stock based on which you make decisions for
your inventory management and inventory forecasting.
If you want to segregate the inventory and figure out the demand or movement of
products, this is one of the best techniques; however, the companies use a
combination of ABC analysis, FSN analysis, and VED to classify their products
depending on their needs.
I hope you can learn the FNS analysis technique from the above-given
information. There are many advantages of this method, like a better
understanding of the product’s motion and conduct so that you can forecast your
inventory effectively and decrease inventory carrying costs and increase the
bottom line.
Properly using this method can take you ahead of your competitors in a whisker.
However, don’t forget the disadvantages as a small error can lead to a
misunderstanding that can cost you money and time both. Also, going out of stock
can lead to consumers getting diverted to your competitors.
And at last, here’s a tip that I want to give you. Use an inventory management
software that can spare you from the efforts of classifying the inventory and
keeping track of it manually. Take a 15 day free trial of an automated inventory
management software to see if you like it or not.
“Non moving inventory is like a mole in a business that does nothing yet does a
job of increasing your inventory carrying cost, decreasing your bottom line and
devaluing your invested money”

XYZ analysis:
The XYZ analysis is a way to classify inventory items according to variability
of their demand.
X – Very little variation: X items are characterised by steady turnover over
time. Future demand can be reliably forecast.
Y – Some variation: Although demand for Y items is not steady, variability in
demand can be predicted to an extent. This is usually because demand
fluctuations are caused by known factors, such as seasonality, product
lifecycles, competitor action or economic factors. It's more difficult to forecast
demand accurately.
Z – The most variation: Demand for Z items can fluctuate strongly or occur
sporadically. There is no trend or predictable causal factors, making reliable
demand forecasting impossible.
Using variations in demand, the XYZ model classifies goods as one of
three categories:
X Items: X items have very little demand variation. Demand can be reliably
forecasted because it does not change as often or as drastically compared to
other items.
Y Items: Y items have fluctuating demand. The demand is typically due to a
known or predictable cause, such as specific seasons, holidays, or changes in
economic factors.
Z Items: Z items have the highest demand variations. These variations are
sporadic and unpredictable, caused by unknown factors or unusually strong
changes in demand.
Based on these classifications, companies can use the demand forecast and XYZ
material classification to determine optimal order schedules. X items should be
ordered the most often—with low demand variation, buyers should be able to
forecast demand accurately and place orders as often as daily. Y items should be
ordered less frequently, keeping seasonal and other expected variations in mind.
Lastly, Z items should be ordered the least frequently, as their demand levels
are irregular and often unpredictable.
The output of these decisions will provide the factory with an optimized level of
inventory; not too much working capital or carrying costs are tied up in the X
parts at once since they are used consistently, while enough is invested in the Y
and Z parts so that stocking out will be minimized.
UNIT- IV INTRODUCTION TO OPERATION RESEARCH
Introduction :
Operation Research is a relatively new discipline. The contents and the
boundaries of the OR are not yet fixed. Therefore, to give a formal definition of
the term Operations Research is a difficult task. The OR starts when
mathematical and quantitative techniques are used to substantiate the decision
being taken. The main activity of a manager is the decision making. In our daily
life we make the decisions even without noticing them. The decisions are taken
simply by common sense, judgment and expertise without using any
mathematical or any other model in simple situations. But the decision we are
concerned here with are complex and heavily responsible. Examples are public
transportation network planning in a city having its own layout of factories,
residential blocks or finding the appropriate product mix when there exists a
large number of products with different profit contributions and production
requirement etc. Operations Research tools are not from any one discipline.
Operations Research takes tools from different discipline such as mathematics,
statistics, economics, psychology, engineering etc. and combines these tools to
make a new set of knowledge for decision making. Today, O.R. became a
professional discipline which deals with the application of scientific methods
for making decision, and especially to the allocation of scarce resources. The
main purpose of O.R. is to provide a rational basis for decisions making in the
absence of complete information, because the systems composed of human,
machine, and procedures may do not have complete information. Operations
Research can also be treated as science in the sense it describing, understanding
and predicting the systems behaviour, especially man-machine system. Thus
O.R. specialists are involved in three classical aspect of science, they are as
follows: i) Determining the systems behaviour ii) Analyzing the systems
behaviour by developing appropriate models iii) Predict the future behaviour
using these models Quantitative Techniques for Managers International logistic
system design Transportation loading and unloading Warehouse location
decision Finance: Building cash management models Allocating capital among
various alternatives Building financial planning models Investment analysis
Portfolio analysis Dividend policy making Manufacturing: Inventory control
Marketing balance projection Production scheduling Production smoothing
Marketing: Advertising budget allocation Product introduction timing Selection
of Product mix Deciding most effective packaging alternative Organizational
Behavior / Human Resources: Personnel planning Recruitment of employees
Skill balancing Training program scheduling Designing organizational structure
more effectively Purchasing: Optimal buying Optimal reordering Materials
transfer Research and Development: R & D Projects control R & D Budget
allocation Planning of Product introduction
1. INTRODUCTION
Meaning and Scope
Definition of Operations Research
Operations Research is a scientific methodology which is applied to the study of
the
operations of organizations (mostly large and complex) or activities to
assess the
overall implications of various alternative courses of action to provide an
improved
basis for management decisions.
OR is the application of scientific methods, techniques, and tools to
problems
involving the operations of systems to provide optimum solutions to these
problems.
OR is the use of scientific methods to provide criteria for decisions regarding
machine
systems involving repetitive operation
1. INTRODUCTION
Meaning and Scope
Definition of Operations Research
Operations Research is a scientific methodology which is applied to the study of
the
operations of organizations (mostly large and complex) or activities to
assess the
overall implications of various alternative courses of action to provide an
improved
basis for management decisions.
OR is the application of scientific methods, techniques, and tools to
problems
involving the operations of systems to provide optimum solutions to these
problems.
OR is the use of scientific methods to provide criteria for decisions regarding
machine
systems involving repetitive operation
Definition of Operations Research
Operations Research is a scientific methodology which is applied to the study of
the operations of organizations (mostly large and complex) or activities to
assess the overall implications of various alternative courses of action to
provide an improved basis for management decisions. OR is the application
of scientific methods, techniques, and tools to problems involving the
operations of systems to provide optimum solutions to these problems. OR is
the use of scientific methods to provide criteria for decisions regarding machine
systems involving repetitive operation
Nature :
1. It is inter-disciplinary. It borrows from different disciplines for developing
new
methods and procedures.
2. It is a continuous process.
3. It is objective is to find the best or optimal solution to the
problem under
consideration.
4. It increases the creative ability of a decision maker.
5. It is decision making science.
6. It uncovers new problems for study methods.
7. It examines fundamental relationships form a systems overview.
8. It uses scientific methodology.
9. It replaces management by personality.
10. It is for operations economy.
OR provides managers with quantitative basis for decision making. By
employing a
systematic study of a problem involving gathering data, building a
mathematical
model, experimenting with
1. It is inter-disciplinary. It borrows from different disciplines for developing
newmethods and procedures.2. It is a continuous process.
3. It is objective is to find the best or optimal solution to the
problem underconsideration.
4. It increases the creative ability of a decision maker.
5. It is decision making science.
6. It uncovers new problems for study methods.
7. It examines fundamental relationships form a systems overview.
8. It uses scientific methodology.
9. It replaces management by personality.
10. It is for operations economy.OR provides managers with quantitative basis
for decision making. By employing asystematic study of a problem
involving gathering data, building a mathematicalmodel, experimenting
with the model and predicting future operations; i.e. themathematical
and logical means of Operations Research provides the managementwith
quantitative basis for decision making and enhances ability to make long-range
plans and to solve everyday problems of running a business industry with
greaterefficiency, competence and confidence
Managerial Applications:
Today, almost all fields of business and government utilizing the benefits of
Operations Research. There are voluminous of applications of Operations
Research. Although it is not feasible to cover all applications of O.R. in brief.
The following are the abbreviated set of typical operations research applications
to show how widely these techniques are used today: Accounting: Assigning
audit teams effectively Credit policy analysis Cash flow planning Developing
standard costs Establishing costs for byproducts Planning of delinquent account
strategy Construction: Project scheduling, monitoring and control
Determination of proper work force Deployment of work force Allocation of
resources to projects Facilities Planning: Factory location and size decision
Estimation of number of facilities required Hospital planning
Limitations of Operation Research:
Operations Research has number of applications; similarly it also has certain
limitations. These limitations are mostly related to the model building and
money and time factors problems involved in its application. Some of them are
as given below: i) Distance between O.R. specialist and Manager Operations
Researchers job needs a mathematician or statistician, who might not be aware
of the business problems. Similarly, a manager is unable to understand the
complex nature of Operations Research. Thus there is a big gap between the two
personnel. ii) Magnitude of Calculations The aim of the O.R. is to find out
optimal solution taking into consideration all the factors. In this modern world
these factors are enormous and expressing them in quantitative model and
establishing relationships among these require voluminous calculations, which
can be handled only by machines. iii) Money and Time Costs The basic data are
subjected to frequent changes, incorporating these changes into the operations
research models is very expensive. However, a fairly good solution at present
may be more desirable than a perfect operations research solution available in
future or after some time. iv) Non-quantifiable Factors When all the factors
related to a problem can be quantifiable only then operations research provides
solution otherwise not. The non-quantifiable factors are not incorporated in
O.R. models. Importantly O.R. models do not take into account emotional
factors or qualitative factors. v) Implementation Once the decision has been
taken it should be implemented. The implementation of decisions is a delicate
task. This task must take into account the complexities of human relations and
behavior and in some times only the psychological factors
Types of Operations Research Models:
1.Probability:
6. TECHNIQUES OF OPERATIONS RESEARCH
1. PROBABILITY
 for prediction of the future of the business
 Probability concepts help to analyze the uncertainties and bring out
necessary
6. TECHNIQUES OF OPERATIONS RESEARCH
1. PROBABILITY
data with reasonable accuracy for decision making.
2 types of probabilities
6. TECHNIQUES OF OPERATIONS RESEARCH
1. PROBABILITY
2.Decision Theory:
data with reasonable accuracy for decision making.
2 types of probabilities:
a) Objective probability: for which there is a definite historical
evidence and
common experience e.g. P(H) in tossing a coin is ½ assuming it is unbiased/fair
coin
b) Subjective probability: where historical evidence is not available
and the
businessman has to guess the likelihood of various possible
outcomes in a
situation e.g. decision on the number of umbrellas and raincoats to be ordered
by a
salesman during the rainy season will depend on estimates or “educated
guesses”.
2. DECISION THEORY
The basic elements in decision theory are:
 alternative courses of action
 various states of nature
 knowledge about the likelihood of occurrence of each state of nature
 net value (pay-off) to decision maker for each outcome
 decision maker’s objectives
The basic premise of decision theory is that the behaviour of the future is
probabilistic
and not deterministic. Various probabilities are assigned to the state of nature on
the
basis of available information or subjective judgment and the likely outcomes of
the
alternative courses of action are evaluated accordingly before

