MMPC-009

MANAGEMENT OF
MACHINES AND
Indira Gandhi
National Open University

MATERIALS
School of Management Studies

BLOCK 1 OPERATIONS MANAGEMENT — AN OVERVIEW

AND FACILITIES PLANNING 3
UNIT 1 Operations Management — An Overview 5
UNIT 2 Product Selection and Process Selection 36
UNIT 3 Facilities Location 77
UNIT 4 Facilities Layout and Material Handling 108
BLOCK 2 OPERATION PLANNING AND CONTROL 139
UNIT 5 Planning and Control for Mass Production 141
UNIT 6 Planning and Control for Batch Production 168
UNIT 7 Planning and Control for Job Shop Production 191
UNIT 8 Planning and Control of Projects 211
BLOCK 3 CAPACITY PLANNING, WORK AND
JOB DESIGN & VALUE ENGINEERING 237
UNIT 9 Capacity Planning 239
UNIT 10 Work and Job Design 251
UNIT 11 Value Engineering and Quality Assurance 305
BLOCK 4 MATERIALS MANAGEMENT 349
UNIT 12 Purchase System & Procedure and Inventory Management 351
UNIT 13 Standardization, Codification and Variety Reduction 399
UNIT 14 Waste Management 415
Course Design and Preparation Team
Prof. K. Ravi Sankar, Dr. A. K. Mittal*,
Director, SOMS, IME Department,
IGNOU, New Delhi Indian Institute of Technology,
Kanpur
Dr. D K Banwet* Dr. Sushil*
Centre for Management Studies, Centre for Management Studies,
IIT, New Delhi IIT, New Delhi
Dr. PremVrat* Prof. Sunil Aggarwal*,
Department of Mechanical Engineering, Department of Industrial Engineering,
IIT, New Delhi IIT, New Delhi
Prof. P Gopalakrishnan* Lt Gen S SApte*(Retd)
Administrative Staff College of India New Delhi
Hyderabad
Prof. B.S. Sharma* Prof P.K. Misra*,
IGNOU, Jawaharlal Nehru University,
New Delhi New Delhi
Prof. P.K. Bhowmik*, Prof. S.N. Chary*
International Management Institute, Indian Institute of Management,
New Delhi Bangalore
Prof. A. P. Verma Prof. AbidHaleem
National Institute of Technology Faculty of Engineering and Technology,
Patna JamiaMilliaIslamia,
New Delhi
Prof. Kuldip Singh Sangwan Prof. H D Sharma
Mechanical Engineering Department, Former Prof & Head,
Birla Institute of Technology and Science, Pant Nagar Engineering College,
Pilani Pant Nagar

Prof. B.Sudheer Professor Ajay

Dept of Management studies, Department of Industrial & Production
SriVenkateswara University, Tirupati Engineering,
G. B. Pant University of Agriculture &
Technology, Pantnagar
Prof. Gokulananda Patel Prof. Raj K Jain
Birla Institute of Management Technology Professor (Retd),Vikram University,
Greater Noida Kurukshetra
Dr VSP Srivastav Course Coordinator
Head (Retd), Computer Division, Prof. AnuragSaxena,
IGNOU, New Delhi SOMS, IGNOU,
New Delhi
Note: A large portion of this course is adapted from the earlier MS-05 course and the persons marked
with (*) are the original contributors of MS-5 Study Material.

Print Production
Mr. Tilak Raj
Assistant Registrar (Pub.)
MPDD, IGNOU, New Delhi

April, 2022
© Indira Gandhi National Open University, 2022
ISBN: 81-7091-029-3
All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other
mean. Without permission in writing from the Indira Gandhi National Open University.
Further information, about the Indira Gandhi National Open University courses may be obtained from
the University’s office at maidanGarhi, New Delhi-110068
Printed and Published on behalf of the Indira Gandhi National Open University, New Delhi By
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Laser Composed by: Tessa Media & Computers, C-206, Shaheen Bagh, Jamia Nagar, New Delhi
 BLOCK-1
OPERATIONS MANAGEMENT — AN
OVERVIEW AND FACILITIES PLANNING

UNIT 1 Operations Management — An Overview

UNIT 2 Product Selection and Process Selection
UNIT 3 Facilities Location
UNIT 4 Facilities Layout and Material Handling
BLOCK-1 OPERATIONS MANAGEMENT –AN
OVERVIEW AND FACILITIES
PLANNING
The first unit of this block introduces the subject of operations management
which is equally applicable to products and services. The unit explains the
objectives of the operations management and tries to develop an
understanding of scientific approach to industrial engineering. It gives a
bird’s eye view of managerial functions involved in operations management.

Block 1 has four units dealing with different aspects impinging on the
planning of various facilities. Facilities here refer to production plants and
other facilities for service institutions like hospitals, colleges, banks and
airports etc. The first stage of facilities planning is selection of product. The
issues concerned with product selection are thus discussed in Unit 2. After
product (or type of service) selection has been made, one has to select the
process (discussed in same Unit 2). Where the facility should be located
becomes the next question. There is a lot of considerations related to this
question which are discussed in details in Unit 3. Once the facilities has been
decided, the layout of facilities has to be done--discussed in Unit 4. A
mention is also made of different materials handling equipment. Finally in
Unit 5, Capacity planning is discussed. The related issues of demand
forecasting and capacity planning are also discussed. A number of
quantitative or operations research techniques have been referred to, in this
block. These techniques are not fully discussed here since their details would
be handled in other courses to follow.
UNIT 1 OPERATIONS MANAGEMENT - Operations
Management -
AN OVERVIEW An Overview

Objectives

Upon completion of this unit, you should be able to:

• know the production/operation function as process of value addition,

understand the system concepts in operations management and problems
in decision making in OM and recognize the difference between product
and services.
• Appreciate the role of materials management and know the concept of
systems life cycle.
• Have a brief idea of the historical profile of development of operations
management.

Structure

1.1 Introduction
1.2 Systems Concepts in Operations Management
1.3 Objectives in Operations Management
1.4 Operations Management Decisions
1.5 Types of Production Systems
1.6 Management of Materials in Production Systems
1.7 Concepts in System Life-cycle
1.8 Role of Scientific Method in Operations Management
1.9 Historical Development of Operations Management
1.10 Summary
1.11 Key words
1.12 Self-assessment Exercises
1.13 Further Readings

1.1 INTRODUCTION
In this unit you will learn about the aspects of management of production and
service organizations. For long the term ‘production’ has been associated
only with a factory like situation where goods are produced in the physical
sense. Factory has been defined as “……….any premises in which persons
are employed for the purpose of making altering, repairing ornamenting,
finishing, cleaning, washing, breaking, demolishing or adopting for sale, any
article”.

However, by generalising the concept of production as “process through

which goods and services are created” we can include both manufacturing 5
Operations and service organizations within the purview of production management.
Management –An
Overview and Thus the essential features of the production are to bring together people,
Facilities Planning machines and materials to provide goods or services thereby satisfying the
wants of the people.

Inclusion of services within the scope of production enables us to look at the

problem of production management in a much wider perspective. This brings
a number of seemingly non-manufacturing sectors of economy such as
transport, energy, health, agriculture, warehousing, banking etc. within the
scope of production systems. That is why the terms production and
operations management or operations management have been suggested by
many to indicate the general applications of the techniques of management of
machines and materials.

Operations Management may be defined as the design, operation and

improvement of the production systems that creates the firm’s primary
products or services.

The broad concept of production is kept in mind throughout this book

although the apparent emphasis may be on techniques used in the context of
manufacturing organisation but you should always be able to extend and
apply these management techniques to all types of service organisations as
well.

The Value Added Process

Perhaps a more general concept of ‘operations’ instead of ‘production’ will

better include both manufacturing as well as service organisations.
Operations-either in manufacturing or in service-are purposeful activities of
an organisations. Operations function is the heart of and indeed the very
reason for an organisation to come into being. All operations can be said to
add value to some object thereby enhancing its usefulness. We may formally
define an operation as “the process of changing inputs into outputs and
thereby adding value to some entity; this constitutes the primary
function of virtually every organisation”

Now let us consider how value can be added to an entity by performing an

‘operation’ function. There are four major ways:

a) Alter: This refers to change in the form or state of the inputs. This
change may be physical as in manufacturing, or sensual or psychological
such as the feeling of comfort or satisfaction after getting cured from an
illness.
b) Transport: The entity gets value added through transport because it may
have more value if located somewhere other than where it currently is.
Entity may include, people, goods or garbage.

6
c) Store: The value is enhanced if the entity is kept in a protected Operations
Management -
environment for some period of time, such as potatoes in cold storage or An Overview
food grains in warehouses.
d) Inspect: The value of an entity may be enriched through an inspection as
we better understand its properties and can therefore take more informed
decisions regarding their purchase, use, repair etc.

Thus we see that the value may be added to an entity through a number of
different means. It may directly change in space, in time or even just in our
mental image of it. All these processes can be called ‘operations’. Thus
almost every organization-manufacturing, transportation, warehousing,
health-care, education etc. come within the purview of operations
management.

Products and Services

The output of an operations (or production) system may be in terms of end-

product-physical goods such as automobiles or rendering a service such as in
transportation, hospitals, educational institutions, cinema-halls, beauty
parlours and banks etc. Rendering a service may involve physical goods (or
facilitating goods) such as a dentist making a set of false teeth while
rendering dental care. Thus services can be considered as bundles of benefits,
some may be tangible and others intangible (such as reduced waiting,
courteous calls, convenient location etc.) and these may or may not be
accompanied by facilitating goods. Based on this grouping it is possible to
segregate organisations producing goods or services or both.

The Conversion Process

From the foregoing description, it should now be clear that all production of
operation functions are essentially a part of the conversion process which
transforms entities in shape, size, form, location, space, time and state. Hence
every organisation can be considered essentially as a conversion system
which converts inputs into outputs through the conversion process (or
operations). This aspect is further highlighted in the next section.

1.2 SYSTEMS CONCEPTS IN OPERATIONS

MANAGEMENT
A system may be defined as “as purposeful collection of people, objects
and procedures for operating within an environment”.Thus every
organisation can be represented as a system consisting of interacting sub-
systems. The features of a system are that these have inputs and outputs. The
basic process of the system converts the resource inputs into some useful
form of outputs. Of course, depending upon the efficiency of the conversion
process we may have undesirable outputs too-such as pollution, scrap or
wastage, rejections, loss of human life (in a hospital) etc. Using the
7
Operations generalised concept of production (which includes services) we can call such
Management –An
Overview and systems as production systems.
Facilities Planning

Random Fluctuations

Comparison
• Actual
• Desired

Feedback

Figure: I Conceptual Model of A Production/Operations System

Figure I describes a generalized concept of production system. It takes

resource inputs and processes them to produce useful outputs in the form of
goods or services

Inputs and Outputs

Inputs to the system may be labour, material, equipment (machines),

facilities, energy, information and technology. Thus machines and materials,
which constitute the main focus of this book are the resource inputs required
by the production system. Other inputs to operating system can be-customers
in a bank, patients in a hospital, commuters to a public transport system, files
and papers to an office situation, and programmes to be run in a computer
centre etc.

Productivity of Conversion Process

Now we come to the main question of how we know that we are managing
our system operations well. This concerns the efficiency with which we are
converting the inputs into outputs. This conversion efficiency can be roughly
gauged by the ratio of output/input; a term which is generally known as
‘productivity’ of the system. It is obvious that productivity can be improved
by maximising the desirable form of outputs from the system for a given
level of resource inputs or alternatively by requiring a minimum amount of
resource inputs for a given level of output from the system.
Thus
Output (O)
Productivity (P) = ———————
Inputs (I)

Management of production systems is essentially concerned with the

management for productivity. An alternate way of looking at the concept of
productivity is to look at the amount of waste generated in the system, then
8
productivity can be improved by reducing wastefulness (or wastivity) of the Operations
Management -
system. An Overview

Thus a simple way to look at the productivity improvement is to attack

wastes of all types of resources – materials, labour, capacity of machines,
time, space, capital etc.

If you look a bit deeper into what is happening inside the conversion system
– you could find only two mutually exclusive things happening. Either, the
resources are being processed (operation) taking it nearer to the completion
stage or nothing useful is happening to the resource inputs. For example
materials may be waiting in the form of inventory in stores, waiting to be
loaded on the machine. Job orders may be waiting to be processed. In a
hospital a patient may be waiting to be attended to etc. All these forms of
waiting delays in inventories are non-productive events and any drive to
improve productivity must aim at eliminating or at least reducing such idle
time, waiting etc. Thus if you wish to improve your system operations, try to
attack such non-productive elements in the total throughput time of the entity
in the system.

Differences between Services and Goods Production

A clear line of demarcation between the products and the services is much
less apparent. Almost all purchases of consumer products involve services as
well as the product itself. If you buy an automobile, you not only buy the
product, but also take the guarantee of the parts and the numbers of servicing
of the vehicle. Similarly a fast food operation delivers physical products
(dosa, idli, waada and samber etc) along with the service. Hospital care
involves medication bandages, X-ray film and so on. Most productive
systems provide a bundle of products and services and an operations
management recognize both aspects of the outputs of the system. Examples
of manufacturing system are production of cement, paper, coal, textile,
automobile, TV, machine tools and furniture etc, while the service system
includes telephone exchange, post office, bank, hospital and cinema hall etc.
However there are certain differences between services and goods
production.

1) Services may provide intangible, psychological benefits that are not

easily measured by the senses of touch, smell, sight, sound and taste
while goods are the physical outputs of a process. To put it in another
way (as in the word of Richard B. Chase), “a service is something that if
you drop it on your feet it won’t hurt you”. Products are tangible things
that we can carry away with us where as services are intangible and
perishable that are consumed in the process of their production. Output
from service system is non-inventoriable. You cannot generally produce
to stock the ‘aggregate of services’ (no inventory is accumulated). While
for a product ( a tangible item), it will have a closing stock at the end of
an accounting year, whereas there is nothing like closing stock for a
9
Operations range of services. Services cannot be counted, stocked, weighed and
Management –An
Overview and verified.
Facilities Planning
2) A person being served often participates in the productive process, as by
providing part of the labour in self-service systems. Sometimes there is a
great deal of contact with the client or customer in the service system and
human contact is almost the essence of many such services. In product
systems, there are very little, if any, contact between the producers and
users of the product, and that is left to distribution and retailing, when
customers purchase an item or have it serviced.

3) There is a high degree of heterogeneity in the aspects of the services and

no two services are exactly alike. A dentist attending to two consecutive
patients having identical ailments may provide more or less same type of
service, however the two patients may have different perceptions of the
quality of service and may have different satisfaction levels. Moreover
the time spent by the dentist in both the cases could be highly variable.

Demand for services is often extremely variable on a short term basis,

that is weekly, daily or even hourly variations are common whereas the
demand for products usually tends to be on a weekly, monthly or
seasonal basis.

4) Simultaneous production and consumption- More often, service happens

in the presence of customer and the customer may also be involved at the
time of the service. In the above example (3) the dentist and the patients
are there in the service together to produce and consume the service of
dental care. Similar is the case of education, entertainment, travel,
tourism and hotel services. On the other hand, in the case of
manufacturing, most goods are produced at some point of time and
distributed to customers later on.

5) Service operations may be labour-intensive. The work of typing of a

typist on a single foolscape page may cost you Rs 20 or so while the cost
of one sheet of paper is 20 paise only. For the service of a facial in a
beauty-parlour or at home you may spend around 500 or so with only Rs
5 worth of cream on your face and the ornamental work of embroidery
on a piece of cloth worth Rs 10 may amount to as high as Rs 1000 or
even more.

6) Taking advantage of the process of mechanization and automation,

markets of products can be regional, national or even international but as
because services cannot be shipped to distant places, the service systems
ordinarily shrink to the local markets only. Also the location of a service
operation is dictated by the location of the users of the area. No barber
can even imagine to open a hair cutting salon near the Golden Temple in
the holy city of Amritsar of Sikh devotees. Likewise you cannot sell non-
vegetarian dishes like fish, meat and chicken in and around the pilgrim
10
 places of Rishikesh and Hardwar and rain-coats outlets can never be Operations
Management -
thought to be established in the desert city of Jaisalmer (Rajasthan). An Overview

7) Service (the intangible good) once rendered to the customer can never be
taken back in case the customer does not like the quality of service. Can
the length of the hairs be restored on your head incase you do not like the
fashion of hair-cut by the salon-barber or if a massager does not give you
the exact quality of massaging you would like to have on your legs,
hands and back, can he ever undo it? On the other hand, a tangible
product if not accepted in quality of workmanship by a buyer (say a dot
pen or calculator),it can be returned back to the seller or replaced by a
better piece of identical product.

1.3 OBJECTIVES IN OPERATIONS

MANAGEMENT
Every system (or orgainsation) has a purpose, certain objectives and goals to
achieve. Since the objectives of an organisation have hierarchical structure,
sub-goals lead to accomplishment of goals which contribute to the
achievement of objectives and eventually the purpose or mission of an
organisation. It is very important that these objectives should be
unambiguously identified, properly structured and explicitly stated.

In general terms, the objectives of an organisation may be to produce the

goods/or services in required quantities and of quality as per schedule and at
a minimum cost. Thus quantity, quality and time schedule are the objectives
that determine the extent of customer satisfaction. If an organisation can
provide for these at a minimum cost then the ‘value’ of goods created or
services rendered enhances and that is the only way to remain competitive.
Thus various objectives can be grouped as-performance objectives and cost
objectives.