LINEAR PROGRAMMING:
Definition of Linear Programming
Linear programming is a mathematical technique for determining the optimal
allocation of resources among alternative uses of the resources to achieve a
particular objective. The objective includes profit maximization or cost
minimization
Mathematical model:
2 main methods:
i) Graphical method
ii) Simplex method
GRAPHICAL METHODSteps:i) Write the objective function and all necessary
constraints.ii) Graph the feasible region.iii) Determine the coordinates of each
of the corner points.iv) Find the value of the objective function at each corner
point
v) For a bounded region, the solution is given by the corner point producing
theoptimum value of the objective function.vi) For an unbounded region, check
that a solution actually exists. If it does, it willoccur at a corner point.
2 main methods:
i) Graphical method
ii) Simplex method

Graphical Method
The graphical method is used to optimize the two-variable linear programming.
If the problem has two decision variables, a graphical method is the best method
to find the optimal solution. In this method, the set of inequalities are subjected
to constraints. Then the inequalities are plotted in the XY plane. Once, all the
inequalities are plotted in the XY graph, the intersecting region will help to
decide the feasible region. The feasible region will provide the optimal solution
as well as explains what all values our model can take. Let us see an example
here and understand the concept of linear programming in a better way.
Example:
Calculate the maximal and minimal value of z = 5x + 3y for the following
constraints.
x + 2y ≤ 14
3x – y ≥ 0
x–y≤2
Solution:
The three inequalities indicate the constraints. The area of the plane that will be
marked is the feasible region.
The optimisation equation (z) = 5x + 3y. You have to find the (x,y) corner
points that give the largest and smallest values of z.
To begin with, first solve each inequality.
x + 2y ≤ 14 ⇒ y ≤ -(1/2)x + 7
3x – y ≥ 0 ⇒ y ≤ 3x
x–y≤2⇒y≥x–2
Here is the graph for the above equations.
Now pair the lines to form a system of linear equations to find the corner points.
y = -(½) x + 7
y = 3x
Solving the above equations, we get the corner points as (2, 6)
y = -1/2 x + 7
y=x–2
Solving the above equations, we get the corner points as (6, 4)
y = 3x
y=x–2
Solving the above equations, we get the corner points as (-1, -3)
For linear systems, the maximum and minimum values of the optimisation
equation lie on the corners of the feasibility region. Therefore, to find the
optimum solution, you only need to plug these three points in z = 3x + 4y
(2, 6) :
z = 5(2) + 3(6) = 10 + 18 = 28
(6, 4):
z = 5(6) + 3(4) = 30 + 12 = 42
(–1, –3):
z = 5(-1) + 3(-3) = -5 -9 = -14
Hence, the maximum of z = 42 lies at (6, 4) and the minimum of z = -14 lies at
(-1, -3)
The simplex method is one of the most popular methods to solve linear
programming problems. It is an iterative process to get the feasible optimal
solution. In this method, the value of the basic variable keeps transforming to
obtain the maximum value for the objective function. The algorithm for linear
programming simplex method is provided below:
Step 1: Establish a given problem. (i.e.,) write the inequality constraints and
objective function.
Step 2: Convert the given inequalities to equations by adding the slack variable
to each inequality expression.
Step 3: Create the initial simplex tableau. Write the objective function at the
bottom row. Here, each inequality constraint appears in its own row. Now, we
can represent the problem in the form of an augmented matrix, which is called
the initial simplex tableau.
Step 4: Identify the greatest negative entry in the bottom row, which helps to
identify the pivot column. The greatest negative entry in the bottom row defines
the largest coefficient in the objective function, which will help us to increase
the value of the objective function as fastest as possible.
Step 5: Compute the quotients. To calculate the quotient, we need to divide the
entries in the far right column by the entries in the first column, excluding the
bottom row. The smallest quotient identifies the row. The row identified in this
step and the element identified in the step will be taken as the pivot element.
Step 6: Carry out pivoting to make all other entries in column is zero.
Step 7: If there are no negative entries in the bottom row, end the process.
Otherwise, start from step 4.
Step 8: Finally, determine the solution associated with the final simplex
tableau.
Simplex Method
Simplex Method is one of the most powerful & popular methods for linear
programming. The simplex method is an iterative procedure for getting the most
feasible solution. In this method, we keep transforming the value of basic
variables to get maximum value for the objective function.
A linear programming function is in its standard form if it seeks to maximize

the objective function. subject to

constraints,

where, and . After adding slack variables, the

corresponding system of constraint equation is,

where,
The variables, ………………. are called slack variables. They are
non-negative numbers that are added to remove the inequalities from an
equation.
The above explanation gives the theoretical explanation of the simplex method.
Now, I am gonna explain how to use the simplex method in real life using
Excel.

Formulation of LPP :

1. Identify the decision variables

2. Write the objective function
3. Mention the constraints
4. Explicitly state the non-negativity restriction
For a problem to be a linear programming problem, the decision variables,
objective function and constraints all have to be linear functions.
If all the three conditions are satisfied, it is called a Linear Programming
Problem.
Example: Consider a chocolate manufacturing company that produces only two
types of chocolate – A and B. Both the chocolates require Milk and Choco
only. To manufacture each unit of A and B, the following quantities are
required:

 Each unit of A requires 1 unit of Milk and 3 units of Choco

 Each unit of B requires 1 unit of Milk and 2 units of Choco
The company kitchen has a total of 5 units of Milk and 12 units of Choco. On
each sale, the company makes a profit of

 Rs 6 per unit A sold

 Rs 5 per unit B sold.
Now, the company wishes to maximize its profit. How many units of A and
B should it produce respectively?
Solution: The first thing I’m gonna do is represent the problem in a tabular
form for better understanding.
Milk Choco Profit per unit
A 1 3 Rs 6
B 1 2 Rs 5
Total 5 12

Let the total number of units produced by A be = X

Let the total number of units produced by B be = Y
Now, the total profit is represented by Z
The total profit the company makes is given by the total number of units of A
and B produced multiplied by its per-unit profit of Rs 6 and Rs 5 respectively.
Profit: Max Z = 6X+5Y
which means we have to maximize Z.
The company will try to produce as many units of A and B to maximize the
profit. But the resources Milk and Choco are available in a limited amount.
As per the above table, each unit of A and B requires 1 unit of Milk. The total
amount of Milk available is 5 units. To represent this mathematically,
X+Y ≤ 5
Also, each unit of A and B requires 3 units & 2 units of Choco respectively. The
total amount of Choco available is 12 units. To represent this mathematically,
3X+2Y ≤ 12
Also, the values for units of A can only be integers.
So we have two more constraints, X ≥ 0 & Y ≥ 0
For the company to make maximum profit, the above inequalities have to be
satisfied.
This is called formulating a real-world problem into a mathematical model.
A linear programming problem will consist of decision variables, an objective
function, constraints, and non-negative restrictions. The decision variables, x,
and y, decide the output of the LP problem and represent the final solution. The
objective function, Z, is the linear function that needs to be optimized
(maximized or minimized) to get the solution. The constraints are the
restrictions that are imposed on the decision variables to limit their value. The
decision variables must always have a non-negative value which is given by the
non-negative restrictions. The general formula of a linear programming problem
is given below:
Objective Function: Z = ax + by
Constraints: cx + dy ≤ e, fx + gy ≤ h. The inequalities can also be "≥"

Non-negative restrictions: x ≥ 0, y ≥ 0

Formulation as a Linear Programming Problem To formulate the mathematical

(linear programming) model for this problem, let x1 number of batches of
product 1 produced per week x2 number of batches of product 2 produced per
week Z total profit per week (in thousands of dollars) from producing these two
products Thus, x1 and x2 are the decision variables for the model. Using the
bottom row of Table 3.1, we obtain Z 3x1

5x2. The objective is to choose the values of x1 and x2 so as to maximize Z 3x1

5x2, subject to the restrictions imposed on their values by the limited production
capacities available in the three plants. Table 3.1 indicates that each batch of
product 1 produced per week uses 1 hour of production time per week in Plant
1, whereas only 4 hours per week are available. This restriction is expressed
mathematically by the inequality x1 4. Similarly, Plant 2 imposes the restriction
that 2x2 12. The number of hours of production 26 3 INTRODUCTION TO
LINEAR PROGRAMMING120 time used per week in Plant 3 by choosing x1
and x2 as the new products’ production rates would be 3x1

2x2. Therefore, the mathematical statement of the Plant 3 restriction is 3x1

2x2 18. Finally, since production rates cannot be negative, it is necessary to

restrict the decision variables to be nonnegative: x1 0 and x2 0. To summarize,
in the mathematical language of linear programming, the problem is to choose
values of x1 and x2 so as to Maximize Z 3x1

5x2, subject to the restrictions 3x1

2x2 4 3x1

2x2 12 3x1

2x2 18 and x1 0, x2 0.

Assumptions underlying LPP:

1. Proportionality: The basic assumption underlying the linear
programming is that any change in the constraint inequalities will have
the proportional change in the objective function. This means, if product
contributes Rs 20 towards the profit, then the total contribution would be
equal to 20x1, where x1 is the number of units of the product.

For example, if there are 5 units of the product, then the contribution
would be Rs 100 and in the case of 10 units, it would be Rs 200. Thus, if
the output (sales) is doubled, the profit would also be doubled.

2. Additivity: The assumption of additivity asserts that the total profit of the
objective function is determined by the sum of profit contributed by each
product separately. Similarly, the total amount of resources used is
determined by the sum of resources used by each product separately. This
implies, there is no interaction between the decision variables.
 3. Continuity: Another assumption of linear programming is that the
decision variables are continuous. This means a combination of outputs
can be used with the fractional values along with the integer values.