Performance Objectives

The performance objectives may include:

a) Efficiency or productivity as output per unit of input.

b) Effectiveness: It concerns whether a right set of outputs is being
produced. Where efficiency may refer to ‘doing things right’,
effectiveness may mean ‘doing the right things’.
c) Quality: Quality is the extent to which a product or service satisfies the
customer needs. The output has to confirm to quality specifications laid
down before it can be accepted.
d) Lead times: Manufacturing lead time or throughput time is the time
elapsed in the conversion process. Minimisation of idle time, delays,
waiting etc. will reduce throughput time.
e) Capacity utilization: Percentage utilization of manpower, machines etc. 11
Operations f) Flexibility: If the conversion process has the flexibility of producing a
Management –An
Overview and combination of outputs, it is possible to satisfy a variety of customer
Facilities Planning needs.

Cost Objectives

Attaining high degree of customer satisfaction on performance front must be

coupled with lower cost of producing the goods or rendering a service. Thus
cost minimisation is an important systems objective. Costs can be explicit
(visible) or implicit (hidden or invisible). These could be tangible in
economic terms or intangible in social cost terms-such as delayed supplies,
customer complaints etc. While managing production systems we must
consider both the visible and invisible, tangible and intangible costs. Some
examples of these costs are:

a) Explicit (visible) costs:

• Material cost
• Direct and indirect labour cost
• Scrap/rework cost
• Maintenance cost

b) Implict (invisible/hidden) costs:

• Cost of carrying inventory

• Cost of stockouts, shortages, back-logging, lost sales
• Cost of delayed deliveries
• Cost of material handling
• Cost of inspection
• Cost of grievances, dissatisfaction
• Downtime costs
• Opportunity costs

For the purpose of managerial decision-making, we should consider the total

relevant systems costs including visible and invisible. A longer term cost
implications rather than only short-term will help in arriving at better
decisions.

1.4 DECISIONS OF PRODUCTION AND

OPERATIONS MANAGEMENT
The Process of Management : Operations management can be essentially
considered as a process of planning, organizing, directing and control. There
are different ways in which the production management functions can be
grouped for the sake of discussion. These are summarized as Classification
of Decisions : The first way to group these decisions are :-
12
a) Periodic decisions which include selection, design and updating of Operations
Management -
resources, structures, systems and procedures. An Overview
b) Continual decisions which are required in day-to-day operation and
control of production systems.

These decisions are shown below in tabular form.

Figure II: A classification of Production Management Decisions

Source: Chase, R.B. and N.J. Aquilano, 1973. Production and Operations Management. A
Life-cycle Approach, Richard D. Irwin: Homewood.

Yet another way of looking at these decisions may be :

i) Planning and Design of Production Systems

ii) Operations and Control of Production Systems
The major topics covered in this block will be grouped as per the above-
mentioned classification.
A third way to group these could be : (Functions of Production and
Operations Management)
a) Planning Decisions :Planning the conversion systems, planning the use
of the conversion systems. Planning involves aims and objectives and
action to achieve them in the organization.
b) Organising Decisions :Identifying and grouping work to be done for
conversion, structuring of operations, staffing, Job and work design,
Production/Operations standards, Payment systems etc.
c) Directing and Controlling Decisions : Monitoring and control of
conversion system in respect of
(i) Quantity (Directing is concerned with carrying
(ii) Quality out the desired plans related with the
target and controlling is exercising 13
Operations (iii) Time commands for achieving objectives of
Management –An
Overview and (iv) Inventory the enterprise.)
Facilities Planning
(v) Cost
(vi) Maintenance

A schematic diagram of the above is shown in Fig. III It will be noted that
some of the areas of decision are overlapping in nature.

Figure III: A Framework of Planning, Organizing and Control Decisions

in Production Systems

Source: Adam Jr., E.E. and R.J. Ebert, 1978. Production and Operations Managerial
Concetps: Models and behavior, Prentice-Hall-Inc., Englewood-Cliffs.

Strategic (Long-Term) and tactical (Intermediate-Term) Desisons

A strategic decision is one which has a long-term impact, influences a larger

part of the system and “once implemented” cannot be undone easily. These
decisions essentially deal with Design and Planning (long term and
intermediate term) aspects. Some examples of these decisions are :

a) Product Selection and Planning :It is a crucial decision as to what

products and services are to be offered. A careful evaluation of
product/service alternatives on the multiple objective basis can help to
select the right product. In order to do away with the unnecessary
14
 features and in creating a good design, the techniques of value Operations
Management -
engineering can be immensely helpful. An Overview
b) Process Selection and Planning : Concerning choice of technology,
equipment and machinery, to select the optimal process under the
circumstances is an important decision. The process planning includes
careful detailing of the processes of resource conversion along with their
sequence. The aspects of mechanisation and automation are also to be
kept in view.
c) Facilities Location : A poor location of production system or its
facilities may spell operating disadvantages for all times to come. It is
important therefore to select a right location in order to minimise the
total production plus distribution cost. Such a decision obviously calls
for evaluation of location alternatives against multiplicity of relevant
factors considering their relative importance for the system under
consideration.
d) Facility Layout and Material Handling : In order to facilitate material
flow, reduce handling cost, delays and congestion provide good
housekeeping and to facilitate coordination from one department
(activity centre) to another, facility layout planning problems are very
important. For integrating the actual factors of production, a detailed
layout blueprint has to be prepared depending on the nature of the
production system. Proper choice of the material handling equipments
such as fork-life truck, conveyors, jib crane, electric hoist etc. is a related
decision of layout planning. In order to help in layout planning for
process based layouts, there are a number of computer packages
developed such as Computerised Relative Allocation of Facilities
Techniques (CRAFT), Computerised Relationship Layout Planning
(CORELAP) and Automated Layout Design Programme (ALDEP).
Newer techniques, particularly computer based are significantly altering
the traditional concept in layout planning. More recently the concept of
Group Technology (GT), Cellular Manufacturing System (CMS) and
Flexible Manufacturing System (FMS) have influenced the layout
planning and material handling policies significantly.
e) Capacity Planning : Capacity is the maximum available amount of
output of the conversion process over some specified span. Capacity
planning may be over short-term as well as the long-term basis. In
service system, the concept of capacity and hence capacity planning is
slightly more difficult problem. Long-term capacity planning includes
expansion and contraction of major facilities required in conversion
process, determination of economics of multiple-shift operation etc.
Break-even analysis is a valuable tool for capacity planning alongwith
learning curves, linear programming and decision trees.

Operation (Short-Term) Decisions :Operational level decisions deal with

short-term planning and control problems. Some of these are the following :
15
Operations a) Production Planning, Scheduling and Control :In operation
Management –An
Overview and scheduling, we determine the optimal schedule and sequence of
Facilities Planning operations, economic batch quantity (EBQ), machine assignment and
dispatching priorities for sequencing. Production control is a
complementary activity to production planning and involves follow-up
of the production plans.
b) Inventory Planning and Control : It deals with determination of
optimal inventory levels at raw material, in-process and finished goods
stages of a production system. The quantity of purchase and the time to
purchase are two typical decisions involving inventories. Material
requirement planning (MRP) is an important upcoming concept in such a
situation.
c) Quality Assurance : We must ensure that whatever product or service is
produced, it satisfies the quality requirement of the customers at the
lowest cost which is known as the “quality assurance” . Setting standards
of quality, control of quality of products and services and value
engineering considerations are the related issues of quality assurance.
d) Work and Job Design : These are problems concerning the following :
i) Design of work methods
ii) Systems and procedures
iii) Method improvement
iv) Elimination of avoidable delays
v) Work measurement
vi) Work place layout
vii) Ergonomic considerations in job design
viii) Work and job restructuring
ix) Job enlargement
x) Design and operation of wage incentives
e) Maintenance and Replacement : These includes decision regarding :
i) Optimal policies for preventive, routine and breakdown maintenance
of machines
ii) Repair policies and replacement decisions
iii) Maintenance of manpower crew
iv) Scheduling and sequencing of repair jobs
v) Preventive replacement
vi) Condition monitoring of the equipment and machines
Maintenance is extremely crucial problem area because it is only
through a very effective maintenance management, we can improve

16
 capacity utilization and keep our plant and machinery productive Operations
Management -
and available for use, particularly in a developing country like India. An Overview
f) Cost Reduction and Control :The role of cost reduction for an on-going
production system is very important because through effective control of
total cost of production, we can offer more competitive products and
services. Value engineering is a prominent technique available for cost
reduction. Concepts like standard costing and budgetary control help in
monitoring and controlling the costs of labour and material etc. and
suggest appropriate follow-up action to keep these costs within limits.

Monitoring and Feedback Control :The actual realization of objectives in a

system may not be as planned for various reasons. It is therefore, very
important to monitor the actual performance by measuring the actual output
or some performance indicators. For the control of quantity, quality, time,
inventory or cost, the following are the basic elements of monitoring and
feedback control :

i) Establish standards of performance or output

ii) Measure actual performance
iii) Compare the difference between the actual and planned
iv) Take appropriate remedial actions by changing inputs, revising plans,
changing priorities and expediting the progress etc.

Without monitoring and control, planning may not be effective and without
planning, control may not be effective. Thus planning and control are two
sides of the same coin. But in the design of the control system, we should
keep in mind the cost-benefit aspect of control because if cost of control
exceeds its benefits, it becomes counter-productive. Thus selective control
may be employed following the Pareto’s principle.

Need for Updating and Review of Decisions: In the planning of our

production and operations system, the process assumes certain external and
internal environment of work. In a dynamic system, the changes in the
environmental parameters may make our previous decisions out of date. In
light of this, we need to review, revise and update our decisions by switching
over to group technology and we may add or delete our product line and
reassess the product design on the basis of newer types of material and
feedback from our customers.

1.5 TYPES OF PRODUCTION SYSTEMS

Looking from a different point of view, the entire problem of the
production/operations management can be visualized as that of managing the
‘material’ flow into, through, and out of the production system. If we try to
detail out the flow characteristics inside the conversion systems, we shall find
that some systems have very smooth and streamlined flow; some others may
have more complex flow characteristics. In general, the more complex the 17
Operations flow characteristics inside the system, the more difficult it becomes to
Management –An
Overview and manage the system. On the basis of material flow characteristics, the
Facilities Planning production system can be grouped into the following four categories:

A) Mass production or flow line production system

B) Batch production system
C) Job shop production
D) Unit manufacturing or projects

The main focus of production management problems will therefore depend

upon the type of the system. Problems which are very crucial for mass
production may not be relevant for batch production and vice-versa. It is
therefore very important to identify the type of systems we are managing and
then focus on main problems of planning and control relevant to that system.
A brief description of these problems are given in the following sub-sections.
Figure IV shows the flow characteristics of a typical production system.

Figure: IV Material Flow characteristics of A Typical Production Process

Source: Menipaz, E. 1984. Essentials of production and Operations Management, Prentice-

Hall Inc Englewood-Cliffs.

A) Mass Production or Flow Line Production Systems

Continuous flow production (Mass Production) situations are those

where the facilities are standardised as to routing and flow since inputs
are standardised and therefore a standard set of processes and sequence
of processes can be adopted.

These systems have simplest flow characteristics constituting straight line

flow. Facilities are arranged according to sequence of operations where the
output of one stage becomes input to the next stage. The whole system is
cascaded.

Major Production management problems in mass production systems are-

balancing of production/assembly lines, machine maintenance and raw
materials supply. In a production line consists of the series of production
centres, if workload is unbalanced, then the most bottle-necked production
18
stage will govern the whole output rate. This will result in increased Operations
Management -
throughput time and poor capacity utilisation thus contributing to low An Overview
productivity. Hence a production or assembly line should be designed such
that its workload is as evenly balanced as possible. Maintenance becomes
important because if any production stage is under breakdown it will block
the whole line unless quickly restored back into operational effectiveness.
Raw material to first stage is important to avoid shortage and subsequent
starvation of the whole line.

There are methods and techniques available to attend to the above mentioned
problem areas. Some of these will be discussed in a later unit on operations
planning and control aspect of mass production system.

Characteristics. The main features of continuous production system are as

follows:

i) The volume of output is generally large (mass production), and goods are
produced in anticipation of demand.
ii) The product design, the conversion process and the operations sequence
are standardised, i.e., identical products are produced.
iii) Machines and equipment are arranged according to product layout
pattern.
iv) Special purpose automatic machines are used to perform standardised
operations.
v) Machine capacities are balanced so that materials are fed at one end of
the process and finished product is received at the other end.
vi) Fixed path material handling equipment is used due to the predetermined
sequence of operations.

Merits and Limitations : Continuous production offers the following

advantages

a) The quality of output is kept uniform because each stage develops skill
through repetition of work.
b) Any delay at any stage is automatically detected. As a result there is
automatic control of time and the direct labour contact is reduced.
c) Work-in-progress is minimum on account of sequence balancing.
d) Handling of materials is reduced due to the set pattern of production line.
e) Control over materials, costs and output is simplified. The repetitive
nature of processes make production control easier.
f) Overhead cost per unit is reduced due to spreading of large fixed costs of
specialised equipments over a large volume of output.
g) There is quick return on capital employed.

19
Operations Continuous system, however, is very rigid and if there is fault in one
Management –An
Overview and operation, the entire process is disturbed. Due to continuous flow, it becomes
Facilities Planning necessary to avoid piling up of work or any blockage on the line. Unless the
fault is cleared immediately it will force the preceding as well as the
subsequent stages to be stopped.

Suitability. Continuous system is best suited to organisations which intend

to produce a limited variety of products on a large scale. The heavy fixed
costs of specialised equipments that are utilized for operating at low cost per
unit can be distributed over a high volume of output.

Electronics, electricals, pins, clips, buttons, automobiles, bicycles and

container industries are some of the examples of mass production.

B)Batch Production System

Batch production has been defined as “the manufacture of a product in

small or large batches or lots at intervals by a series of operations, each
operation being carried out on the whole batch before any subsequent
operation is performed.”

If a variety of products are made with relatively small volume of production,

it may not be possible to layout a separate line for each product. In such
cases, batch production concept is adopted when a product is made in a
certain quantity called as ‘batch quantity’ on a machine, and after a while it is
discontinued and another product is scheduled in a certain batch quantity.
Thus various products get completed for the share of a machine. The
machines are for general purposes. Material flow in such systems is more
complex than in mass production systems. Accordingly, the planning and
control aspects are relatively more difficult. Some prominent problem areas
are optimal layout planning for the production system, aggregate production
planning to absorb demand fluctuations economically, Machine-job
allocation problem, determination of economic batch quantity and scheduling
and sequencing of operations.

Characteristics. The essential features of batch production are given below:

i) A large variety of products is manufactured in lots or batches

ii) Both general purpose machines (for producing parts) and special purpose
machines (for assembling the parts) are used
iii) Variable path material handling equipment is used
iv) Machines and equipment are arranged according to the sequence of
operations, i.e., process layout is followed.

Merits and Limitations. Batch production combines the features of both

flow production and job production types. Some degree of specialisation is
possible and capital investment is comparatively low. But work-in-progress
inventory is high and large storage space is required. Due to frequent changes
20
in product design no standard sequence of operations can be used. Machine Operations
Management -
set-ups and tooling arrangements have to be changed frequently. An Overview

The main problem in batch production is the idle time between one operation
and the other. The work has to wait until a particular operation is carried out
on the whole batch.

Suitability. Batch production is applied when either the volume of output

increases resulting in some repetitiveness or the market demand is not
uniform throughout the year. In the latter case occasional discontinuity in
production occurs as switching to other product becomes necessary.

Industrial blowers, motors, book printing, export production, drugs and

machine tools etc. are common examples of batch production.

C) Job Shop Production.

Job shop production involves the manufacturing of a single complete

unit with the use of a group of operators and processes as per the
customer’s order.A job shop does not have its own standard product and
accepts whatever customer orders come in. Thus it is essentially a group of
facilities and processes a wide variety of customer orders in varying batch
sizes. Each order may be a new order requiring process planning, tooling and
sequencing. Material flow in job shop like situation is quite complex. A
dynamic job shop where even customer orders come in a random fashion is a
very difficult system to analyse at least from the point of view of production,
planning and control. The main problem is dispatching priority rule to
determine the sequence in which various waiting job orders are to be
processed on manufacturing facilities. For example, a production manager
may sequence the job orders on the basis of the short processing time (SPT)
rule. The job requiring smallest operation time gets top most priority in order-
scheduling. From analytical point of view a job shop can be treated as a
network of queues and the waiting line models or simulation techniques can
be used to analyse it.

Characteristics. The main characteristics of job shop production are as

follows:

i) The product manufactured is custom-made or non-standarlised.

ii) Machines and equipment are arranged or assembled at one place.
iii) A wide range of general purpose machines like grinder, drill, press and
shaper etc., is used.
iv) Volume of output is generally small.
v) Variable path materials handling equipments are used.

Merits and Limitations. Job production involves comparatively small

investment in machinery and equipment. It is flexible and can be adapted

21
Operations easily to changes in product design. A fault in one operation does not result
Management –An
Overview and into complete stoppage of the entire process.
Facilities Planning
Job shop manufacturing is the most complex system of production. For
instance, in building a model, thousands of individual parts must be
fabricated and assembled. A complex schedule of activities is required to
ensure smooth flow of work without any bottlenecks. Many parts require
operation time on the same machines even though the operations in the
manufacturing cycle take place at different points of time. Optimum machine
loading is, therefore, a very difficult problem.