For example, If 52/3 units of product A and 101/3 units of product B to

be produced in a week. In this case, the fractional amount of production
will be taken as a work-in-progress and the remaining production part is
taken in the following week. Therefore, a production of 17 units of
product A and 31 units of product B over a three-week period implies
52/3 units of product A and 101/3 units of product B per week.

4. Certainty: Another underlying assumption of linear programming is a

certainty, i.e. the parameters of objective function coefficients and the
coefficients of constraint inequalities is known with certainty. Such as
profit per unit of product, availability of material and labor per unit,
requirement of material and labor per unit are known and is given in the
linear programming problem.

1. Finite Choices: This assumption implies that the decision maker has
certain choices, and the decision variables assume non-negative values.
The non-negative assumption is true in the sense, the output in the
production problem can not be negative. Thus, this assumption is
considered feasible.

Thus, while solving for the linear programming problem, these assumptions
should be kept in mind such that the best alternative is chosen.

Solution by Graphical method:

A linear program can be solved by multiple methods. In this section, we
are going to look at the Graphical method for solving a linear program. This
method is used to solve a two-variable linear program. If you have only two
decision variables, you should use the graphical method to find the optimal
solution.
A graphical method involves formulating a set of linear inequalities subject to
the constraints. Then the inequalities are plotted on an X-Y plane. Once we
have plotted all the inequalities on a graph the intersecting region gives us a
feasible region. The feasible region explains what all values our model can take.
And it also gives us the optimal solution.
Let’s understand this with the help of an example.
Example: A farmer has recently acquired a 110 hectares piece of land. He has
decided to grow Wheat and barley on that land. Due to the quality of the sun
and the region’s excellent climate, the entire production of Wheat and Barley
can be sold. He wants to know how to plant each variety in the 110 hectares,
given the costs, net profits and labor requirements according to the data shown
below:
Variety Cost (Price/Hec) Net Profit (Price/Hec) Man-days/Hec
Wheat 100 50 10
Barley 200 120 30
The farmer has a budget of US$10,000 and availability of 1,200 man-days
during the planning horizon. Find the optimal solution and the optimal value.
Solution: To solve this problem, first we gonna formulate our linear program.
Formulation of Linear Problem
Step 1: Identify the decision variables
The total area for growing Wheat = X (in hectares)
The total area for growing Barley = Y (in hectares)
X and Y are my decision variables.

Step 2: Write the objective function

Since the production from the entire land can be sold in the market. The
farmer would want to maximize the profit for his total produce. We are given
net profit for both Wheat and Barley. The farmer earns a net profit of US$50 for
each hectare of Wheat and US$120 for each Barley.
Our objective function (given by Z) is, Max Z = 50X + 120Y

Step 3: Writing the constraints

1. It is given that the farmer has a total budget of US$10,000. The cost of
producing Wheat and Barley per hectare is also given to us. We have an upper
cap on the total cost spent by the farmer. So our equation becomes:
100X + 200Y ≤ 10,000
2. The next constraint is the upper cap on the availability of the total number of
man-days for the planning horizon. The total number of man-days available is
1200. As per the table, we are given the man-days per hectare for Wheat and
Barley.
10X + 30Y ≤ 1200
3. The third constraint is the total area present for plantation. The total available
area is 110 hectares. So the equation becomes,
X + Y ≤ 110

Step 4: The non-negativity restriction

The values of X and Y will be greater than or equal to 0. This goes without
saying.
X ≥ 0, Y ≥ 0
We have formulated our linear program. It’s time to solve it.
Solving an LP through Graphical method
Since we know that X, Y ≥ 0. We will consider only the first quadrant.
To plot for the graph for the above equations, first I will simplify all the
equations.
100X + 200Y ≤ 10,000 can be simplified to X + 2Y ≤ 100 by dividing by 100.
10X + 30Y ≤ 1200 can be simplified to X + 3Y ≤ 120 by dividing by 10.
The third equation is in its simplified form, X + Y ≤ 110.
Plot the first 2 lines on a graph in the first quadrant (like shown below)
The optimal feasible solution is achieved at the point of intersection where the
budget & man-days constraints are active. This means the point at which the
equations X + 2Y ≤ 100 and X + 3Y ≤ 120 intersect gives us the optimal
solution.
The values for X and Y which gives the optimal solution is at (60,20).
To maximize profit the farmer should produce Wheat and Barley in 60 hectares
and 20 hectares of land respectively.
The maximum profit the company will gain is,
Max Z = 50 * (60) + 120 * (20)
= US$5400
UNIT – V TRANSPORTATION , ASSIGNMENT AND QUEING
THEORY
TRANSPORTATION PROBLEM :
Transportation problem is a special kind of Linear Programming Problem (LPP)
in which goods are transported from a set of sources to a set of destinations
subject to the supply and demand of the sources and destination respectively
such that the total cost of transportation is minimized. It is also sometimes
called as Hitchcock problem.
Types of Transportation problems:
Balanced: When both supplies and demands are equal then the problem is said
to be a balanced transportation problem.
Unbalanced: When the supply and demand are not equal then it is said to be an
unbalanced transportation problem. In this type of problem, either a dummy row
or a dummy column is added according to the requirement to make it a balanced
problem. Then it can be solved similar to the balanced problem.
Mathematical mode:
To find the initial basic feasible solution there are three methods:
NorthWest Corner Cell Method.
Least Call Cell Method.
Vogel’s Approximation Method (VAM).
Basic structure of transportation problem:

In the above table D1, D2, D3 and D4 are the destinations where the
products/goods are to be delivered from different
sources S1, S2, S3 and S4. Si is the supply from the source Oi. dj is the demand
of the destination Dj. Cij is the cost when the product is delivered from
source Si to destination Dj.
IBFS using North West Corner Rule :

Step-
Select the upper left corner cell of the transportation matrix and allocate min(s1, d1).
1:

Step- a. Subtract this value from supply and demand of respective

2:
b. If the supply is 0, then cross (strike) that row and move dow

c. If the demand is 0, then cross (strike) that column and move rig

d. If supply and demand both are 0, then cross (strike) both row & column and mov
cell.
Step-
Repeat this steps until all supply and demand values are 0.
3:

Find Solution using North-West Corner method

D1 D2 D3 D4 Supply

S1 19 30 50 10 7

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 5 8 7 14

Solution:
TOTAL number of supply constraints : 3
TOTAL number of demand constraints : 4
Problem Table is

D1 D2 D3 D4 Supply

S1 19 30 50 10 7

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 5 8 7 14

The rim values for S1=7 and D1=5 are compared.

The smaller of the two i.e. min(7,5) = 5 is assigned to S1 D1

This meets the complete demand of D1 and leaves 7 - 5 = 2 units with S1

Table-1
D1 D2 D3 D4 Supply

S1 19(5) 30 50 10 2

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 0 8 7 14

The rim values for S1=2 and D2=8 are compared.