Raw materials and work-in-progress inventories are high due to uneven and
irregular flow of work. Therefore, large storage space is required and material
handling costs are high. Highly skilled machine operators are required for the
efficient performance of setting up and operating tasks. Work loads are
unbalanced. Labour and equipment must be flexible to accommodate the
continuously changing production. There is often inefficient utilisation of
labour and plant. Speed of work is slow and unit costs are high.

Suitability. Job shop production is applicable where custom-made products

are to be produced on a small scale. Typical examples of jobs production are:
special projects, models, prototypes, custom clothing, jigs and fixtures, repair
in existing machinery, repair and overhauling of automobile vehicles and
construction equipments subassemblies etc.

D) Unit Manufacture or Projects

Project is defined as “an endeavor” with specific objective to be met

within the prescribed time and cost limitations that has been assigned for
execution.

Suppose we want to make a ship. Obviously due to large size of the product,
the entire concept of material flow should change. In the previous three cases
the manpower and facilities were fixed and product (or material) was moving
from place to place. Here product remains fixed and manpower/facilities put
work on it in some chosen sequence. Since such products are not made in
large number and have long throughput time, we can treat each product as a
project. Thus project planning, scheduling and monitoring techniques based
on network models such as PERT/CPM can be used for planning and control
of such production systems.

Characteristics.

i) Project has a definite start and finish i.e. it is executed in a time bound
schedule.
ii) It needs resources and skills of diversified nature.
iii) It has a definite and definable goals or end results that can be defined in
terms of costs schedule and performance requirements.
22
iv) Project passes through distinct activites, which constitute Project Life Operations
Management -
Cycle An Overview

Merits and Limitations. Planning and scheduling of activities and

procurement function are critical to the success of the project. Inventory is
mainly concentrated in product itself and material always flow in the same
direction. Reducing inventory simply means shortening the delivery time and
is equivalent of using equipment to the maximum of its capacity.

Unit manufacture or project is one-off job, which may not repeat in exactly
the same manner.

Suitability. Suitable for construction, erection work and commissioning of

plants.

Typical examples are : ship building, electric power plant, blast furnace, dam
construction, machine shop, printing press, turbine and boiler manufacture
etc.

1.6 MANAGEMENT OF MATERIALS IN

PRODUCTION SYSTEMS
As mentioned previously, problems of production management essentially
concern management of material flow into, through and out of the system.
This makes materials management a vital subject. Since materials constitute
an extremely important and costly resource to a production system. An
improvement in materials productivity will lead to overall improvement in
systems performance and cost reduction.

Material Management is defined as the grouping of management

functions supporting the complete cycle of material flow from the
purchase and internal control of work-in-process to the warehousing,
shipping and distribution of finished products.

Role of Materials Management

Materials in Indian context constitute more than half the total cost of
production in most industries and projects. In some industries 60-70% total
production cost is due to materials. This makes materials management the
biggest single area having tremendous potential for cost reduction. A well
coordinated materials management programme may lead to 15-20% cost
reduction.

If inventories are taken as an index of materials management effectiveness,

then there is so much that can be done to cut inventories in Indian industries.
If inventory is viewed as ‘usable but idle resource’ then we can also call it a
‘necessary evil’. Our materials planning system should be such that we are
able to ensure adequate supply of materials to meet anticipated demand
pattern with the minimum amount of capital blocked in inventories.
23
Operations Objectives. The primary objective of a company is to reduce the cost that
Management –An
Overview and occurs while buying, storing, handling, transporting and packaging materials.
Facilities Planning In addition material management has the following objectives :

i) Maintains steady flow of materials ensuring that production does not get
interrupted.
ii) Adopts cost reduction techniques like MRP and value analysis to manage
the total cost required for proper management of materials.
iii) Provides right materials in the right quantity and right time to ensure the
production of high quality product.
iv) Implements scientific inventory control techniques to reduce investment.
v) Maintains records of stores and purchase etc.
vi) Preserves stocks so that any loss of materials caused due to deterioration,
pilferage and obsolescence can be kept at the minimum.
vii) Improves producer-consumer relationship by producing high quality
product.
viii) Minimises wastage of materials and therefore reduces operating costs.
ix) Disposes surplus materials, metal cuttings and chips to economise on
cost.

Need for Integrated Approach to Materials Management

To be most effective, our desire to maximize materials productivity must aim

it getting most out of every rupee invested in materials. This calls for a well
coordinated and integrated approach towards various problem areas involving
decision-making with respect to materials. It can be seen for example that the
inventory in the system can be lessened by reducing uncertainties in demand
and supply, by reducing procurement lead time, by reducing excessive
material varieties through standardisaion, codification and variety reduction
programmes. Thus development of reliable sources of supplies to have ‘just
in time’ supply will reduce inventories substantially.

Other important areas to improve efficiency on materials management front

are:

a) Value analysis, purchase price analysis :In this we want to put right
kind of material through competitive prices to reduce the material bill.
Value analysis aims at getting the required function performed at
minimum cost and therefore value analysis technique has a major role in
materials related cost reduction.
b) Materials handling : Materials handling provides place (location) utility
only. Otherwise it does not add to functional or aesthetic value of
materials but is an element of cost. Thus our aim should be to design
systems of production and storage to minimise the costs associated with
movement and handling of materials.
24
c) Inventory control :Here we try to plan our procurement actions so that Operations
Management -
we can get the demand satisfied reasonably well without having to stock An Overview
(in inventory) too much of materials. This is a very well discussed
problem area in literature on materials management.
d) Stores management :Stores function looks after physical custody of
materials. By proper planning of layout, storage materials and issuing
policies we can ensure faster service so that items demanded by
production can be supplied without delay. Avoidance of pilferage,
wastage and storage losses are also important aspects of stores
management.
e) Waste management : Materials waste must be minimised if not totally
eliminated. Waste can also be considered as a barometer of materials
productivity. If materials waste is minimum, productivity of materials
improves.

An integrated approach to materials management must look at all the above

mentioned problem areas in a coordinated manner with a view to maximise
materials management effectiveness.

Cost involved in Material Management. Managing materials involves the

following costs :

a) Capital Cost--cost of materials procured paid by the company to the

supplier.
b) Government levies and taxes.
c) Ordering cost involving the cost of tendering, stationery, postage,
inspection, bill payment and delivery that incurred while purchasing
materials.
d) Inventory carrying cost (holding cost) involving cost of storage, record
keeping, wages to stores staff and payment of insurance cover for
maintaining inventory.
e) Packaging cost.
f) Material handling cost.
g) Shipment cost.

Figure V: Product Life-Cycle

25
Operations
Management –An
1.7 CONCEPTS IN SYSTEMS LIFE-CYCLE
Overview and
Facilities Planning
The life-cycle concept or ‘womb to tomb’ concept draws analogy from living
organism. It assumes that every system (product) has a definite life-cycle and
it passes through growth, maturity, saturation and decline phases. Figure V
shows a typical life-cycle of a product. Similar pattern could exist for the
entire production systems. Life-cycle concept enables us to understand
various decisions and their inter-dependence in a better perspective. For
example if some of the strategic decisions like product selection or plant
location, which are made at the early stages of systems life-cycle are wrong,
then these would continue to influence day-to-day operations planning and
control decisions adversely and no amount of day-to-day effectiveness will
be able to undo the damage done by poor decisions at initial stage of life-
cycle.

This concept also enables us to be alert to the external environment and start
phasing out a dying product and substitute it with a new product well in time

so that continued survival of the organisation can be planned. Figure V shows

how introducing new product well in time can cause long-term survival of the
organisation even if individual products follow life-cycle pattern. Life span of
a product may vary from a few months (such as fashion goods) to a few
decades.

Stages in System Life-Cycle

Figure VI shows the eight stages of the system life-cycle along with the
associated key decisions to be made at each stage. Some of the initial
decisions like product selection, technology selection, location and layout
selection are of strategic importance. Once the system has achieved steady
state—most on—going organisations we work in are probably at that stage--
then most problems of operations management are of tactical or operational
nature. Short-term planning and control and cost reduction strategies are the
main focus at that stage. The steady state experiences minor perturbations
due to external and internal factors. Moderate level changes can be
accommodated by updating and revising of the previous decisions. When the
system cannot adjust to even major revisions due to extreme changes in
external environment, then the systems must come to an end through
liquidation or through sale or merger. Termination or phasing out of
operations may be sometimes deliberate.

Life-cycle Costing

A very important concept in costing has emerged in recent years--that of life-

cycle costing. It says that when we evaluate the cost implications of our
decisions we should not consider the short-term cost alone but the entire costs
during the life-cycle of the system and equipment. Thus long-term cost
repercussion must be examined rather than immediate short-term cost alone.
26
Such a concept may change our perspectives and seemingly good decisions Operations
Management -
may not remain attractive if life-cycle costs are computed. For example while An Overview
purchasing a machine, the short-term cost may mean only initial purchase
price and we may be tempted to buy a cheaper equipment or machine. It may
however require too much repair, maintenance and operating expenses. If all
these costs including initial costs are compared during the life-cycle of the
machine, we may find that an expensive machine with very little
maintenance, repair and operating cost may be a preferred alternative over
initially inexpensive but ‘costly-to-maintain’ machine.

Figure VI: Stages of Life-cycle and key-decisions involved

Source: Chase, R.B. and N.J. Aquilano, 1973. Production and Operations Management: A
Life-Cycle Approach, Richard D. Irwin: Homewood

Thus while making important decisions regarding design and planning

aspects of production systems we should consider life-cycle costs. These
could even be converted to present values by discounted cash flow
techniques, accounting for the time value of money.

1.8 ROLE OF SCIENTIFIC METHODS IN

OPERATIONS MANAGEMENT
Methods and techniques of scientific management have tremendous role to
play in helping us to make rational and logical decisions in the context of
production and operations management. Through scientific methods, tools
and techniques of industrial engineering and operations research along with
behavioural science we can look at all facets of the problems and evaluate
the consequences of our actions before arriving at a decision. These
techniques thus reinforce the subjective or intuitive judgement and contribute
to better management. 27
Operations The Role of Industrial Engineering
Management –An
Overview and
Facilities Planning
Indian Institution of Industrial Engineering (IIIE) has adopted the following
definition of Industrial Engineering:

“Industrial Engineering is concerned with the design, improvement and

installation of integrated systems of men, materials and equipment. It
draws upon specialised knowledge and skills in mathematical, physical
and social sciences together with the principles and methods of
engineering analysis and design to specify, predict and evaluate the
results to be obtained from such systems.”

It can therefore be seen that industrial engineers are designers of management

systems and industrial engineering approach integrates various approache
such as operations research, systems analysis, behavioural science etc.
towards the integrated design or organisations. In this book many industrial
engineering techniques will be used in various units which helps us in better
management of production systems.

The Role of Models

Models are representations of systems with a view to explain certain

aspects of system’s behavior. Generally a mathematical model is preferred
in decision-making because it tries to explain system’s objectives and
function in terms of decision variables subject to our control as well as non-
controllable parameters due to environment or resource constraints etc. Thus
a simplified form of a model is:

E = f(xj, yi)
Where E= Measure of effectiveness or objective function
Xj= Controllable (decision) variable, j=1…n
Yi= Non-controllable parameter, i = 1…m

Thus a model provides us a cause-effect relationship so that we can evaluate

our alternative courses of action on the basis of our objectives and choose an
optimal (best under the circumstances) strategy to maximize our
effectiveness. Thus models provide a valuable tool to compare our options
and thus improve the quality of decisions and provide us a better insight into
our decision process. However, it must be noted that models are a means to
achieve an end (better decisions) and not an end itself. We must choose a
simple, valid and logical model of the decision situation. A large number of
model based techniques have been developed in the subject called
‘Operations Research’ (OR) which help is mathematical conceptualization of
many decision-making problems relevant to production/operations
management. Some very versatile and powerful techniques like linear
programming, queuing theory and simulation have been applied extensively
to study various problem areas in production management. Some of these
will be described, though briefly, in appropriate units in this book.
28
The Role of Computers Operations
Management -
An Overview
In a large sized problem, a computer becomes a very efficient tool in problem
solving and evaluation of alternatives. A big size linear programming or
simulation problem can be efficiently solved on computers. Due to fast
developments in computering facilities and application software, many OR
models can be implemented via computers. Computers also have tremendous
role in management information systems to provide useful, relevant and
timely information for planning, monitoring and control of production
systems--thus providing decision support through information.

The Role of Behavioural Science

Since people are integral part of our production system, understanding of

human behavior is very important so that managers can evaluate the
consequences of their actions on human relations, morale, motivation and
productivity. Supervisor’s relationship with his subordinates, organisation
structure, individual and group behaviour, work habits and attitude,
incentives, participation in decision-making and performance appraisal
systems have impact on worker morale and motivation. Behavioural science
provides us some insight on these aspects and therefore has a role to play in
production and operations management.

1.9 HISTORICAL DEVELOPMENT OF

OPERATIONS MANAGEMENT
Historically speaking, the field of operations management has envolved in a
very short span of time. Its roots, however go back to the concept of ‘division
of labour’ advocated by Adam Smith in his book “The Wealth of Nations” in
1776. In 1832, Charles Babbage, a mathematician extended Smith’s work by
recommending the use of scientific methods for analysing factory problems.

However, the era of scientific management as it is now known started with

the work of F.W. Taylor in 1878 who subsequently came to be recognized as
the ‘Father of Scientific Management’. Taylor is credited with recognizing
the potential improvements to be gained from analysing the work content of a
job and designing the job for maximum efficiency conducted on the shop
floor. It brought about significant and rapid increases in productivity. He
explained the four principles of scientific management in the following way:

a) Development of a science for each element of a man's work thereby

replacing the old rule of thumb methods
b) Selection of the best worker for each task and then training and
developing the workman on individual basis.
c) Dividing for the work between management and the workers to
simultaneously obtain both maximum production and high worker
wages.
29
Operations d) Dividing the work between management and workers so that each is
Management –An
Overview and working on what they are most proficient in doing.
Facilities Planning
Taylor described his management philosophy in a book “The Principles of
Scientific Management” published in 1911. This event, more than any other,
can be considered as the beginning of the field of Operations Management.
The colleagues, contemporaries and followers of Taylor were many and
included the following people. Frank Gilbreth and his wife Lillian Gilbreth
are recognised for their contributions to motion study. Gilbreth developed the
concept of ‘Therbligs’ and ‘Chronocyclegraphs’ for motion study in 1911.
Lillian Gilbreth wrote her book ‘The Psychology of Management' which was
one of the earliest works concerning the human factor inorganisations. In
1913, Henry Ford developed the concept of mass production and arranged
work stations into an assembly line with moving belt. In1913 also, Henry
Gantt made his best known contribution in charting the production schedules
using a visual-diagrammatic tool which is popularly known as ‘Gantt-Chart’
and is an effective practical tool even today.

In 1913, Harrington Emerson applied Taylor's ideas to develop organisation

structure and suggested the use of experts in organisations to improve
efficiency. Wilson developed the concept of Economic Order Quantity
(EOQ) in 1928 which is still recognised as the classical work in the scientific
analysis of inventory systems and works of subsequent researchers were
essentially further refinements of Wilson's lot size formula. In 1931, F.H.
Dodge, H.G. Roming and W. Shewhart developed the concept of sampling
inspection and published statistical tables. Earlier in 1924, W. Shewhart
pioneered the concept of statistical quality control and developed control
charts for monitoring the quality of production processes.

In 1933, Elton Mayo conducted his famous experiments at Western Electric's

Hawthorne plant looking into human and social aspects of work. This paved
the way for the behavioural school of management. Mayo felt that scientific
management often emphasised technical skills at the expense of adaptive
skills. Some other notable developments in these lines include the concept of
‘managerial grid’ developed by a Robert Blake and Maslow’s hierarchy of
needs and Doughlas McGregor's Theory X and Theory Y in management.

In 1937, L.H.C. Tippett developed the concept of work sampling to gauge the
level of machine and manpower utilisation and for setting work standards.
In and around 1950 two major developments that influenced operations
management were the emergence of techniques of ‘Operations Research’
beyond military context and developments of Value Engineering offered by
L.D. Miles. The OR is application of scientific methods to study and devise
solutions to managerial problems in decision-making. Using mathematical
models and the systems approach OR has helped solve resource allocation,
scheduling, processing, inventory, location, layout and control problems.
Techniques of value engineering helped in efficiently identifying the
30 unnecessary costs so that products and systems could perform their function
at minimum costs. Developments in computers led to computerised Operations
Management -
applications of Industrial Engineering and OR techniques to production An Overview
management problems. Development in MIS and DSS (Decision Support
Systems) provided a further fillip to the improvement in operations
management. In 1958 the concepts of CPM and PERT were evolved for
analysis of large projects and since then a number of network based
techniques of project management have been designed.

In the late 1950s scholars and researchers in the field began to generalize the
problems and techniques of manufacturing to other production organisations
such as petroleum, chemical and other process industries leading to the
emergence of the concept of ‘production management’ as a functional
management discipline. In the late 1960s the concept of ‘Operations
Management’ expanded to include the service sectors as well. Only recently
the service sector has received as much attention as production sector from
the point of view of scientific management of systems operations.

Systems approach taking a holistic (integrated) look at the problems of

operating systems emerged in the 1970s which considered the inter-play of
various sub-systems in organisations. Developments in the computer
simulation of integrated production-inventory systems are some of the current
thrusts in modeling of production management problems.

In the more recent past there has been a major thrust on the adoption of
Japanese management techniques like the ‘just in time (JIT) system’ or
‘Kanban system’ for production scheduling and inventory control and the
concepts in quality circles (QC). These concepts have apparently done well in
Japanese context but should be cautiously adopted in other situations only if
external work environment and work ethos make them appropriate elsewhere
too. Other notable developments in recent past have been group technology
(GT) or cellular manufacturing systems (CMS), flexible manufacturing
systems (FMS) and computer-aided design/manufacturing (CAD/CAM) etc.

Helping the quality movement in the field of operations and managerial

practices, came into circulation the technique of total quality management
(TQM) during 1980s and 1990s. All operations executives were aware of the
quality message put forth by the quality gurus – W. Edwards Deming, Joseph
M. Juran and Philip Crosby. The ISO 9000 certification standards formulated
by the International Organisation for Standardization played a major role in
setting quality standards for global manufacturers.

The recent quick adoption of the Internet and world wide web (www) during
the late 1990s and early 2000s has revolutionalized our thinking in which we
collect information, do shopping and communicate with the rest of the world.

The future of Operations Management looks bright.

31
Operations
Management –An
1.10 SUMMARY
Overview and
Facilities Planning
This unit has attempted to give a general overview of operations
management. Asystems approach treating each operation as a value addition
process has been described. The concept of operations management includes
both the production of goods as well as services. Operations as the
conversion process have been identified to be central function of virtually
every organisation, Value is primarily added to entities by changing them
directly in space, in time or in our minds. The important characteristics of
conversion process have been identified as its efficiency, effectiveness,
quality, lead times, capacity and flexibility. Objectives of operation
smanagement may be in terms of customer satisfaction or performance
objectives as well as cost objectives.

Various decision areas have been categorised as strategic or operational

decisions, periodic or continual decisions and various problem areas have
been listed under each group. Management of production systems depends
upon the structure of the systems and complexity of material flow and
accordingly the production systems can be classified as mass, batch, job shop
and project production systems. The characteristics of each of these systems
together with the relevant production management problems have been
highlighted. Role of materials management becomes crucial as materials are
responsible for more than half the total cost of production systems. An
integrated approach involving coordinated efforts to attempt various
problems of materials management is emphasised. Life-cycle approach to
products and systems provides a good insight into the key decisions at every
stage and concepts in life-cycle costing provide new perspectives to decision-
making. Role of scientific techniques of industrial engineering, operations
research together with behavioural science and computers is outlined. A brief
unit-wise overview of the plan of the book is given so that the relevance of
various units to the common theme of the book can be linked.

Finally, a brief historical profile of the subject from the era of Taylor to
modern times including modern Japanese management techniques provides a
synoptic view of the growth and development of the subject.

1.11 KEY WORDS

Behavioural science: Systematic study of human behaviour.

Batch production: A production system between mass and job shop. A

number or products are made in batches on the manufacturing facility.

Control: A management function aimed at ensuring that actual performance

is in accordance with the plans formulated to achieve its objectives.

Conversion process: Transformation of inputs to outputs thereby leading to

value addition.
32
Ergonomics: Branch of technology concerned with the problems of the Operations
Management -
mutual adjustment between man and his work. An Overview

External environment: Comprises external surroundings in which an

organization functions and which has an impact on its performance.

Feedback: The process of comparing the actual performance and the planned
one in order to initiate action for control purposes.

Inputs: All types of resources required by the conversion process for

producing goods or services.

Inventory: Usable but idle resource.

Job shop: Manufacturing of varieties of products in small batch sizes

according to customer orders.

Lead time: The time elapsing between placing an order and having the goods
in stock ready for use in the manufacturing stage. Also known as delivery lag.

Life-cycle: The cycle of birth-growth-maturity and decline of a product or a

system.

Management: The process of planning, organising, directing and control.

Mass production: Making of a single product in very large quantities so that

facilities can be arranged according to sequence of operations for the product.

Model: A representation of reality intended to explain some aspect of it.

Monitoring: Process of measuring actual performance or progress of work

for the purpose of control.

Operations: The process of changing inputs into outputs. It is a purposeful

function vital to virtually all organisations.

Operations research: Application of scientific methods, tools and

techniques to the problems of decision-making in order to find optimal
solution to problems.

Organising: Allocating human and material resources in appropriate

combination to implement action plans. It defines tasks, structures and then
allocate resources.

Output: Final product or rendering of a service.

Planning: Determining what is to be achieved, setting goals and identifying

means to achieve them.

Production: The process of creating goods and services (synonymous to

operation).

Productivity: The efficiency of conversion process expressed as output per

unit of input. 33
Operations Project: A set of tasks having sequential dependence with a definite starting
Management –An
Overview and and ending point.
Facilities Planning
Quality: A composite of characteristics that determines the extent to which a
product or service satisfies the customer needs.

Schedule: A time table of production system indicating the time when a

particular job will be processed on a particular machine.

Sequence: The order in which waiting jobs are to be processed on a machine

or a facility.

Service: A bundle of benefits, some may be tangible and others intangible.

Simulation: A technique which feigns systems on paper or on computer in

order to describe system behaviour.

Systems: A purposeful collection of people, objects and procedures for

operating within environment.

Strategic decisions: Important decisions having long-term impact.

Value engineering: A systematic procedure to identity and eliminate

unnecessary costs to provide equivalent function at the lowest costs.

1.12 SELF-ASSESSMENT EXERCISES

Q1) Explain the different stages of the product life cycle with suitable
diagram. How does this life cycle help in developing the strategies to
compete in global market ?
Q2) What do you mean by an integrated approach to Material
Management? Explain.
Q3) Explain the objectives of Operations Management. How does a
service organization fix its performance objectives?
Q4) Define production/Operations Management (POM) in your own
words. Will your definition accommodate both manufacturing and
service operations? Justify your answer.
Q5) Explain with the help of suitable diagram the framework of planning,
organizing and control in a production system.
Q6) What are the major distinctions between a manufacturing enterprise
and a service organization? Discuss with suitable examples. Why is it
more difficult to increase productivity of a service system as
compared to a production system?
Q7) Discuss about the strategic decisions and operational decisions of the
production and operations management.
Q8) Explain the system concepts in operations management with suitable
diagram. What are the undesirable outputs of the system of OM?
34
Q9) Describe the various types of production system with appropriate Operations
Management -
examples. An Overview
Q10) Write a short essay on the historical development of operations
management.
Q11) Consider the following situation:

You have been asked to look into the operations of a company which is in the
business of repairing and overhauling automobiles. Current practices have led
to an extreme amount of customer dissatisfaction due to very high waiting
time, diccourteous behaviour of work force with the clients, poor quality of
workmanship and high cost of repairing automobiles. As a result the
customers have started getting their services elsewhere. The owner is very
keen to improve the situation but he finds that his people are not motivated
by a spirit of service basically because of poor wages and indifferent
supervision. This operation is located in an environmentally alert community
and they have also been complaining to the local municipal authorities that
the nasty way in which operations are handled and waste water disposed off,
is causing a lot of inconvenience in the locality. The owner-manager wants
your help in improving the effectiveness of systems operations.

How will you analyse the situation? What further information you may need?
Prepare a short working paper outlining your suggestions to improve the
systems operations.

1.13 FURTHER READINGS

Adam Jr. E.E. and R.J. Ebert, Production and Operations Managerial
Concepts: Models and Behaviour, Prentice-Hall Inc: Englewood-Cliffs.
Buffa, E.S. Modern Production/Operations Management (8th edition), John
Wiley & Sons: New York.
Chase, R.B. and N.J. Aquilano, Production and Operations Management (8th
edition) : A Life-cycle Approach, Richard D. Irwin: Homewood.
McClain J.O., and L.J. Thomas Operations Management: Production of
Goods and Services, Prentice-Hall Inc. : Englewood-Cliffs.
S.N. Chary, Production and Operations Management: Tata McGraw-Hill
Publishing Company, New Delhi
Kanishka Bedi, Production and Operations Management: Oxford University,
New Delhi-110001
A.P. Verma Industrial Engineering and Management (6th edition) : S.K.
Kataria & Sons, New Delhi- 110002

35
Operations
Management – UNIT 2 PRODUCT SELECTION AND
An Overview
and Facilities PROCESS SELECTION
Planning

Objectives

After going through this unit, you should be able to:

• appreciate Product Selection as one of the key strategic decisions of any

organisation, learn the concept of productibility and its effect on product
selection, identify the various stages involved in the product selection
process and have a brief idea of the new product mortality curve.
• know the issues involved in screening a new product idea, identify the
trade offs involved in product design, understand the impact of product
design on process design, identify the various tradeoffs involved in
process selection and know the issues involved in the general
transformation process selection procedure.
• learn the four forms of transformation processes-their characteristics,
advantages and disadvantages, know about the new technologies that are
applicable to the transformation processes, understand the concept of
Process Life-cycle, learn the use of break-even analysis in choosing the
least cost process and appreciate the need to maintain focus in all
production operations.

Structure

1
1.1 Introduction to Product Selection
1.2 The Product Selection Process
1.3 Selection of the Products
1.4 Product Development
1.5 Product Design
1.6 Introduction to Process Selection
1.7 Forms of Transformation Processes
1.8 The Project Form
1.9 Intermittent Flow Processes
1.10 Continuous Flow Processes
1.11 Processing Industries
1.12 Selection of the Process
1.13 Summary
1.14 Key Words
1.15 Self-assessment Exercises
1.16 Further Readings
36
2.1 INTRODUCTION TO PRODUCT Product Selection
and Process
SELECTION Selection

Product selection is a strategic decision consisting of “what product is to be

produced – in what form, what features and what number” whereas
Process Selection decides about the quality and quantity of the manpower,
capital requirement and the choice of processes used for the production.

We have looked at operations as the process of converting inputs into outputs

and thereby adding value to some entity. This concept of value addition is
very important for effective management of the operations function.
Although the "conversion' takes place inside the organisation, the addition of
value occurs only when it is perceived to have been done so by the customers
of the product or service in the market place. This concept changes the
orientation of an operations manager from totally inward looking to one who
is alert to the needs of the customers. As we go on to discuss the strategic
decisions in operations management in the next couple of units, this issue
will come up again and again and it is not out of place to remind ourselves
once more that it is not enough to produce a product or service but it has to be
produced so that there is an added value as perceived by the market.

Although we differentiated a product from a service above, this

differentiation becomes very hazy and confusing. For example, if we are
selling a computer, we are selling a product of course. However, instead of
selling the computer if we start leasing it to our customers-what are we
selling now-a product or a service? On the other hand, so far as the customer
is concerned-he is using the computer exactly in the same manner in both
these cases. The difference is only in terms of payment and the legal
ownership of the asset. Similarly, even when the computer is sold outright,
we are also selling after-sales service and other customer support services
along with the computer. Thus, we start seeing that so far as the customer is
concerned he is only buying some benefits in all these cases and these
benefits are services. Services are bundles of benefits, some of which may be
tangible and others intangible, and they may be accompanied by a facilitating
good or goods. If there are no accompanying facilitating goods, e.g. getting a
haircut, we will refer to these services as pure services.

All outputs of an organisation are services and in this unit we would take a
deeper look at output selection. Thus, although we have titled the unit as
product selection, we would like to pursue it as output selection keeping in
view the service nature of any organisation that we presented above. In what
follows, the term product is thus used in its generic sense and is meant to
include services.

A Strategic Decision

Product selection is a strategic decision for any organisation. Such decisions

are long term decisions and the organisation commits itself to the 37
Operations product/products selected for a long time to come. What products to produce-
Management –
An Overview -in what form and with what features--is very important because many other
and Facilities decisions-for example, the technology used, the capacity of the productive
Planning
system, the location of the production facilities, the organisation of the
production function, the planning and control systems, etc. are dependent on
this. The competitiveness and profitability of a firm depend in part on the
design and quality of the products and services that it produces, and on the
cost of production. The design of a product or service may make it expensive
to produce and a change in design may make it possible to produce the same
in a less expensive way. Similarly, one design of a product or service may
require large and expensive additions to capacity of some process whereas a
change in design may make it possible to produce the same with existing
capacity.

Product selection is a strategic decision, thereby involves other

functional areas like marketing, research and development and as well
also the top management therein. The operations management function
provides vital inputs regarding the production of the product or service in
these decisions making.

Producibility

The product selection process is a highly integrative process. Thus product

function, cost, quality and reliability are some of the inputs to this decision.
The producibility of a product/service measures the ease and the speed with
which the output can be produced.

The specialised equipment, specialised skills and specialized toolings,

facilitate in switching production from one product to another etc. and are
thus important factors to assess producibility. It is also important to look at
the complete range of products produced because a new product may either
use the capacity of processes/sub-processes already established or may
require the establishment of capacity of some processes/sub-processes. A
family of similar products is much simpler to produce than a family of
dissimilar products.

2.2 THE PRODUCT SELECTION PROCESS

Product selection is an ongoing process in any organisation. In fact, as the
environment changes, as new technology is developed and as new tastes are
formed, the product should benefit from these developments; otherwise what
is perceived to have added value today may not be perceived as such
tomorrow. For example, jute has been in use as a packing medium for a long
time. However, with changes in technology and consumer taste, the same
product is no more perceived to have added value and therefore, its demand
has reduced.

38
Product Selection Stages Product Selection
and Process
Selection
The process of creating, selecting, developing and designing the output of an
organisation is shown in Figure I. We will follow the same sequence in our
discussion as well. Output possibilities are generated from many sources:

a) From the field itself through market research. This can take the form of
consumer surveys, dealer surveys and opinion polls etc.
b) From research laboratories. This can be due to a breakthrough achieved
by pure research or applied research in developing new knowledge.
c) From conscious and formalised attempts to generate new ideas for
products or services. These ideas can be generated by using techniques
like brainstorming, panel discussions, scenario building and technology
forecasting etc.

Figure I: Stages of Bringing A New Output to Market

Source: Adapted from Meredith & Gibbs. The Management of Operations, John Wiley, New
York.

The output ideas thus generated are then screened where their match with
corporate objectives and policies is studied and their market viability is
established. A detailed economic analysis is then performed to determine the
probable profitability of the product or service. For non-profit organisations,
this takes the form of a cost-benefit analysis. This is followed by
development of the product or service from a concept to a tangible entity and
finally by design and testing.
39
Operations No Smooth Sequence
Management –
An Overview
and Facilities Although Figure I depicts product selection as a sequential process where one
Planning stage follows another, in reality, the process may not be so smooth as shown.
Thus, economic analysis may have to be done after output development if
reliable cost estimates are not available at the earlier stage. Similarly, new
product features may be added at any of the above stages, thereby initiating a
whole new cycle. Finally, as product selection is an ongoing process, there is
no finality to other process since as some new product ideas are being
processed, still new idea enter the output selection process and this may go
on and on. The product selection process therefore ensures a continuous
match between what is demanded and what is produced.

In some cases, the production process has also to be designed along with the
product or service. This has to be done, for example, when the market
viability of the product depends on low cost and so the production process
has to be decided along with the product design. Or take the case of another
product where it is felt imperative to obtain a large market share right from
the initial launch. It may become necessary to establish a large capacity for
the production process right from the beginning. The production process has
to be designed along with the product in such a case.

New-Idea Mortality Curve

The previous section highlighted the fact that an output possibility has to
cross several hurdles before it enters the market as a commercial product or
service. The new idea mortality curve presents the same in a graphical
manner. Figure II shows the mortality curve for a hypothetical group of fifty
chemical product-ideas. Although the product ideas are hypothetical, still the
stage-wise mortality as well as the time frame shown is quite indicative.
Figure II assumes that after three years of research, fifty potential chemical
product-ideas are available for consideration. Initial screening reduces this
number to about half and after economic analysis, by the end of year four, the
number of potential products decreases to nine. The mortality of ideas
continues over time and by the end of five-and-a-half years, at the completion
of the product and process development stages, the number has already fallen
to about five. Design and testing reduces this further to about three and by the
end of construction, market development and commercialisation, just about
one successful product is left. Figure II is based on international experience,
and situation in India has not been tasted empirically. Thus, the mortality
curve should be treated as an indicative proposition in the Indian context.

40
 Product Selection
and Process
Selection

Figure II : New Idea Mortality Curve From Research To Commercialisation For

Chemical-Product Ideas

Source : Adapted from Meredith & Gibbs. The Management of Operations, John Wikey,
New York.

The curve also shows that converting product ideas into marketable products
is a slow process. For chemical products, on an average it takes six years to
commercialise a product after the initial research has been completed, as is
shown by Figure II. At the end of it all, a product commercially launched
may not turn out to be successful and the mortality may extend to the product
as well.

The actual figures in Figure II are only indicative and within an industry
firms differ in the speed at which they can convert a product idea into a
commercial product. Some organisations are more innovative than others and
they are always ahead with more new product ideas. Similarly, some
organisations are more risk-taking than others and attach a high priority to
being a pioneer with new products than others who are relatively risk-averse.
They would like to do a more thorough job of screening, economic analysis,
product development, design and testing and would perhaps also wait-it-out
to see how some others have fared with similar products.

Cost of New Product Ideas

The new idea mortality curve also points to another fact by implication. The
cost of pursuing different new product ideas till their abandonment is also to
be borne by the few successful products. This significantly increases the cost
of new product development and justifies the rationale of collaborative
research. The research and development for a product is carried out at one
place and later on the knowledge gained is made available to the
collaborating organisations, which are then free to make independent product
41
Operations developments of their own. A similar concept holds for our industrial
Management –
An Overview research institutions in the government sector. For example, in the early
and Facilities stages of development of the television industry in India, Central Electronic
Planning
Engineering Research Institute, Pilani (CEERI) around 1980s developed an
indigenous design of a black and white television set and made it available to
television manufacturing organisations for a fee.