The smaller of the two i.e. min(2,8) = 2 is assigned to S1 D2

This exhausts the capacity of S1 and leaves 8 - 2 = 6 units with D2

Table-2
D1 D2 D3 D4 Supply

S1 19(5) 30(2) 50 10 0

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 0 6 7 14

The rim values for S2=9 and D2=6 are compared.

The smaller of the two i.e. min(9,6) = 6 is assigned to S2 D2

This meets the complete demand of D2 and leaves 9 - 6 = 3 units with S2

Table-3

D1 D2 D3 D4 Supply

S1 19(5) 30(2) 50 10 0

S2 70 30(6) 40 60 3

S3 40 8 70 20 18

Demand 0 0 7 14

The rim values for S2=3 and D3=7 are compared.

The smaller of the two i.e. min(3,7) = 3 is assigned to S2 D3

This exhausts the capacity of S2 and leaves 7 - 3 = 4 units with D3

Table-4
D1 D2 D3 D4 Supply

S1 19(5) 30(2) 50 10 0

S2 70 30(6) 40(3) 60 0

S3 40 8 70 20 18

Demand 0 0 4 14
The rim values for S3=18 and D3=4 are compared.

The smaller of the two i.e. min(18,4) = 4 is assigned to S3 D3

This meets the complete demand of D3 and leaves 18 - 4 = 14 units with S3

Table-5

D1 D2 D3 D4 Supply

S1 19(5) 30(2) 50 10 0

S2 70 30(6) 40(3) 60 0

S3 40 8 70(4) 20 14

Demand 0 0 0 14

The rim values for S3=14 and D4=14 are compared.

The smaller of the two i.e. min(14,14) = 14 is assigned to S3 D4

Table-6
D1 D2 D3 D4 Supply

S1 19(5) 30(2) 50 10 0

S2 70 30(6) 40(3) 60 0

S3 40 8 70(4) 20(14) 0

Demand 0 0 0 0
Initial feasible solution is
D1 D2 D3 D4 Supply

S1 19 (5) 30 (2) 50 10 7

S2 70 30 (6) 40 (3) 60 9

S3 40 8 70 (4) 20 (14) 18

Demand 5 8 7 14

The minimum total transportation

cost =19×5+30×2+30×6+40×3+70×4+20×14=1015

Here, the number of allocated cells = 6 is equal to m + n - 1 = 3 + 4 - 1 = 6

∴ This solution is non-degenerate

Least Cost Method (LCM) :

Least Cost Method (LCM) Steps (Rule)

Step-1: Select the cell having minimum unit cost cij and allocate as much as possible, i.e. mi

Step-2: a. Subtract this min value from supply si an

b. If the supply si is 0, then cross (strike) that row and If the demand dj is 0 then cr

c. If min unit cost cell is not unique, then select the cell where maximum allocation c
Step-3: Repeat this steps for all uncrossed (unstriked) rows and columns until all supply and

Find Solution using Least Cost method

D1 D2 D3 D4 Supply

S1 19 30 50 10 7

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 5 8 7 14

Solution:
TOTAL number of supply constraints : 3
TOTAL number of demand constraints : 4
Problem Table is
D1 D2 D3 D4 Supply

S1 19 30 50 10 7

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 5 8 7 14

The smallest transportation cost is 8 in cell S3D2

The allocation to this cell is min(18,8) = 8.

This satisfies the entire demand of D2 and leaves 18 - 8 = 10 units with S3
Table-1

D1 D2 D3 D4 Supply

S1 19 30 50 10 7

S2 70 30 40 60 9

S3 40 8(8) 70 20 10

Demand 5 0 7 14

The smallest transportation cost is 10 in cell S1D4

The allocation to this cell is min(7,14) = 7.

This exhausts the capacity of S1 and leaves 14 - 7 = 7 units with D4

Table-2

D1 D2 D3 D4 Supply

S1 19 30 50 10(7) 0

S2 70 30 40 60 9

S3 40 8(8) 70 20 10

Demand 5 0 7 7

The smallest transportation cost is 20 in cell S3D4

The allocation to this cell is min(10,7) = 7.

This satisfies the entire demand of D4 and leaves 10 - 7 = 3 units with S3
Table-3

D1 D2 D3 D4 Supply

S1 19 30 50 10(7) 0

S2 70 30 40 60 9

S3 40 8(8) 70 20(7) 3

Demand 5 0 7 0

The smallest transportation cost is 40 in cell S2D3

The allocation to this cell is min(9,7) = 7.

This satisfies the entire demand of D3 and leaves 9 - 7 = 2 units with S2

Table-4

D1 D2 D3 D4 Supply

S1 19 30 50 10(7) 0

S2 70 30 40(7) 60 2

S3 40 8(8) 70 20(7) 3

Demand 5 0 0 0

The smallest transportation cost is 40 in cell S3D1

The allocation to this cell is min(3,5) = 3.

This exhausts the capacity of S3 and leaves 5 - 3 = 2 units with D1
Table-5

D1 D2 D3 D4 Supply

S1 19 30 50 10(7) 0

S2 70 30 40(7) 60 2

S3 40(3) 8(8) 70 20(7) 0

Demand 2 0 0 0

The smallest transportation cost is 70 in cell S2D1

The allocation to this cell is min(2,2) = 2.

Table-6
D1 D2 D3 D4 Supply

S1 19 30 50 10(7) 0

S2 70(2) 30 40(7) 60 0

S3 40(3) 8(8) 70 20(7) 0

Demand 0 0 0 0

Initial feasible solution is

D1 D2 D3 D4 Supply

S1 19 30 50 10 (7) 7

S2 70 (2) 30 40 (7) 60 9
S3 40 (3) 8 (8) 70 20 (7) 18

Demand 5 8 7 14

The minimum total transportation

cost =10×7+70×2+40×7+40×3+8×8+20×7=814

Here, the number of allocated cells = 6 is equal to m + n - 1 = 3 + 4 - 1 = 6

∴ This solution is non-degenerate

Vogels Approximation Method (VAM):

This method is preferred over the NWCM and LCM, because the initial basic feasible so
method is either optimal solution or very nearer to the optimal solution.

Vogel's Approximation Method (VAM) Steps (Rule)

Step-1: Find the cells having smallest and next to smallest cost in each row and write the di
along the side of the table in row penalty.

Step-2: Find the cells having smallest and next to smallest cost in each column and writ
penalty) along the side of the table in each column penalty.

Step-3: Select the row or column with the maximum penalty and find cell that has least
column. Allocate as much as possible in
If there is a tie in the values of penalties then select the cell where maximum allocati

Step-4: Adjust the supply & demand and cross out (strike out) the satisfied row or column.

Step-5: Repeat this steps until all supply and demand values are 0.