2.3 SELECTION OF THE PRODUCTS

At the research stage, the priority should be generation of new ideas. In fact,
it is better not to start the screening process till a reasonable opportunity has
been provided to generate all new ideas. This is because different thought
processes are required for generation of new ideas and for a rational analysis
of the same. Consideration of one new idea may generate a better idea
whereas an evaluative analysis introduced early in the process may hamper
the creative process of idea generation. Some techniques of idea generation,
for example, brainstorming, explicitly prohibit any analysis or criticism
(based on analysis) of suggested ideas at the idea generation stage.

Once a number of potential new product or service ideas have been

generated, the process of screening them to evaluate and select the ‘best’ idea
is set in motion. This can perhaps be discussed in two phases—a qualitative
phase where the new product idea is studied in terms of its match with the
corporate objectives and the corporate strategies of the organisation. The
second phase is more quantitative in the sense that potential costs and
revenues (or benefits) generated by new product are quantified and an
economic analysis is performed to establish the economy viability of the new
product or service idea.

Screening

The new product or service idea is assessed to establish its market viability as
well as to find out if it is in the larger corporate interest of the organisation to
add this new product or service to the current outputs of the organisation.

A product or service has to have sufficient demand or else it may not make
much sense to produce it at all. Of course, what is considered sufficient by
one organisation may be considered to be grossly insufficient by another.
Also the demand for a product or service is dynamic and although the current
demand for a product or service may be assessed to be low, an organisation
may still decide to retain the new output idea for further analysis if it assesses
that the demand will grow in future. For example, vacuum cleaners are still in
the introduction phase of their product life-cycle in India and an organisation
may select this as its product if it assesses that sales will grow in the near
future.

Each organisation has some corporate strengths and weaknesses. New

product or service ideas should capitalize on the strengths and should attempt
42
to reduce the weaknesses to the extent possible. On the other hand, if one of Product Selection
and Process
the determinants of success for a new product or service idea is already Selection
perceived to be a corporate weakness, such a product or service does not have
a good ‘fit’ with the strength and weakness profile of the organisation. For
example, if strong design capability is identified as a corporate strength of an
organisation then adding heat exchanges to its list of products—which have
to be custom designed and built is trying to exploit a corporate strength. On
the other hand, another organisation which has identified design capability as
one of its weaknesses would perhaps select centrifuges which are standard
products and offered off-the-shelf.

It is important to realise the strengths and weaknesses are relative and also
perceptive. The same feature can be perceived to be strength by one
organisation and as weakness by another. For example, low investment in
capital assets can be considered to be a strength since this gives the
organisation greater flexibility in product selection and adjusting to changes
in demand whereas the same can be perceived to be a weakness when
capacity cannot be hired from outside or the quality of jobs got done from
outside is unsatisfactory. What is important is to ensure that there is a close
match between the strengths and weaknesses of the organisation and the
requirements for the product or service to succeed.

In product selection, many organisations try to get synergistic results by

exploiting one or more of the following four factors:

i) Familiarity with similar products or services

ii) Familiarity with the same or similar production or transformation process
to produce the product
iii) Familiarity with the same or similar markets or market segments
iv) Familiarity with the same or similar distribution channels

Thus, it is perhaps natural for a firm manufacturing ceiling fans to include

heat convectors in its product list, wherein it can benefit from its familiarity
with similar production process, similar market segments and even the same
distribution channel. On top of it, it can also reduce its weakness of having a
highly seasonal capacity utilisation.

The above discussion also highlights the fact that any new idea for product or
service has also to be seen in relation to the effect on the existing products or
services. A new product may find a market for itself by cannibalizing one of
the existing products. A new brand of a biscuit may create its market by a
corresponding reduction in demand of another brand from the same firm
unless the two are carefully targeted a different segments.

We have referred to the strengths and weaknesses of an organisation as

relative, but relative to what? Of course relative to the competition. If there is
no competition, which is very unlikely, there is no need to match the product
requirements with the relative strengths of an organisation. For totally new 43
Operations products or services, even if there is no competition presently, very soon
Management –
An Overview competition will perhaps develop and it is the desire to remain ahead of the
and Facilities competition that provides the motivation for continuous inflow of new
Planning
product ideas. Whatever be the relative strengths and weaknesses of any
organisation, it is very unlikely that an organisation can be successful if its
strengths are only in marketing, finance and other non-operational areas. In
fact for long term success, it is almost imperative that sound operations
management is one of the strengths of the organisaton.

Sometimes a new product of service idea having very poor match with the
existing strengths and weaknesses of the organisation is consciously adopted.
This can happen if the organisation feels that the existing products or services
have reached the decline phase of their product life-cycles either on their own
or due to some changes in the environment e.g. government policy,
introduction of better and cheaper substitutes and changes in prices of some
inputs etc. For example, when ITC Ltd. Decided to diversify into hotels, this
new service idea did not exploit any of the four familiarity factors (explained
earlier) which could have given some synergistic results.

Economic Analysis

An economic viability of a new product or service idea ties up most of the

concepts that we have talked so far in quantitative terms to the extent
possible. What this means is that the economic value of the returns must
exceed the economic value of the costs incurred to produce the output. For
commercial organisations, the measurement of the returns and costs is
relatively straightforward and economic analysis in a way becomes
synonymous with profitability analysis. The cash flows generated as well as
consumed, if the new product or service idea is implemented, have to be
estimated for the life of the project. However, since there is a time value of
money these cash flows cannot be directly added or subtracted. So, the cash
flows are discounted to take care of the time value of money and the net
present value of all cash flows is obtained—or else the cash flows are used to
find an internal rate of return. The details of how to discount cash flows are
discussed in the further course.

Non-Profit Organisations

For non-profit organisations, there may not be a cash inflow at all, or else the
cash inflows may occur at externally fixed prices. For such organisations
economic analysis generally means a cost benefit analysis, which is similar to
the cash flow analysis mentioned earlier but now the net present value of all
benefits less that of all costs is used as an indicator of economic viability. The
benefits imply an addition of real resources to the society as a whole whereas
the costs imply using up real resources as a result of implementation of the
new product or service idea. These items of cost and benefit are valued so
that they reflect the social willingness to pay for the same. Wherever free
market conditions exist, the market prices can be used to value the costs and
44
benefits. On the other hand, economic prices are first estimated and then used Product Selection
and Process
to value those costs and benefits for which free market conditions do not Selection
exist,

Economic analysis is, therefore, much more difficult for non-profit

organisations than for organisations having a profit motive.

2.4 PRODUCT DEVELOPMENT

Product development concerns itself with modifications or extensions
provided to ideas so as to improve the functioning, the cost, the value-for-
money of the product. Development effort improves the performance of the
product, adds options and additional features and even adds variants of the
basic product. On the whole, development effort is innovative vis-à-vis
research which is more inventive—the thrust being on developing new
product ideas, technologies and processes.

Product Development is the work contributing towards improvement in

the existing knowledge by why of improved ideas, systems and
techniques etc.

Development Efforts

Figure III charts the development effort over time for a typical product. The
figure also shows the effort made for research to show the relative magnitude
of effort as well as the timing of the two. Development starts after research
has established an idea which has been examined, evaluated and even refined.
The development effort rises initially as the performance of the product or
service is improved and as the product itself graduates to the growth phase of
its product life-cycle. The development effort still continues to rise but now
the result is mainly providing options. As the product reaches its maturity, the
development effort has peaked and thereafter gradually starts reducing. In
this phase, product variants are developed and offered so as to lengthen the
life cycle. This is followed by extensions of the product and Figure III
highlights the fact that product development is an ongoing process which
starts as the product is launched in the market and continues till it is
withdrawn from the market.

What is more important — research or development? Development can start

only when research has produced a product or service idea which is
technically feasible and economically viable. However, greater effort is
expanded on development as compared to research in most parts of the world
today than it was, say 30 years ago. This is partly because the new products
e.g. colour television, are more complex and require longer to debug and to
improve their performance. This could also be true because research has
become very expensive and organisations are under pressure to
commercialise research as early as possible, even before the product or
service ideas have been refined and debugged. But one possible consequence
45
Operations of this shift away from research is that organisations make themselves
Management –
An Overview vulnerable to technological breakthroughs which can give rise to a whole new
and Facilities generation of the product or service itself. The tradeoff between research and
Planning
development is an important strategic decision for most organisations.

Figure III: The Development Effort Through The Product Life-Cycle of A Product

Source: Meredith & Gibbs, The Management of Operations, John Wiley, New York.

2.5 PRODUCT DESIGN

Product Design is defined as visible and tangible expression of an idea.
At the design stage, detailed specifications are provided so that manufacturer
can produce what has been designed. This means not only providing
dimensional specifications but even specifications regarding capacity, horse
power, speed and colour etc. are laid down and the task of manufacturing is
to convert the design into physical entities.

Product Variety

There are two distinctly different priorities that can affect the design of a
product or a service. The higher the standardisation, the greater will be the
ease in producing. On the other hand, customers have different needs and by
adding variety, one can satisfy more customers. Standardisation attempts
reduction in variety and better use of productive facilities, thereby achieving
lower unit costs. If the demand for the product or service is strong when the
price is low, organisations will try to minimize unit costs through
standardisation and most of the competitions will be based on prices. There
are other cost-related advantages due to standardisation. It simplifies
46 operational procedures and thus reduces the need for many controls. The
organisation can buy raw materials and components in bulk and thus get Product Selection
and Process
quantity discounts. It enables steady flow of materials through work centres Selection
and thus reduces the number of production set-ups related to change in flow.
It reduces the total inventory of raw materials, work-in-process and finished
goods. Finally, since the effective volumes become larger as the variety is
reduced, high-volume production methods become viable thus giving
economies of scale in production itself.

Standardisation is a very useful concept but production needs have been

given the highest priority in this scheme of things. This may be a very good
approach to product design as long as cost is the primary basis of
competition. Otherwise, one can design a product to suit the diverse needs
and tastes of the customer. All watches are meant to display the right time but
still a company like TITAN has hundreds of models of watches with different
movements, dial shapes, sizes and other features. By adding variety, an
organisation attempts to satisfy the varied needs and tastes of its customers
and competes on non-price considerations as well.

One method used to obtain variety or perceived variety and yet hold down
cost is through modularisation. A product is designed using modules or sub-
assemblies that are interchangeable and each different combination of
modules gives a new variety of the product. For example, two different
movements, three dial shapes, two dial sizes for each shape and three
different colours will give 2x3x2x3i.e. 36 varieties of watches, yet making
large quantities of standard modules.

Design simplification attempts to simplify the design so that the product or its
parts become simpler to produce. This might mean combining two or more
parts into one so that some assembly operations are eliminated. In some other
situation, this might involve replacing screw fastened parts by parts which
can be snapped tight in place without any fasteners. Design simplification
gives pay-offs in terms of lower production costs and in some cases by lower
material costs as well.

Structuring of Options

Options provide variety to a product increasing its attractiveness to a

spectrum of users while retaining operations as simple as possible. We can
see optioned products everywhere — from computers and office furniture to
automobiles and machine fools. Even services have options built-in, for
example in vehicle insurance.

Structuring the options is a major part of making a product line competitive

when not competing on costs alone. However, options bring in their own
complications as well. For example, pricing becomes much more complicated
since each option may not have the same margin. A lot of sales effort is
required explaining options or determining what the customer wants and it
complicates the customer's choice. Options also give the customers an
opportunity to change their mind and this creates additional difficulties where 47
Operations the product is made-to-order. All options are not used to the same extent and
Management –
An Overview low-usage option parts become hard to plan and control when mixed with a
and Facilities high-usage option part.
Planning
CAD/CAM

A part can be computer designed (computer-aided design) and its fabrication

instructions can be generated by computer-aided manufacturing(CAD/CAM).
This has the advantage that the manufacturing equipment is not tied up for
long periods during setting up time. Practically all the preparation time is in
programming where detailed instructions regarding the physical task to be
performed and the sequence in which these have to be performed are written
into a programme which can be read and executed by a computer having the
machine tool or any other manufacturing equipment under its control. This
then allows for very small batch sizes without losing on economy. Finally,
because information regarding the design and the manufacture of the product
and component is available on computer files, it is possible to use the data
together with other information on materials, tools, etc. for production
planning and control purposes thus achieving computer-integrated
manufacturing (CIM).

Design Characteristics and Tradeoffs

By now it should be quite clear that there are many product features which
can be affected by product design. In fact, Operations Management normally
has a major role to play while final product characteristics are set.
The key elements to be considered in product design are:

a) Function: the new design must properly meet the recipient's need and
perform the function for which it is designed.
b) Cost: the total cost incurred in producing the new design should not be
excessive, else that will affect its demand.
c) Quality: the quality of' the new design should be as high as possible,
within the constraints of the cost. Quality can cost money and superior
quality will increase the cost and reduce demand, whereas inadequate
quality will affect the performance and lead to complaints and fall in
demand.
d) Reliability: the new design should function normally without failures for
the expected duration. This is more important for complex designs
involving many elements and the design must provide for redundancies
and high reliability of elements so that high system reliability can be
obtained.

The other elements which are also important in a product design, perhaps to a
lesser degree are:

e) Appearance: if the new design can be made more attractive, without

sacrificing on the other attributes, that is only likely to improve the
48
 demand. The relative importance of appearance varies from product to Product Selection
and Process
product and in many industrial equipment, it may have a relatively small Selection
effect.
f) Environmental Impact: the new design should not degrade the
environment.
g) Product Safety: the new design should not pose a hazard to the
recipient.
h) Productivity: the new design should be producible with ease and speed.
i) Maintainability: this is particularly applicable to consumer durables and
industrial equipment. If a failure occurs in the equipment, it should be
easily repairable with a minimum of down time.
j) Timing: this is particularly relevant for design of services. The service
should be available when desired by the recipient
k) Accessibility: this element is also applicable to services. The recipient
should be able to obtain the service without difficulty. The last two
factors are important for design of services since services cannot be
inventoried.

In both product and service design, many alternatives usually exist that will
meet the basic function of the output. The design task is to recognise the
major characteristics of the demand and to carry out a detailed analysis of the
tradeoffs available among the various design alternatives, so as to meet the
needs of the recipients as closely as possible. Sometimes, when the needs of
the recipients are diverse, design will produce different models or versions of
the same basic product to satisfy the needs of different segments of the
market. This can be seen from the various models of television produced by
almost every television manufacturer or the economy and the executive
classes of air travel offered by Airlines companies.

The Impact of Product Innovation on Process Innovation

The design of a product or service has very close linkages with the design of
the process required to produce it. In some cases, the product design itself
becomes feasible only because of technological innovations. Throughout the
product life-cycle, the process of product development goes on and we have
looked into this aspect in section 2.4. It has been found that similar
innovations take place in process design as well and this is shown in Figure
IV below.

49
Operations
Management –
An Overview
and Facilities
Planning

Figure IV: Product And Process Innovations in the Life-Cycle of a Typical Product

Source : Buffa E S, Modern Production/Operations Management, Willey Eastern, New

Delhi.

Figure IV: shows that in the first stage, product innovations are primarily
need-stimulated and the emphasis is on maximizations of product
performance.

The process is typically uncoordinated in this stage and process innovations

are primarily output-rate stimulated. Product innovations are gradually
decreasing while process innovations pick up at this stage.

In stage two, both product and process innovations are technology-

stimulated. The productive system design emphasises cost minimization as
competition in the market begins to emphasise price. Process innovations
start dominating over product innovations as they yield greater reduction in
cost.

The product or service has reached maturity and saturation by the third stage
and innovations are stimulated primarily by cost considerations. The
productive processes become highly integrated and product-focused
operations try to achieve economies of scale by having integrated plant of
large capacities.

2.6 INTRODUCTION TO PROCESS SELECTION

The transformation process that converts inputs into outputs with added value
is the core element in the operations function. The selection of the process is
therefore a strategic decision for most organisations. The process selected
will, to a very large extent, determine both the quality and quantity of men
and women to be employed as well as the amount of capital required for the
production of goods and services. Infact, many organisations are slowly
coming round to the view that operations has been the missing link in the
50
traditional approach of formulating a corporate strategy wherein the Product Selection
and Process
production or operations function is expected to play a supportive role to Selection
marketing.

Undoubtedly, marketing has to establish what is to be produced to satisfy the

needs of the customers. However, the traditional approach is partly based on
the view that PRICE= COST +PROFIT". Looked at this way, the price of a
product or service is obtained by adding a profit element to the cost incurred
in producing the same. This view of looking at profit and price may not have
any serious problem if the environment is less competitive. But as markets
become more competitive, the customers have more choice in terms of
product attributes like design, functions, ease of use, performance, quality
and cost.

The transformation process, therefore, has to be so selected that it can

provide the desired product attributes and at the same time remains cost-
effective. This can be best achieved by taking a strategic view of the
production/operations function and by integrating the operations function
including process selection while formulating the corporate strategy of the
firm.
In this unit, we shall discuss the major factors involved in the selection of the
the transformation process, the various alternative process forms available
and the process involved in selecting an appropriate transformation process.

Process Selection as an Adaptation

The major considerations in any process selection e.g. capacity, flexibility,

lead time, efficiency in using resources are so interdependent that changing
the process to alter one will almost invariably alter the others as well. There
are numerous tradeoffs available while selecting a process—between
different materials, between requirements of labour and capital, between
volume and variety, between cost of production and flexibility and so on. It is
important to know the consequences of every such tradeoff.

The transformation process selection is a complex decision because of the

existence of so many tradeoffs, many of which are also interdependent.
Generally speaking, there is no concept like the best process for a particular
conversion. Rather, many times it is an attempt to find a process which
produces acceptable levels of attainment on many objectives some of which
are incongruent. For example, we want a process which is flexible as well as
instrumental in producing outputs with least cost.

Obviously, we cannot have both and so our attempt will be to select a process
which has acceptable levels of flexibility and cost. One can give similar
examples from the other tradeoffs mentioned earlier. Such a situation only
highlights the need to integrate these decisions while formulating the
corporate strategy of the firm.

51
Operations By now it should be clear that any change in the host of factors mentioned
Management –
An Overview above will have a profound effect on the process selected. For example, with
and Facilities the passage of time, if the volume or the variety of the products/services
Planning
produced undergoes a change, a different process form might become more
appropriate. Therefore, the process selection continues to remain an adaptive
process.

Process Selection and the Environment

As a strategic decision, the process selection decision is influenced by the

environment to a very great extent. With newer materials becoming available,
as such a different transformation process might become more appropriate.
This phenomenon can be seen very clearly wherever plastics are being used
as newer substitutes of some natural material. Metal containers giving way to
plastic containers mean a totally different transformation process for the
company manufacturing containers. New synthetic packaging materials have
caused significant changes in the process involving packaging of consumer
products.

Similarly, development of new technology may render a process obsolete as

the new technology is more economical, uses cheaper material or produces
goods with a higher quality level. Bolts can be made by machining hexagonal
rods. However, with the development of cold forging, the material wastage
involved in metal cutting can be totally eliminated giving rise to a process
which is not only more economical but faster as well. Not only the
manufacturing technology, but the technology involved in organising the
operations function also has an effect on the process selected. This can be
seen when concepts like Group Technology or Autonomous Working are
used and we shall discuss these concepts later in this unit.
The competitors might also affect the process selected for a transformation.
For example, when the competitors can deliver the product or service much
faster than us, this may lead to a review of the form of process selected for
our operations function. Similarly, when we want to compete on non-price
factors like quality. custom-made product designs, shorter lead times or
easier availability, the transformation process has to be geared to the
combination of such factors that we consider to be important.

2.7 FORMS OF TRANSFORMATION PROCESS

Process selection is actually a generic decision and in practice this refers to
the selection of sub-processes and sub-sub-processes depending on the type
of output that is produced. If the output is a product then, following the
design of the product, this can be broken down into sub-assemblies and sub-
sub-assemblies till we reach an elemental level of components which cannot
be broken down further. Now, for each of such components we have to
decide whether to produce it ourselves or to buy from outside. If it has to be
produced by us, then the process selection decisions concern the technology
52
to be used, the sequence of operations to be performed, including in process Product Selection
and Process
storage and transportation from one work centre to another, equipment Selection
required for the transformation, staffing, the detailed work place layout,
design of special tools, jigs and fixtures and so on, If the product requires an
assembling of components and sub-assemblies, then the assembly process has
also to be selected and designed appropriately. In fact, there may be no best
way to produce a product or service; rather it may always be possible to
improve both the output and the process selected to produce it.

Establishing the Volume and the Variety

One of the major considerations for process selection is knowing where we

want to peg our organisation on the volume/variety continuum. The
volume/variety continuum can be conceived of as an imaginary straight line,
one end of which refers to very high product variety implying each product to
be different from each other, consequently having very low volume viz., only
one of each product. As we shall see later in this unit, such high variety
requires the use of highly skilled labour, general purpose machines and in
general, detailed and complex operations, planning and control systems.

The other end of the continuum refers to very low product variety implying a
single standard product that is produced in very high volumes. Such a
combination enables us to use highly automated, mass production processes
using special purpose machines and simple production planning and control
systems.

Produce-to-stock or Produce-to-order

A related consideration for process selection is whether the product is to be

produced and stocked in our warehouses to be sold as and when the demand
occurs, or is to be produced only on receipt of an order from the customer. It
is a related consideration because, usually standard products with less variety
are produced in batches and as sales proceed, we draw the products from the
inventory. When the inventory level touches a predetermined minimum level,
a fresh batch of the product is produced and such a cycle goes on. In this
system, goods are produced in anticipation of sales orders and the customer
gets immediate delivery and does not have to wait. However, such a system
can work only with inventoriable products and the shorter the shelf life of a
product, the higher the risks undertaken by the producer. For example,
newspapers have a very short shelf life and so the risks of overproducing as
well as under producing are high.

When we produce-to-order, the production process starts after receiving the

sales order in quantities dictated by each sales order. All custom-made
products are produced-to-order since the exact specifications are known only
after receipt of the order. In such a system the customer has to wait while his
products are being produced and so the longer the lead time for production,
the longer the waiting period.
53
Operations Services, by their very nature, cannot be inventoried and so services have to
Management –
An Overview be produced to order. The transformation process in such a system has
and Facilities be so selected and designed that the waiting time for a customer is not
Planning
excessive.

Finally, we can have a combination of both these systems as well. For

example, where a large number of options are provided on the product, the
components and sub-assemblies might be produced to stock whereas the final
assembly is carried out on order. In restaurants, food is semi-cooked in
batches i.e. produced to stock and the final dish is prepared on receipt of a
customer order i.e. produced-to-order.

Effect of Output Characteristics

In the previous sections we have said that the form of the transformation
process depends to a large extent on output characteristics like
volume/variety and whether produced-to-stock or produced-to-order. Figure I
illustrates these comments by showing the relationship in a diagrammatic
form.

Figure V : Effect of Output Characteristics on The Form of Transformation Process

Source : Adapted From Hayes, R.H. et al., “Link Manufacturing Process and Product Life
Cycles.” Harvard Business Review.

The horizontal axis which shows the output characteristics is represented in

terms of the batch size. On one extreme we have products produced in
batches of size one, i.e. each product is different from the other. On the other
extreme we have products produced in infinitely large batch sizes, These are
products with no variety and have the characteristics of a commodity like
fertilizer, sugar and cement etc.

54
The form of transformation process is similarly represented on the vertical Product Selection
and Process
axis. The top end represents the project form where each project is followed Selection
by another project-no two projects are exactly alike and detailed planning,
scheduling and monitoring has to be performed to keep the project costs and
durations under control. As we go down the vertical axis the flow of
materials becomes more smooth and uniform. These can be categorised as
batch production or interrupted form, mass production or continuous form,
and finally, as the name implies the processing form wherein there is no
interruption in the flow of materials at all, as in a petroleum refinery or a
fertiliser plant. In the subsequent sections we are going to discuss each of
these process forms in somewhat more details.

However, we would like to point out a couple of things in Figure V before we

proceed further. First, as is shown in Figure V we would not find any process
corresponding to the lower left hand region or the top right hand region of the
Figure. That is to say, when the batch size is very small it is not at all
advisable to use the continuous or the processing form of transformation.
Similarly, when the batch size is really large, it is again inadvisable to use the
project or the interrupted form.

The second point that emerges from Figure V is that for any batch size, there
is usually a choice available in choosing the processing form. Thus, even in
the same industry one may find different competitors using different
processing forms and thus trying to create a special niche for themselves. For
example, one manufacturer of ceiling fans might choose the interrupted form
whereas another might decide to adopt the continuous form of production and
both might coexist in the same competitive market.

It is also not difficult to see that Figure V also holds good for services (except
that there is no processing form for service). The service provided by a
lawyer on a law-suit is almost always of a project form. Services provided by
a government agency is usually of the interrupted form whereas for some
high volume services the continuous form is employed. In fact, in recent
years, as the service sector is growing faster than other sectors, more and
more services are gradually being pushed down the vertical axis of Figure V.
Fast food service is a typical example of this phenomenon.

2.8 THE PROJECT FORM

Project operations are characterised by complex sets of time-bound activities
that must be performed in a particular order. Distinctly different from all
other forms of transformation process such that each project has a definite
beginning and a definite completion, the project form of transformation is
very useful when complex tasks involving many different functional
specialisations have to be performed against strict deadlines.

If the output of the transformation process is a product, such products are

generally characterised by immobility during the transformation, Such 55
Operations operations are referred to as Fixed Position assembly and can be seen in the
Management –
An Overview production of ships, aircrafts, and construction of buildings, roads, etc. As
and Facilities projects have limited lives, a project team is usually set up to manage a
Planning
project. Resources such as men, materials and equipment are brought
together for the duration of the project. Some materials are consumed in the
transformation process, while others like equipment and personnel are
redeployed for other uses at the end of the project.

We give below a small list of projects to clarify our understanding of a

project:

• setting up a new thermal power plant

• building a hospital
• modernising a textile mill
• constructing roads, bridges, buildings
• organising an annual sales conference
• launching a new product
• punching and delivering a programme like Diploma in Management
• computerising the purchase and the inventory control system
• conducting a two-week training programme.

The number and importance of project operations is growing at a very fast

rate in most societies, including ours. We shall now discuss some of the
possible reasons for this growth in project operations. The benefits from
various development programmes are delivered through projects. With the
spread of education and rise in income levels, people themselves organise
projects in the areas of community development, travel and tourism, social
functions etc. Each knowledge area is getting more and more specialised and
on many jobs we now need inputs from different specialisation areas. The
project form is very suitable to handle inter-disciplinary specialist groups.

The fast-pace of technological developments is forcing many companies to

adapt to the new technologies. Such developments are taking place not only
in the manufacturing technologies but also in packaging technology, material
handling technology, computer technology and so on. Implementing a change
is usually carried out through a project operation. Increased competition,
similarly, is forcing companies to launch projects on cost reduction, higher
productivity, better methods and so on.

Whenever a transformation process is to be carried out under severe time and

cost constraints, i.e. whenever the penalty associated with time and cost over-
runs is severe, the project form of transformation is the most suitable. With
ever-higher prices of equipment and labour, the cost of delay in many
activities is becoming intolerably high and that is another reason for the
speedy growth in project operations.
56
Choosing the Project Form Product Selection
and Process
Selection
There are many situations in which the project form of the transformation
process is the most appropriate. Obviously, if the tasks involved are for a
limited duration, there is perhaps no alternative to using the project form of
operations to carry out the tasks within the time frame prescribed.

The project form also offers extremely short reaction times to changes-both
internal and external. Thus, if the outputs belong to high technology areas
where the product design and/or the process technology is changing at a very
fast pace and the operations have always to be kept abreast of the latest
developments, again the project form may be found useful, For example, the
project form of operations is used very often when we are selling chemical
plants.

When a transformation process requires inputs from many specialisation

areas, the project form of organisation is known to perform well. This is
because the project form draws upon a mixed complement of personnel from
different functional specialisations (e.g. mechanical engineers, civil
engineers, chemical engineers, marketing and financial specialists etc.).
However, the same feature of mixed complement of personnel does not allow
the project form to advance high technology areas. Another process form
where operations are organised by functional specialisations may be more
appropriate if advances in high technology areas is one of the desired
objectives. In the latter form, a group of specialists help in developing a
process related to their field of specialisation. Such a group usually has
access to specialised manpower as well as equipment which also contributes
towards advancing technology. In the project form, generalised resources
(staff and equipment) which are usually used as specialised resources will
have a poor utilisation.

When the tasks involved are of very large scale involving many inter-
dependent activities, the project form of operations is typically chosen. This
is because the project form is better suited for detailed planning, monitoring
and control of a large number of inter-related activities many of which are
performed by different agencies.

Characteristics of Project Processes

Project operations are different from other forms of transformation process in

the way resources are organised and deployed as also in the planning and
control of various activities that constitute the project. In the following sub-
sections we discuss some of these characteristics of project operations.

Short Life-cycle

Projects are designed to have a definite beginning and a definite end. Project
processes are therefore different from all other forms of transformation
processes in that they have a specific completion. At the end of one project,
resources from this project could be redeployed elsewhere in other project, 57
Operations processes or other operations. In fact, even during the life of a project,
Management –
An Overview resource requirements are not uniform. Thus in the initial phase, resource
and Facilities requirements including manpower, are at a low level, But there is a fast build-
Planning
up during which more and more resources are absorbed in the project. This
build-up, however, gradually levels off and then there is a cutting back as the
project nears its completion. However, the resource requirements in terms of
a particular skill (e.g. design engineer, high pressure welder etc.) or a
particular equipment (e.g. concrete mixer, pile driver etc.) may vary more
unevenly and so resource levelling remains one the major difficulties in
project planning and scheduling.

Consequent Personnel Problems

This phenomenon of a fast build-up, a levelling off and final cut back in
resource requirements can give rise to two related personnel problems.

When there is a fast build-up, staff is generally borrowed from other

departments and also some are hired for a short duration. Thus, they may
have limited loyalty and short-lived interest in the project. This is further
compounded by the fact that the staging area or the site for many projects
could be in a different and relatively undeveloped geographical region and
that causes some dislocations in the normal life of the persons involved.
Finally, the persons may have limited experience with the special tasks
involved in the project.

As each project has a limited duration and as the end of the project draws
near, the staff may start spending more time getting prepared for the next job.
This is especially true if they are hired for the project and have to look for
alternate jobs once the project is over. In the process, the project may get
dragged beyond its scheduled date of completion.

Matrix Organisation

When multiple project operations are under way, a matrix organisation

structure is generally used. In a matrix organisation, project representatives
for each project are designated by different functional areas. As shown in
Figure VI there are project representative from Engineering, Operations,
Finance and so on for Project A. There are similar representatives for Project
B and other projects. Thus, each functional manager holds the resources and
each project manager coordinates the use of designated resources through the
project representative concerned. This form of organisation allows
coordination across functional departments for better use of resources.
However, a major disadvantage of this form of organisation is that an
employee has two supervisors--one in the project and another in his “home”
or functional department. The need for coordination between functional and
project managers is essential so that there are no conflicts in regard to
questions such as: Who will evaluate and reward employees? Who is
ultimately responsible for the discipline of employees? In the absence of such
58
coordination the project representative may find himself or herself in the Product Selection
and Process
unenviable position of having to satisfy two bosses with different priorities. Selection

Figure VI: Matrix organisation structure for project management

Importance of Scheduling and Control

A project generally involves many tasks-each having its own specialisation

and perhaps to be executed by a different agency. However, they have a strict
precedence requirement-like one task cannot even begin until two other
predecessor tasks have been completed. The cost of delay in completion of
the project is also usually very high, many times with explicit penalties being
mentioned as well. Because of all these reasons the scheduling and control of
various activities in a project assumes great importance. Some network
planning techniques like CPM and PERT have been specially designed to
resolve these issues.

2.9 INTERMITTENT FLOW PROCESSES

When the output variety is large, each output takes a different route through
the organisation, uses different inputs, requires different operations and takes
a different amount of time and also sequence, the intermittent form of
processing is often used. In this system, each output, or small group of
similar outputs (referred to as a batch or a lot), follows a different processing
route through the facility, from one location to another. The facilities are 59
Operations organised around similar operations functions. For example, in an
Management –
An Overview engineering organisation there is a foundry, a machine shop, a press shop, a
and Facilities tool room, a paint shop and so on. In a hospital, there is a blood bank, an X-
Planning
Ray department, a pathological laboratory and so on. The flow through these
departments depends on the exact needs of a patient. The intermittent process
is especially suited for service organisations because each service is often
customised and so each one requires a different set of operations in a
different sequence.

Characteristics of the Intermittent Form

Referring to Figure V the intermittent process form is generally suitable when

the variety is large and consequently the volumes are low. The transformation
process should be able to take care of this large variety and also in a manner
that the cost of the processing is not excessive.

Flexibility

When an organisation wants to produce a variety of outputs using common

facilities, it wants to have flexibility in its operations. This is achieved by
employing general purpose machines and equipment as well as having staff
with a wide range of skills. The facilities are laid out in accordance with the
general flow and for specific outputs, there may be a lot of movement as well
as backtracking depending on the sequence of operations required. Not only
the processing, even the inputs required for different outputs could be quite
different.

Even if the final product does not have excessive variety, e.g. in
manufacturing of typewriters, the intermittent form is still used for the
manufacture of components: This is because a large number of components
are assembled into a typewriter and the same facilities could be used in
making many different components in batches. One batch of 1000 pinions
could be produced this week and the next batch may have to be produced
only after one month. By splitting into batches in this manner, a large number
of different components can be produced on a common set of machines. All
this is possible because the intermittent form of processing is flexible.

Around Standard Operations

The transformation processes are organised around standard operations in the

intermittent form. In a bank, this would result in departments like cash,
advances, deposits, savings bank accounts and so on. Any customer who
wants to deposit or withdraw cash, has to go to the cash department for this
purpose.

In such a scheme, each functional group is a specialised group and performs

all tasks connected with that specialisation. That is why the workers need to
have a width of skills so that they can perform a range of tasks-of course
within the specialisation. A machine operator in a grinding shop will not be
60 producing the same output everyday and thus besides skills in operating
different types of grinding machines needs the ability to read blueprints and Product Selection
and Process
perhaps also the ability to set up' grinding machines to perform different jobs. Selection

The amount of specialisation achieved by organising around standard

operations enables the organisation to solve complex and specialised
problems. Thus, a difficult grinding job is more likely to be carried out by an
organisation having a grinding shop than by another having project
operations or even continuous flow processing where grinding operations are
also being performed.