Find Solution using Voggel's Approximation method

D1 D2 D3 D4 Supply
S1 19 30 50 10 7

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 5 8 7 14

Solution:
TOTAL number of supply constraints : 3
TOTAL number of demand constraints : 4
Problem Table is

D1 D2 D3 D4 Supply

S1 19 30 50 10 7

S2 70 30 40 60 9

S3 40 8 70 20 18

Demand 5 8 7 14

Table-1

D1 D2 D3 D4 Supply Row Penalty

S1 19 30 50 10 7 9=19-10

S2 70 30 40 60 9 10=40-30

S3 40 8 70 20 18 12=20-8

Demand 5 8 7 14

Column 21=40-19 22=30-8 10=50-40 10=20-10

Penalty

The maximum penalty, 22, occurs in column D2.

The minimum cij in this column is c32 = 8.

The maximum allocation in this cell is min(18,8) = 8.

It satisfy demand of D2 and adjust the supply of S3 from 18 to 10 (18 - 8 = 10).

Table-2

D1 D2 D3 D4 Supply Row Penalty

S1 19 30 50 10 7 9=19-10

S2 70 30 40 60 9 20=60-40

S3 40 8(8) 70 20 10 20=40-20

Demand 5 0 7 14

Column
21=40-19 -- 10=50-40 10=20-10
Penalty

The maximum penalty, 21, occurs in column D1.

The minimum cij in this column is c11 = 19.

The maximum allocation in this cell is min(7,5) = 5.

It satisfy demand of D1 and adjust the supply of S1 from 7 to 2 (7 - 5 = 2).
Table-3

D1 D2 D3 D4 Supply Row Penalty

S1 19(5) 30 50 10 2 40=50-10

S2 70 30 40 60 9 20=60-40

S3 40 8(8) 70 20 10 50=70-20

Demand 0 0 7 14

Column
-- -- 10=50-40 10=20-10
Penalty

The maximum penalty, 50, occurs in row S3.

The minimum cij in this row is c34 = 20.

The maximum allocation in this cell is min(10,14) = 10.

It satisfy supply of S3 and adjust the demand of D4 from 14 to 4 (14 - 10 = 4).

Table-4

D1 D2 D3 D4 Supply Row Penalty

S1 19(5) 30 50 10 2 40=50-10

S2 70 30 40 60 9 20=60-40

S3 40 8(8) 70 20(10) 0 --

Demand 0 0 7 4

Column -- -- 10=50-40 50=60-10

Penalty

The maximum penalty, 50, occurs in column D4.

The minimum cij in this column is c14 = 10.

The maximum allocation in this cell is min(2,4) = 2.

It satisfy supply of S1 and adjust the demand of D4 from 4 to 2 (4 - 2 = 2).

Table-5

D1 D2 D3 D4 Supply Row Penalty

S1 19(5) 30 50 10(2) 0 --

S2 70 30 40 60 9 20=60-40

S3 40 8(8) 70 20(10) 0 --

Demand 0 0 7 2

Column
-- -- 40 60
Penalty

The maximum penalty, 60, occurs in column D4.

The minimum cij in this column is c24 = 60.

The maximum allocation in this cell is min(9,2) = 2.

It satisfy demand of D4 and adjust the supply of S2 from 9 to 7 (9 - 2 = 7).
Table-6

D1 D2 D3 D4 Supply Row Penalty

S1 19(5) 30 50 10(2) 0 --

S2 70 30 40 60(2) 7 40

S3 40 8(8) 70 20(10) 0 --

Demand 0 0 7 0

Column
-- -- 40 --
Penalty

The maximum penalty, 40, occurs in row S2.

The minimum cij in this row is c23 = 40.

The maximum allocation in this cell is min(7,7) = 7.

It satisfy supply of S2 and demand of D3.

Initial feasible solution is

D1 D2 D3 D4 Supply Row Penalty

S1 19(5) 30 50 10(2) 7 9 | 9 | 40 | 40 | -- | -- |

S2 70 30 40(7) 60(2) 9 10 | 20 | 20 | 20 | 20 | 40 |

S3 40 8(8) 70 20(10) 18 12 | 20 | 50 | -- | -- | -- |

Demand 5 8 7 14
 21 22 10 10
21 -- 10 10
Column -- -- 10 10
Penalty -- -- 10 50
-- -- 40 60
-- -- 40 --

The minimum total transportation

cost =19×5+10×2+40×7+60×2+8×8+20×10=779

Here, the number of allocated cells = 6 is equal to m + n - 1 = 3 + 4 - 1 = 6

∴ This solution is non-degenerate
ASSIGNMENT PROBLEM (AP):

The assignment problem is a fundamental combinatorial

optimization problem. In its most general form, the problem is as follows:
The problem instance has a number of agents and a number of tasks. Any
agent can be assigned to perform any task, incurring some cost that may
vary depending on the agent-task assignment. It is required to perform as
many tasks as possible by assigning at most one agent to each task and at
most one task to each agent, in such a way that the total cost of the
assignment is minimized.

The formal definition of the assignment problem (or linear assignment

problem) is
Given two sets, A and T, of equal size, together with a weight
function C : A × T → R. Find a bijection f : A → T such that the cost
function:
 is minimized.

Usually the weight function is viewed as a square real-valued matrix C, so

that the cost function is written down as:

The problem is "linear" because the cost function to be optimized as well

as all the constraints contain only linear terms.

Mathematical model:
Mathematical Formulation of the Assignment Problem:

Method of solution – Hungarian Method :

The Hungarian method of assignment provides us with an efficient method of
finding the optimal solution without having to make a-direct comparison of
every solution. It works on the principle of reducing the given cost matrix to a
matrix of opportunity costs.
Opportunity cost show the relative penalties associated with assigning resources
to an activity as opposed to making the best or least cost assignment. If we can
reduce the cost matrix to the extent of having at least one zero in each row and
column, it will be possible to make optimal assignment.
The Hungarian method can be summarized in the following steps:
Step 1: Develop the Cost Table from the given Problem:
If the no of rows are not equal to the no of columns and vice versa, a dummy
row or dummy column must be added. The assignment cost for dummy cells are
always zero.
Step 2: Find the Opportunity Cost Table:
(a) Locate the smallest element in each row of the given cost table and then
subtract that from each element of that row, and
(b) In the reduced matrix obtained from 2 (a) locate the smallest element in each
column and then subtract that from each element. Each row and column now
have at least one zero value.
Step 3: Make Assignment in the Opportunity Cost Matrix:
The procedure of making assignment is as follows:
(a) Examine rows successively until a row with exactly one unmarked zero is
obtained. Make an assignment single zero by making a square around it.
(b) For each zero value that becomes assigned, eliminate (Strike off) all other
zeros in the same row and/ or column
(c) Repeat step 3 (a) and 3 (b) for each column also with exactly single zero
value all that has not been assigned.
(d) If a row and/or column has two or more unmarked zeros and one cannot be
chosen by inspection, then choose the assigned zero cell arbitrarily.
(e) Continue this process until all zeros in row column are either enclosed
(Assigned) or struck off (x)
Step 4: Optimality Criterion:
If the member of assigned cells is equal to the numbers of rows column then it
is optimal solution. The total cost associated with this solution is obtained by
adding original cost figures in the occupied cells.
If a zero cell was chosen arbitrarily in step (3), there exists an alternative
optimal solution. But if no optimal solution is found, then go to step (5).
Step 5: Revise the Opportunity Cost Table:
Draw a set of horizontal and vertical lines to cover all the zeros in the
revised cost table obtained from step (3), by using the following procedure:
(a) For each row in which no assignment was made, mark a tick (√)
(b) Examine the marked rows. If any zero occurs in those columns, tick the
respective rows that contain those assigned zeros.
(c) Repeat this process until no more rows or columns can be marked.
(d) Draw a straight line through each marked column and each unmarked row.
If a no of lines drawn is equal to the no of (or columns) the current solution is
the optimal solution, otherwise go to step 6.
Step 6: Develop the New Revised Opportunity Cost Table:
(a) From among the cells not covered by any line, choose the smallest element,
call this value K
(b) Subtract K from every element in the cell not covered by line.
(c) Add K to very element in the cell covered by the two lines, i.e., intersection
of two lines.
(d) Elements in cells covered by one line remain unchanged.
Step 7: Repeat Step 3 to 6 Unlit an Optimal Solution is Obtained:
The flow chart of steps in the Hungarian method for solving an assignment
problem is shown in following figures:
Example:
1. In a computer centre after studying carefully the three expert
programmes, the head of computer centre, estimates the computer time in
minutes required by the experts for the application programmes as follows:
Assign the programmers to the programmes in such a way that the total
computer time is minimum.
Solution:
The Hungarian method is used to obtain an optimal solution.
Step (1) & (2):
The minimum time element in row 1, 2 and 3 is 80, 80 and 110. resp. Subtract
these elements from all elements in this respective row.
The reduced time matrix is shown in following table (1) Table 1:

In reduced Table (1) the minimum time element in columns A, B, and C is 0,10
and 0 resp, subtract these elements from all elements in this resp. column to get
the reduced time matrix as shown in Table 2.

Step 3 (a):
Examine all the rows starting from first one- until a row containing only single
zero element is located, Here, rows 1 and 3 have only one zero in the cells (1,
C) and (3,A) resp, we assigned these zeros. All zeros in the assigned column are
crossed off as shown in table 3.
(b) We now examine each column starting from A in table 3, There is one zero
in column B in the cell (2, B). Assign this cell as shown in table 4.

(c) Since the no of Assignments (= 3) equal the no of rows (= 3), the optimal
solution is obtained.
The pattern of assignment among programmers and programmes with their
respective line (in minutes) is given below.

Example 2:
A department has five employees with five jobs to be performed. The time in
hours) each men will take to perform each job is given in the effectiveness
matrix.
How should the jobs be allocated one per employee so as to minimize the total
man- hours?
Solution:
Step (1) & (2) Applying step (2) of the algorithm, we get the reduced
opportunity time matrix as shown in Table (1).

In reduced table (1) the minimum time element in column I,II,III, IV, and V is
0,0,0,0,0 resp, subtracting these from the elements of the resp. column we get
same reduced matrix.
Step 3 (a):
We examine all the row starting from A one-by-one until a row containing only
single zero element is located. Here rows A, B and E have only one zero
element in the cells (A, II), (B, I) and (E, IV), Assignment is made in these
cells. All zeros in the assigned columns are now crossed off as shown in table 2.

(b) We now examine each column starting from column. 1. There is one zero in
column III, cell (C, III) Assignment is made in this cell. Thus cell (C, V) is
Crossed off. All zeros in the table now are either assigned or crossed off as
shown in Table 2.
The solution is not optimal because only four assignments are made.
Step 4:
Cover the zeros with minimum numbers of lines (= 4) as explained below.
(a) Mark (√) row D since it has no assignment then.
(b) Mark (√) columns I and IV since row D has zero element in these columns.
(c) Mark (√) rows B & E since column 1 and (IV) have an assignment in rows B
and E resp.
(d) Since no other rows or columns can be marked draw straight lines through
the unmarked rows A & C and the marked columns I and IV as shown in Table
3.

Step 5:
Develop the new revised table by selecting the smallest element among all
uncovered elements by the lines in table 3 viz., 2. subtract K = 2 from
uncovered elements including itself and add it to elements 5,10,8 and 0 in cells
(A, 1), (A,IV), (C, 1)< and (E,IV) resp. which lie at the intersection of two lines.
Another’s revised table so obtained is shown in table 4.

Step 7:
Repeat step (3) to (5) to find a new solution. The new assignment is shown in
Table 5.
Since the no. of assignment (= 5) equals the no of rows (or columns), the
solution is optimal.
The pattern of assignments among jobs and employees with their respective
time (in hour) is given below:

QUEUING THEORY :
Queuing theory is a branch of mathematics that studies how lines form, how
they function, and why they malfunction. Queuing theory examines every
component of waiting in line, including the arrival process, service process,
number of servers, number of system places, and the number of customers—
which might be people, data packets, cars, or anything else. Real-life
applications of queuing theory cover a wide range of businesses. Its findings
may be used to provide faster customer service, increase traffic flow, improve
order shipments from a warehouse, or design data networks and call centers.

Queuing theory is the study of the movement of people, objects, or information

through a line.
Studying congestion and its causes in a process is used to help create more
efficient and cost-effective services and systems.
 Often used as an operations management tool, queuing theory can address
staffing, scheduling, and customer service shortfalls.
Some queuing is acceptable in business. If there's never a queue, it's a sign of
overcapacity.
Queuing theory aims to achieve a balance that is efficient and
affordable.Concepts of Queue:
General structure of a Queuing system :
Queuing theory was first introduced in the early 20th century by Danish
mathematician and engineer Agner Krarup Erlang.
Erlang worked for the Copenhagen Telephone Exchange and wanted to analyze
and optimize its operations. He sought to determine how many circuits were
needed to provide an acceptable level of telephone service, for people not to be
“on hold” (or in a telephone queue) for too long. He was also curious to find out
how many telephone operators were needed to process a given volume of calls.
His mathematical analysis culminated in his 1920 paper “Telephone Waiting
Times”, which served as the foundation of applied queuing theory. The
international unit of telephone traffic is called the Erlang in his honor.
Queuing theory uses the Kendall notation to classify the different types of
queuing systems, or nodes. Queuing nodes are classified using the
notation A/S/c/K/N/D where:
A is the arrival process
S is the mathematical distribution of the service time
c is the number of servers
K is the capacity of the queue, omitted if unlimited
N is the number of possible customers, omitted if unlimited
D is the queuing discipline, assumed first-in-first-out if omitted
applications of queuing theory
Queuing theory is powerful because the ubiquity of queue situations means
there are countless and diverse applications of queuing theory.
Before we look at some specific applications, it’s helpful to understand Little’s
Law, a formula that helps to operationalize queuing theory in many of these
applications.