Material Handling and In-process Inventory

As the grouping of facilities is around standard operations, the partly

processed output is to be transported from one standard operation to another.
The amount of material handling for an output or a batch of output depends
on the number of standard operations to be performed and also the distance
between the locations where the operations are performed. For all the outputs
of the organisation, therefore, the amount of material handling would depend
on the output mix and the layout of different facilities. A great deal of effort
is made to design the facilities layout so that the material handling is reduced
for a targeted output mix.

Again, as the same facilities are being used for the processing of many
outputs, the flow of materials through the facilities is not smooth, but
interrupted. After one operation, the partly processed output or batch of
outputs may have to wait if the facilities required for the next operation are
busy on the processing of another output on batch. Such material is referred
to as work-in-process and the consequent in-process inventory is typical in
intermittent flow processing.

Difficulty in Management of Resources

Since each output or batch of outputs is different, the planning and control of
the operations function is very difficult under intermittent flow processing.
Elaborate planning and control procedures are used so that the movement of
each output or batch of outputs can be tracked and all the inputs required for
a particular output or batch be made available in time. The planning and
control becomes more difficult in the absence of accurate time standards as
the outputs may not be repetitive.
Advantages of the Intermittent Form
In transformation processes, there is always a trade-off between flexibility of
operations and the efficiency of use of resources. Intermittent transformation
processes are chosen whenever flexibility is considered more important than
mere efficiency.
Variety at Low Cost
The intermittent form of processing is appropriate when we want to respond
to demands of small volume and high variety. The primary advantage of this
61
Operations form of processing is, therefore, the ability to produce a wide variety of
Management –
An Overview outputs at a reasonable cost.
and Facilities
Planning The choice of machines and equipment, the skill of the staff, the layout of the
facilities and all related decisions emphasise the need to have flexible
operations which are also not very costly. In intermittent flow processing,
general purpose machines are generally used as these are cheaper than special
purpose machines, since they are in greater demand and generally available
from more suppliers. Also, they are easier and cheaper to maintain and
dispose of thus reducing the cost of obsolescence. Because of the diversity in
outputs, all the equipment do not have hundred per cent utilisation. The cost
of unutilised equipment is low, as the equipment is simple general purpose
and not very costly.

High Capacity Utilisation

As facilities are grouped around standard operations, all the outputs requiring
a particular operation will have to be sent to the section carrying out that
operation. Thus, there will be a high capacity utilisation for equipment
grouped around that operation. The cost involved in providing special
environmental conditions for some operations e.g. airconditioning,
dehumidifying, dust proofing etc. is also minimised as all such equipment is
physically close to each other when the organisation is laid out for
intermittent form of processing.

Staff Advantages

Each worker performs a complete operation under intermittent processing—

e.g. completing an analysis on a form, painting a component or product etc.
This, complemented by the fact that the task itself is not repetitive, provides
the workers pride of workmanship and increased responsibility. There is
usually a high morale, in the group when all the group members are similarly
skilled and work in the same location.

Disadvantages of the Intermittent Form

The intermittent form will not remain the best form of processing if the
volumes for some outputs become high. The in-process inventories could
become excessively high and the operations planning and control could get
out of hand necessitating the use of expediters.

More Costly for High Volumes

The initial cost for general purpose machines, which are mostly used in
intermittent processing, is low. But they are usually slower than special
purpose machines and also give lower quality of outputs. The skilled
operators are paid more than the semi skilled or the unskilled. The end result
being that although the fixed costs are lower for general purpose machines,
the variable costs per unit of output are higher. For low output volumes,
therefore, the general purpose equipment could be the cheapest as well.
62
However, as output volumes rise, the advantage in terms of a lower fixed cost Product Selection
and Process
is more than compensated by a higher component of variable cost and thus Selection
the special purpose machines may offer the least cost alternative.

Complex Operations Planning and Control

As mentioned earlier the planning and control of operations is very complex

for the intermittent form. When the number of jobs on the shop floor rises to
high levels, it becomes almost impossible to keep track of individual jobs.
Over and above the paperwork involved, "expediters" are employed to
reorder priorities and track down specific jobs.

The requirement of each output being different, in the absence of such

detailed planning and control there may be production bottlenecks on some
facilities whereas resources may remain idle at some other facilities. It is easy
to see that there may be a host of reasons causing such idling of resources –
e.g., machine breakdown, raw material non-availability, delay in a previous
operation, absent worker, non-availability of tools etc. etc. It is the job of
operations planning and control to ensure that all the inputs required for a
particular operation are made available when the operation is planned.

Large In-process Inventory

Intermittent processing would always have some in-process inventory.

However, as the variety of outputs and the scale of operations increase, the
in-process inventory becomes larger. On top of it, there will be a fast build-up
of in-process inventory if there is any laxity in the operations planning and
control function. This increases the space requirement of operations and also
disturbs the appearance of the operations area at times making it even unsafe.

The material handling equipment used in intermittent operations is generally

mobile and is more expensive than the fixed position handling equipment like
chutes and conveyor belts. It also requires more space for movement thus
adding to the space requirement.

New Technology for Intermittent Flow Operations

There have been quite a few developments towards increasing the efficiency
of intermittent flow operations. Many of these developments are based on
using the computer for many planning and control activities and some, like
group technology are based on using continuous flow principles for outputs
which have a large variety.

Computerised Production and Inventory Control Systems

Many different types of computer packages are available which can link the
input and output requirements, check with the inventory at hand and
automatically raise purchase orders and also prepare different types of
statements for planning and control purposes. Given a schedule of output
requirements, the computer can work out the requirement of raw material and
63
Operations other bought out items and can plan the procurement and production of these
Management –
An Overview so that there is no hold up of production due to non-availability of material.
and Facilities
Planning Integrated Computer-Aided Manufacturing

These computer packages tie up the previous systems with mechanical

systems that control machinery and material handling equipment. These
packages do not carry out manufacturing of parts alone but also process
planning, costing, tool design, production planning, material ordering etc.
The rate of development in this area is extremely rapid and is also
accelerating. Computers are used for both planning as well as execution of
the plans.

Manufacturing Resource Planning (MRP II)

If the computerised production and inventory control systems could be linked

with other planning and accounting systems of the organisation, it would
result in comprehensive computer packages on manufacturing resource
planning. Such a system would integrate marketing, finance, personnel,
payroll and other systems and can prepare statements on funds requirement,
promotional need, capacity planning and so on.

Group Technology

Group technology has developed over the years to become a complete

philosophy rather than a single technique. The common thread running
through all these techniques is the attempt to find groups which can be used
in organising the transformation process. The purpose of grouping is to
overcome some of the disadvantages of intermittent flow processing, and the
grouping can be of component parts, machines, equipment and people.

In general, component parts are grouped into families so that the processing
required for members of a family is similar. The machines and equipment are
also grouped into cells so that the volumes through a cell are higher and the
variety smaller. Therefore, the principles used in continuous flow processing
can be used for each of these groups.

The benefits expected from group technology are really fourfold:

i) reduced amounts of time and costs because the nature of operations and
their sequence is similar for a family of component parts
ii) reduced material handling as the machines and equipment in a cell are
physically close to each other
iii) shorter throughput times as the waiting period between operations is
minimal
iv) reduced in-process inventories, again because of minimal waiting
between operations.

64
2.10 CONTINUOUS FLOW PROCESSES Product Selection
and Process
Selection
As distinct from intermittent flow processes, all outputs are treated alike in
this form of processing and the workflow is thus relatively continuous. The
production process is therefore geared to produce one output, perhaps with
some options added on. The variety is small and volumes are high thus
making it worthwhile to focus the transformation process on the output. This
would mean arranging the facilities in the sequence in which they are
required for the output, using high speed special purpose machines, laying
out the facilities to minimise the movement of materials and designing the
production system so that there are no bottlenecks as well as no idle time for
any of the resources.

Traditionally, services were considered to be too customised for this form of

processing. However, we are now finding that by standardising the service
and also by increasing the volume of output, it is possible to use continuous
processes even for services. One can give the example of fast food joints or
periodic servicing of automobiles towards these trends.

Characteristics of Continuous Processes

The continuous process form is characterised by relatively standardised
outputs and consequently fixed inputs, fixed sequence of operations and also
fixed processing time. As the variation from one output to another is very
small, the transformation process is selected and designed to maximise the
efficiency of the resources and in the process flexibility of operations is
sacrificed.

a) High Volumes
If an organisation is planning to produce only a small variety of outputs
and in high volumes, it will find the continuous processing form a very
attractive proposition. Because of high volumes, one can choose those
production facilities which are of special purpose and perhaps custom-
built so that the initial costs are high, but they can produce the output at a
low variable cost. The higher the volumes the further these tradeoffs shift
towards higher fixed costs and lower variable costs. This is because the
variable costs are low and the high fixed costs are spread over a high
volume of output thus making the continuous processing form the least
cost processing form for high volumes.
b) Easier Planning and Control
As all outputs follow the same path from one operation to the next, there
is no need to keep track of each output for planning and control
purposes. In other words, all operations being standardised with standard
operation times and no waiting between operations, if the time when
processing starts for an output is known, all subsequent operations
including the final completion of the output can be predicted quite
closely. 65
Operations This implies that there is virtually no in-process inventory since there is
Management –
An Overview no waiting between operations. Also, as the transformation process is
and Facilities designed specially for this output the amount of movement between
Planning
operations is minimal. Further, as volumes are high, special purpose
fixed position material handling equipment like chutes. Conveyors etc.
which have low space requirements and operate at low variable costs can
be used.
c) Linear Workflow
All the facilities are arranged in the sequence in which they are required
for the production of outputs. The material therefore moves from one
facility to another or from one location to another with no backtracking
at all. That is why product organisations of this form are often called
flow shops.
When the continuous form of processing is used for production of an
output, we have, what is called a product line. In many product lines we
can actually see the material moving on a conveyor and workers
removing one unit from the conveyor for processing and putting it back
on the conveyor at the end of the operation so that it goes to the next
location for the next operation. It is, therefore, important that the work
content at each of the locations be exactly equal so that no location has a
bottleneck nor does a location have idle time. The rate of output will be
governed by the slowest location (referred to as work station in the
context of a production line).Sometimes, when there is a large variability
in the operation times, a small in-process inventory is allowed to be built
up to cushion out the effect of such variations.
When only assembly operations are performed on a line, such a line is
called an assembly line. Assembly of many low variety production is
carried out using assembly lines—for example automobiles, television
sets and domestic electrical appliances etc.

Advantages of the Continuous Form

The continuous form of processing requires a great deal of effort while
designing. But once implemented, it offers many simplicities in its operation.

a) Low Unit Cost

The main advantage offered by continuous process operations is the low
per unit cost of production. As discussed earlier, this is achieved by
selecting equipment which provides low variable costs of operation
perhaps at high initial costs which are distributed over large production
volumes. Further cost saving is possible due to bulk purchasing of
materials, efficient facility utilisation, low in-process inventories and
lower material handling costs.
b) Lower Operator Skills The machines used in continuous processes are
generally special purpose and so their operation is simpler, with few
66
 setups required. The operator skills required are therefore lower which Product Selection
and Process
improves the availability of workers with requisite skills and also gives Selection
rise to lower labour costs.
However, the special purpose machines are more complex in their design
and functions and so are more difficult to maintain. Thus, higher
maintenance skills are required and since the experience of working on
any of these machines is limited, the time taken for diagnosis and repair
is longer. Similarly, spare parts availability itself could be difficult for
special purpose machines.
c) Simpler Managerial Control
As the workflow is streamlined in the continuous form, the planning and
control of production is much simpler. With standardised operations and
operation times, the predictability of operations is higher. This implies
that the performance on meeting delivery dates is better.
In fact, while operating an interrupted processing system, if one of the
outputs establishes a high growth in volume, it may be worthwhile
exploring the possibility of setting up a production line for this output.
Although the component parts are produced using interrupted processing,
the final assembly is carried out on an assembly line for many products.

Disadvantages of the Continuous Form

Although the continuous form of processing offers a low cost alternative
when volume of production is high and the variety low, there are some
disadvantages in organising the production in this form.

a) Difficult to Adapt
As the whole production process is designed for a particular output, any
change in the output characteristics is difficult to obtain. Because of this,
important changes in product design are often not made, which can affect
the competitive strength of the organisation. Each production or
assembly line is designed for a particular rate of production. Sometimes,
it is difficult even to change the rate of output. This causes serious
difficulty when the demand for the output increases or decreases.
b) Possibilities of Stoppage of Line
If there is a break down at any work station or in the material handling
equipment, the whole line may come to a standstill. In the absence of
work-in-process, production at all workstations will suffer till the line
can be started again.
c) Balancing the Line
The work content at cach of the workstations should be exactly equal to
avoid bottlenecks and idling of resources. However, if it is not possible
to exactly equalise the work content, the output rate is governed by the
67
Operations slowest work station which implies that workers at all other work
Management –
An Overview stations are less busy. This remains a sore point among the workers.
and Facilities
Planning d) Low Worker Morale
A worker’s task is highly repetitive in the continuous form of processing
and for high output rate production lines the task may also be very
insignificant and unchallenging. This dehumanising aspect of the
workers' role causes boredom, monotony and very soon starts affecting
the morale of workers.
e) High Initial Cost
The special purpose machines and equipment used in continuous form of
processing have very high initial cost. It is also costly to service and
maintain. Also, such special purpose equipment is very susceptible to
obsolescence and it is not easy to find a buyer for such equipment or to
modify these for other uses.

New Technology for Continuous Flow Process

Recent developments in computer applications have had their effect on
continuous flow operations as well. The attempt in all this is to increase the
flexibility of production and assembly lines.

a) CNC/DNC
Machines and processes which have been automated using some form of
electronic system are said to use numerical control or NC. In the early
NC machines, instructions for machine control were coded on punched
paper tapes to be read by tape readers. In CNC (Computer Numerical
Control) machines, relatively simple programmes can be stored in the
memory of the computer and so it is not necessary to read the control
tape for every item manufactured. This is an advantage since the control
tapes and the associated tape readers are among the most unreliable
components of an NC machine.
In DNC (Direct Numerical Control) machines, programmes for a number
of NC machines are stored in a single computer of larger capacity than
the type used in CNC. Also, the integration of a number of machines and
processes by one computer enables a set of machines to work as a
manufacturing system, with parts scheduling and process monitoring.
Automation by numerical control can be thought of, as soft automation
as this allows fast changeovers from one component part to another.
b) Robotics
According to the Robot Institute of America, “A robot is a
reprogrammable multi-functional manipulator designed to move
material, parts, tools or specialised devices through variable
programmed motions for the performance of a variety of tasks.”
Robots have come in a big way in the task of moving, transferring and
68
 manipulating materials in between operations as well as during some Product Selection
and Process
specialised operations. An industrial Robot has three principal Selection
components:
i) One or more arms, usually situated in a fixed base, that can move in
several directions
ii) A manipulator, being the “hand” that holds the tool or the part to be
worked
iii) A controller that gives detailed movement instructions.
Robotics is helping continuous flow processes to changeover from one
output to another since the material handling equipment, which was
earlier designed as part of a production or assembly line, can now be
independently programmed.
c) CAD/CAM/CAE
This trilogy of terms stands for computer aided design (CAD), computer
aided manufacturing (CAM) and computer aided engineering (CAE). In
these systems, the computer aids in the design process by providing
different images of the designed product from different view—the
computer screen acting as the designer's drawing board. The CAM ties
the NC machines with the material handling equipment so the
manufacturing operations are working together. In CAE, the computer is
used to aid in analysing engineering problems, particularly structured
analysis where the structure has previously been designed using CAD. In
its widest sense, these imply the automation using computer control of
all activities necessary to take a product from concept to its completed
manufacture.
d) Flexible Manufacturing
Current usage of the term flexible manufacturing relates to automated
manufacture. Traditionally, automation in manufacturing has been
possible only for high volume low variety products where the production
process adopted had been of the continuous flow process form. Such
process had suffered from inflexibility—not only in terms of output
characteristics but also of output rate. In flexible manufacturing an
attempt is made to introduce flexibility not only in terms of component
design but also operation sequence, batch sizes and overall production
capacity. Flexible manufacturing tries to combine the advantages of
conventional automation with the strategic advantages attached to
intermittent processing viz increased variety. improved response to
customer orders, updated product designs etc.

2.11 PROCESSING INDUSTRIES

The processing industries e.g., fertiliser, petrochemicals, petroleum, milk and
drugs, etc. also use continuous processing. However, they deserve a special
69
Operations mention as they differ from organisations producing either discrete products
Management –
An Overview or services. In general, the operations in these organisations are highly
and Facilities automated with very sophisticated controls, often electronic or computerised.
Planning
The labour requirements are generally low and the role of the production
workers is limited to monitoring and taking some corrective action if
necessary. However, maintenance of equipment is very critical and the skills
required in maintenance are of high order.

A Single Input

In processing industries, there is usually a single principal input material

which is processed into one or more different products. In discrete
manufacturing, on the other hand, there are many different input materials
which are processed and assembled to form the product.

Analytic and Synthetic Processes In an analytic process, a single input is

processed into many separate outputs. A typical example would be a
petroleum refinery, where the single input, viz. petroleum is processed into
petrol, diesel, naphtha, furnace oil and a host of other intermediates. In a
synthetic process, on the other hand, many different inputs are synthesised
into one output. For example hydrogen, sulphur and oxygen are combined
together to make sulphuric acid. Processing industries generally use analytic
processes whereas continuous flow processing in discrete manufacturing
generally use synthetic processes.