In 1909, Agner Krarup Erlang, a Danish engineer who worked for the
Copenhagen Telephone Exchange, published the first paper on what would now
be called queueing theory.[8][9][10] He modeled the number of telephone calls
arriving at an exchange by a Poisson process and solved the M/D/1 queue in
1917 and M/D/k queueing model in 1920.[11] In Kendall's notation:

 M stands for Markov or memoryless and means arrivals occur

according to a Poisson process;
 D stands for deterministic and means jobs arriving at the queue which
require a fixed amount of service;
 k describes the number of servers at the queueing node (k = 1, 2, ...).

If there are more jobs at the node than there are servers, then jobs will queue
and wait for service

The M/G/1 queue was solved by Felix Pollaczek in 1930,[12] a solution later
recast in probabilistic terms by Aleksandr Khinchin and now known as
the Pollaczek–Khinchine formula.[11][13]

After the 1940s queueing theory became an area of research interest to

mathematicians.[13] In 1953 David George Kendall solved the
GI/M/k queue[14] and introduced the modern notation for queues, now known
as Kendall's notation. In 1957 Pollaczek studied the GI/G/1 using an integral
equation.[15] John Kingman gave a formula for the mean waiting time in a G/G/1
queue: Kingman's formula.[16]

Leonard Kleinrock worked on the application of queueing theory to message

switching in the early 1960s and packet switching in the early 1970s. His initial
contribution to this field was his doctoral thesis at the Massachusetts Institute of
Technology in 1962, published in book form in 1964. His theoretical work
published in the early 1970s underpinned the use of packet switching in
the ARPANET, a forerunner to the Internet.

The matrix geometric method and matrix analytic methods have allowed queues
with phase-type distributed inter-arrival and service time distributions to be
considered.[17]

Systems with coupled orbits are an important part in queueing theory in the
application to wireless networks and signal processing. [18]

Problems such as performance metrics for the M/G/k queue remain an open
problem.[11][13]

Operating Characteristics of Queues:

Queuing models analyze how customers (including people, objects, and

information) receive a service. A queuing system contains:

 Arrival process. The arrival process is simply how customers arrive.

They may come into a queue alone or in groups, and they may arrive at
certain intervals or randomly.
 Behavior. How do customers behave when they are in line? Some might
be willing to wait for their place in the queue; others may become
impatient and leave. Yet others might decide to rejoin the queue later,
such as when they are put on hold with customer service and decide to
call back in hopes of receiving faster service.
 How customers are serviced. This includes the length of time a
customer is serviced, the number of servers available to help the
customers, whether customers are served one by one or in batches, and
the order in which customers are serviced, also called service discipline.
 Service discipline refers to the rule by which the next customer is
selected. Although many retail scenarios employ the “first come, first
served” rule, other situations may call for other types of service. For
example, customers may be served in order of priority, or based on the
number of items they need serviced (such as in an express lane in a
grocery store). Sometimes, the last customer to arrive will be served first
(such s in the case in a stack of dirty dishes, where the one on top will be
the first to be washed).
 Waiting room. The number of customers allowed to wait in the queue
may be limited based on the space available.

A queuing system is specified completely by the following five basic

characteristics:
 The Input Process. It expresses the mode of arrival of customers at the
service facility governed by some probability law. The number of
customers emanate from finite or infinite sources. Also, the customers
may arrive at the service facility in batches of fixed size or of variable
size or one by one. In the case when more than one arrival is allowed to
enter the system simultaneously, (entering the system does not
necessarily mean entering into service), the input is said to occur in bulk
or batches.

It is also necessary to know the reaction of a customer upon entering the

system. A customer may decide to wait no matter how long the queue
becomes, or if the queue is too long to suit him, may decide not to enter
it. If a customer decides not to enter the queue because of its huge length,
he is said to have balked. On the other hand, a customer may enter the
queue, but after some time loses patience and decides to leave. In this
case he is said to have reneged. In the case when there are two or more
 parallel queues, the customer may move from one queue to another for
his personal economic gains, that is jockey for position.

The final factor to be considered regarding the input process is the

manner in which the arrival pattern changes with time. The input process
which does not change with time is called a stationary input process. If it
is time dependent then the process is termed as transient.

 The Service Mechanism. This means the arrangement of server-s facility

to serve the customers. If there are infinite numbers of servers then all the
customers are served instantaneously on arrival and there will be no
queue.


 If the number of servers is finite, then the customers are served according
to a specific order. Further, the customers may be served in batches of
fixed size or of variable size rather than individually by the same server,
such as a computer with parallel processing or people boarding a bus. The
service system in this case is termed as bulk service system.


 Sometimes, the service rate may also depend on the number of customers,
waiting for service. For example, when the queue becomes longer, a
server may work faster or, conversely, may become less efficient. The
situation in which service depends upon the number of waiting customers
is referred to as state dependent-system.

 The Capacity of the System. Some of the queueing processes admit the
physical limitation to the amount of waiting room, so that when the
waiting line reaches a certain length, no further customers are allowed to
enter until space becomes available by a service completion. Such types
 of situation are referred to as finite source queues, that is, there is a finite
limit to the maximum queue size. The queue can also be viewed as one
with forced balking
 Where a customer is forced to balk if he arrives at a time when queue size
is at its limit.
 In any queuing systems, there is a limit to the number of customers that
may be in the waiting line or system.
 For example, an automatic car wash might have room for only 10 cars to
waiting the line to enter the mechanism.
 It might be too dangerous (or illegal) for cars to wait in the street. An
arriving customer who finds the system full does not enter but returns
immediately to the calling population.
 Some systems, such as concert ticket sales for students, may be
considered as having unlimited capacity, since there are no limits on the
number of students allowed to wait 'to purchase tickets.
 As will be seen later, when a system has limited capacity, a distinction is
made between the arrival rate (i.e., the number of arrivals per time unit)
and the effective arrival rate (i.e., the number who arrive and enter the
system per time unit).
The Arrival Process :
The arrival process for infinite-population models is usually characterized
in terms of interarrival times of successive customers.
Arrivals may occur at scheduled times or at random times. When at
random times, the inter arrival times are usually characterized by a
probability distribution. In addition, customers may arrive one at a time
or in batches.
The batch may be of constant size or of random size.
 One important application of finite population models is the machine-
repair problem. The machines are the customers, and a runtime is also
called time to failure.
When a machine fails, it "arrives" at the queuing system (the repair
facility) and remains there until it is "served" (repaired).
 Service Channels: When there are several service channels available to
provide service, much depends upon their arrangements. They may be
arranged in parallel or in series or a more complex combination of both,
depending on the design of the system's service mechanism.

By parallel channels we mean a number of channels providing identical

service facilities so that several customers may be serviced
simultaneously. Further, customers may wait in a single queue until one
of the service channels is ready to serve, as in a barber shop where many
chairs are considered as different service channels; or customers may
form separate queues in front of each service channel as in the case of
super markets.

For series channels, a customer must pass successively through all the
ordered channels before service is completed. The situations may be seen
in public offices where parts of the service are done at different service
counters.
A queueing system is called a one-server model when the system has one
server only, and a multiple-server model when the system has a number
of parallel channels each with one server.