Continuous Processing

In spite of the differences mentioned above, there is a basic similarity in the

concept as well as the approach followed in both flow shops and the
processing industries — only the variety in outputs is nil so far as processing
industries are concerned. Because of this, automation could be carried out to
its physical limits and the process is designed for a specific mix of outputs.
The result is that initial set up of equipment and procedures is even more
complex and critical than for continuous flow processing.

2.12 SELECTION OF THE PROCESS

In this section we would address ourselves to the issue of selecting the
appropriate process form or mix of forms for an organisation to produce its
output. The details are involved in the actual designing and laying out of the
transformation processes, the laying out of the workplaces, the designing of
the planning and control procedures and the assurance of quality, etc. These
are the subject matter of the complete course and would be taken up later in
other units.

Combination of Process Forms

The four forms of processing that we have referred to earlier, are really four
simplified extremes of what is likely to be observed in practice. We will find
70
very few organisations using only one of these processing forms in its pure Product Selection
and Process
sense. In fact by alluding to concepts like group technology and flexible Selection
manufacturing we have referred to systems which attempt to combine the
advantages of two or more of these pure forms.

Most organisations combine two or more of these process forms to produce

different components and the final product. In many industries including
automobiles, domestic electrical appliances etc. the components are made
using the intermittent form of processing whereas the final assembly is based
on continuous flow processing.

Production of Services

Like products, services could also be produced using different process forms.
Although the intermittent processing form has been the typical form used for
services, services as those provided by a lawyer are more like project
processes. Again, by standardising the outputs and consequently increasing
the volume of standard outputs, many services are now produced using the
continuous flow process form. We have already given the example of fast
food service in this context. Another example comes from Russia where a
flowline has been used for routine eye surgery whereby patients are literally
passed along a line from one surgeon to another, each of whom performs a
small part of the total operation. We are, therefore, slowly coming to realise
that services can be mass produced.

Product/Process Life-cycles

In Units 1 and 2 we have referred to the life-cycle which a typical output

undergoes — from its introduction through growth, maturity and decline
phases. There is a similar life-cycle for the process used to produce the
output. FigureV can be interpreted to show that the product and the process
life cycles are related.

When an output is just introduced, it is made in small volumes in an

inefficient, uncoordinated manner which might start using the project form.
However, very soon it is produced in small batches using the intermittent
processing form. As the output goes through the growth phase, more and
more sub-processes are designed using the continuous flow processing form.
Finally, in the maturity phase, the product competes mostly on price. The
volumes are high and highly cost efficient methods are required to produce
the product at a low cost. The continuous flow processing form is then the
most suitable form of process.

Break-even Analysis For Process Forms

The progress along the process life-cycle is shown below in Figure VII using
break-even analysis for each of the process forms. At the introduction stage,
the product is first produced with little or no commitment of equipment and
facilities using mostly labour intensive methods. The process form used is the
project form and most of the cost is variable cost including the cost of labour. 71
Operations As the product passes on the growth phase, general purpose machines and
Management –
An Overview equipment are organised into the intermittent form to produce the output in a
and Facilities flexible manner. Finally, when the continuous flow processing form is used
Planning
towards the maturity phase of the product life-cycle, the fixed costs of
operation are very high and the variable cost per unit of output is quite low.
Figure VII also shows the least cost process at any stage of the life-cycle
(heavy line) and it can be easily seen that as volumes rise, a different form of
process might become the least cost alternative.

Figure VII: Break-even analysis of process from selection with phases of life-cycle.

Maintaining the Focus

The point to note is that the process form adopted should evolve as the
market and the output evolve. If a company feels that its competitive strength
lies in having a flexible production system which can respond very fast to
specific customer needs, then as the outputs move into another phase of their
life-cycle in which a different process form is preferable, it drops the output
or licenses it to someone else and switches to another output more
appropriate to its competitive strengths.

Each factory or office should have a clearly defined focus in its operations
and the process form adopted is one of the key elements that creates the
focus. It is not possible to have a production system which can satisfy all
sorts of demands made on it — e.g., fast response to changes in output
design, low cost of production, high capacity utilisation of resources, and so
on.

72
2.13 SUMMARY Product Selection
and Process
Selection
We have looked at the processes of bringing new product and services to the
market in this unit and the role of operations in that process. We identified all
outputs of an organisation as services, sometimes along with a facilitating
good and sometimes without that. Product selection is a strategic decision for
the organisation and the top management as well as functions like marketing,
R & D and engineering have a role in the making of product selection
decisions.

We looked at the stages involved in bringing new output from an idea stage
into a tangible entity in the market. New product ideas are generated through
market research, research laboratories themselves or conscious, formalised
attempts. These ideas have a very high mortality and the new idea mortality
curve showed that hardly 1 or 2 percent of all new ideas are carried through
to the market.

New product ideas are first screened for market viability and their fit with
corporate strengths and weaknesses. These are then subjected to an economic
analysis. New product ideas are then developed, features are added or
dropped, variations introduced and the product is finally designed and tested
for a commercial bunch.

Product designs attempt to introduce a product having characteristics as close

to what is desired by the customers as possible and this involves tradeoffs
between elements like the function, cost, quality, reliability and others like
producibility, maintainability, product safety and environmental impact, etc.
We found that product innovations and process innovations are closely linked
to the life-cycle of the product itself.

We have looked at the various process forms that can be used to effect
transformation of inputs into outputs. Having established the strategic nature
of process selection decisions, we explored the various considerations which
affect the process selection. The major consideration in choosing an
appropriate process form is the output characteristics in terms of its volume
and variety. A related consideration is whether the output is produced-to-
stock (push production) or produced-to-order (pull production).

When the output is produced in very low volumes and the output variety is
large, the project form of transformation is often the most appropriate. Project
processes have short life-cycles and need a high level of coordination so that
in spite of strict precedence relationships between activities, the project is not
delayed beyond its scheduled date of completion.

For low volume high variety output, the intermittent flow processing form
offers the advantage of flexibility at reasonable cost, whereas for high
volume low variety outputs, the continuous flow processing form is often
used. We have looked at the characteristics of these process forms in great
73
Operations detail and also discussed the advantages and disadvantages of each of these.
Management –
An Overview We have also mentioned some of the new technologies for each of these
and Facilities process forms.
Planning
When the output has no variety, and if it is a commodity, the processing form
offers great cost savings by using highly automated transformation processes
where the role of production workers is only to monitor the processes and
take corrective action, if needed.

We have noted that most organisations adopt a combination of different

process forms. Just like products, even services can be mass produced if the
variety can be reduced giving rise to high volumes.

2.14 KEY WORDS

Producibility: of an output refers to the ease and speed with which the
output can be produced.
New-Idea Mortality Curve: shows in a graphical form the number of output
ideas surviving after each of several hurdles till the ideas get converted to
outputs and enter the market.
Product Design: It is defined as a visible and tangible expression of an idea
and the design process originates from a set of requirement and moves
through idea generation and product selection.
Product Development: Refers to modifications or extensions provided to
ideas so as to improve the functioning, the cost and the value-for-money of
the product.
Standardisation: attempts reduction in variety and better use of productive
facilities, thereby achieving lower unit costs.
Modularisation: involves designing the output using modules that are
interchangeable and each different combination of modules gives a new
variety of the output.
Product: is used here in its generic sense and is meant to include services;
same as output.
Output Ideas: refer to ideas regarding possible new outputs which, after
refinements and modifications, could result in some outputs offered in the
market.
Screening: the process of establishing the market viability of a new output
idea as well as to find the desirability of adding the new output to the outputs
of the organisation.
An adaptive process: A process which has to continually adapt to many
external factors.
Assembly Line When only assembly operations are performed on a line it is
called an assembly line.
74
Produce-to-Stock: A production policy which allows products to be Product Selection
and Process
produced and stocked in our warehouse and sold as and when demand occurs. Selection
Produce-to-order: A production policy which allows outputs to be produced
only on receipt of an order from the customer.
Project form of processing: Used to produce an output which is one of a
kind.
Reaction time Time required for an organisation or a system to react to a
change either internal or external.
Matrix organisation: A form of organisation structure in which a dual
system of grouping is adopted, e.g., a person is assigned to a project which he
or she retains membership of the functional organisation.
Intermittent form of processing: When the output variety is large, the
production facilities are organized specialisation-wise, thus making the
material flow non-uniform, zig-zag and intermittent.
Flexibility: refers to the ease with which a productive facility can be used to
produce different outputs.
In-process inventory: The stock of semi-finished products usually required
to cushion the effect of unequal production rates and to balance the high set
up cost for some operations
Group technology: Attempts to find groups of component parts, machines,
equipment and people which can be exploited while organising the team
formation process.
Line balancing: Implies that each work station in a production or an
assembly line has an equal work content so that no work station has an idle
time, nor does it have bottlenecks.
NC or numerical control refers to the use of some form of electronic system
for automating machines and process,
Flexible manufacturing is the approach towards making automated
manufacture flexible both in terms of output characteristics and output rate.
Analytic process: In an analytic process, a single input is processed into
many separate outputs
Synthetic process: In a synthetic process, many different inputs are
synthesised into one output.

2.15 SELF-ASSESSMENT EXERCISES

1) There are many stages involved in bringing a new output to the market.
Why can't the stages be performed in a smooth sequence?
2) Give examples of some organisations where you feel the new-idea
mortality rates would be low. Why?
3) Can services be standardised? Should they be standardised?
75
Operations 4) How should an organisation balance the different design characteristics
Management –
An Overview in a new product?
and Facilities
Planning 5) What are the important factors to be considered while finding the 'fit' of
an output to an organisation?
6) Explain the Product Selection and stages involved therein.
7) What is producibility? How does it affect product selection?
8) “Product development and design is basically a research and
development activity". Elaborate the statement with suitable examples.
9) Explain Product design. How does it influence the Process Design?
10) Discuss with suitable examples the process of launching a new product
in the market.
11) The equipment used in intermittent flow shops is less specialised than
that used in continuous flow shops. What about the labour?
12) Can flexibility or economy be obtained only at the cost of each other?
13) Why do you think is managing a high-volume continuous operation
easier than managing a high-variety intermittent operation ?
14) Explain why the in-process inventory is likely to be higher for an
intermittent operation than for a continuous flow operation?

2.16 FURTHER READINGS

Adam, E.E. and R.J. Ebert. Production and Operations Management (2nd
EDITION); Prentice-Hall: Englewood-Cliffs.

Buffa, E.S. Modern Production/Operations Management (8th edition); Wiley

Eastern: New Delhi.

Hall, R.W. Attaining Manufacturing Excellence, Dow-Jones Irwin:

Homewood.

Meredith, J.R. and T.E. Gibbs. The Management of Operations (2nd edition);
John Wiley & Sons: New Work.

Wild R. Essentials of Production and Operations Management (2nd edition);

Holt, Rinehart and Winston: London.

M.E.Thukaram Rao Production and Operations Management (1st edition)

New Age International (P) Ltd. New Delhi 110002.

S.K. Sharma and Savita Sharma. Industrial Engineering and Organization

Management. Katson Books. S.K. Kataria& Sons, New Delhi 110002.

Martand Telsand. Industrial Engineering and Production Management, S.

Chand & Company Ltd., New Delhi 110055.

76
 Facilities Location
UNIT 3 FACILITIES LOCATION

Objectives

After going through this unit, you should be able to:

• understand the strategic importance and objectives of facilities location,

realise the enlarged scope of dealing with facility rather than just
plant/factory location and identify various factors relevant for general
territory selection as well as those relevant for specific site/community
selection

• appreciate that the location decisions are quite complex because of the
existence of subjective intangible factors along with objective tangible
factors, be in a position to apply some relevant technique either
subjective, qualitative or semi-quantitative in nature and grasp some
simple operational research oriented models

• realise the need for recognition of the assumptions and limitations of the
quantitative models discussed, provide a blend of some good rational
qualitative judgment and the analytical model solutions and be in a
position to identify relevant factors for facility location.

Structure

3.1 Introduction
3.2 When does a Location Decision Arise?
3.3 Steps 1n the Facility Location Study
3.4 Subjective, Qualitative and Semi-Quantitative Techniques
3.5 Locational Break-Even Analysis
3.6 Some Quantitative Models for Facility Location
3.7 Some Case Examples
3.8 Summary
3.9 keyword
3.10 Self assessment Exercises
3.11 Further Reading

3.1 INTRODUCTION
Facility location decisions are strategic, long term and non-repetitive in
nature. Without sound and careful location planning in the beginning itself,
the new facility may pose continuous operating disadvantages, for the future
operations. Location decisions are affected by many factors, both internal and
external to the organisation's operations. Internal factors include the
technology used, the capacity, the financial position, and the work force
required. External factors include the economic political and social 77
Operations conditions in the various localities. Most of the fixed and some of the
Management –
An Overview variable costs are determined by the location decision. The efficiency,
and Facilities effectiveness, productivity and profitability of the facility are also affected by
Planning
the location decision. The facilities location problem is concerned primarily
with the best (or optimal!) location depending on appropriate criteria of
effectiveness. Location decisions are based on a host of factors, some
subjective, qualitative and intangible while some others are objective,
quantitative and tangible.

Concept of a facility

Traditionally, location theorists have dealt with industrial plant/factory

location. However, the concept of plant location has now been generalised
into that of facility location, since the facility could include a production
operation or service system.

The term ‘Plant' has been traditionally used as synonymous to a factory,

manufacturing or assembly unit. This could include fertiliser, steel, cement,
rice milling plants, textile, jute, sugar mills, rubber factories, breweries,
refineries and thermal or hydro-electric nuclear power stations etc.

However, with the enlarged scope of a facility, this term can now be used to
refer to banks, hospitals, blood banks, fire stations, police stations,
warehouse, godown, depot, recreation centre and central repair workshop etc.
At a lower hierarchical level is the facility/plant layout problem which will be
discussed in the next unit. In such a case machines, equipment, desks,
workshop, canteen and emergency room etc. could mean a facility. Thus, in
fact, we could generally state that a facility could connote almost any
physical object relevant to location analysis. Let us now see when a location
decision arises.

3.2 WHEN DOES A LOCATION DECISION

ARISE?
The impetus to embark upon a facility location study can usually be
attributed to various reasons:

i) It may arise when a new facility is to be established.

ii) In some cases, the facility or plant operations and subsequent expansion
are restricted by a poor site, thereby necessitating the setting up of the
facility at a new site.

iii) The growing volume of business makes it advisable to establish

additional facilities in new territories.

iv) Decentralisation and dispersal of industries reflected in the Industrial

Policy resolution so as to achieve an overall development of a
developing country would necessitate a location decision at a macro
78 level.
 Facilities Location
v) It could happen that the original advantages of the plant have been
outweighed due to new developments.

vi) New economic, social, legal or political factors could suggest a change
of location of the exisiting plant.

Some or all the above factors could force a firm or an organisation to

question whether the location of its plant should be changed or not.

Whenever the plant location decision arises, it deserves careful attention

because of the long term consequences. Any mistake in selection of a proper
location could prove to be costly. Poor location could be a constant source of
higher cost, higher investment, difficult marketing and transportation,
dissatisfied and frustrated employees and consumers, frequent interruption of
production, abnormal wastages, delays and substandard quality, denied
advantages of geographical specialisation and so on. Once a facility is set up
at a location, it is very difficult to shiñ later to a better location because of
numerous economic, political and sociological reasons.

Economic reasons could include total costs, profits, availability of raw

materials, labour, power, transportation facilities and markets etc. Social
reasons could include employee welfare, employment opportunities etc.
Political reasons could be because of pursuance of a policy of
decentralisation, regional and developmental planning especially in a
developing country like ours. There could be security considerations or risk
of military invasions, sabotage from anti-social elements etc. and some may
be prone to natural calamities like floods, earthquake etc. Policy matters like
anti- pollution etc. would have to be given their due consideration.

Weber’s Analysis.

Alfred Weber's analysis was one of the first attempts to base location
decisions on some sort of analysis, its imperfections notwithstanding. Besides
discussing the importance of transport and labour cost differentials in
deciding location, the main burden of Weber's analysis is transport cost of
raw material which was least mobile

On the basis of availability, he categorised raw materials into: (a) ubiquities-

to denote those available almost everywhere like sand, water etc. and (b)
localised materials, having specific locations, which are further divided into
pure material which contributes nearly the total weight of it to the finished
goods, and gross material, which contributes only a small fractions of total
weight to the finished goods. It is obvious that ubiquities hardly influence the
decision of location. Weber then proceeds to formulate the material index
which equals the weight of localised material used in the finished product
divided by the weight of the finished product.

79
Operations If MI 1 then the location should be nearer to the source of raw material
Management –
An Overview
and Facilities
If MI 1 then the location should be nearer to the market.
Planning
The commonsense involved in such conclusion is unquestionable. But such
an approach tacitly assumes the existence of a static point of lowest
transportation cost for raw material.

Later analyses by various other authors, like, Weigman, Palander, Losch,

Ohlin and others have been attempted on increasingly comprehensive bases
such as the interrelationship between factors like, (a) economic differences-
(prices, market), (b) cost differences-(productivity, transport cost and
accessibility), (c) human differences-(attitudes of founders and wage-
earners), (d) national characteristics, and (e) various barriers-(political,
geographic and transportation). Let us now see how a location study is made.

3.3 STEPS IN THE FACILITY LOCATION

STUDY
Location studies are usually made in two phases namely, (i) the general
territory selection phase, and (ii) the exact site/community selection phase
amongst those available in the general locale. The considerations vary at the
two levels, though there ' is substantial overlap as shown in Table 1.

Table 1: Overlap of considerations of factors in the two stages of facility

location

. Location Factors Phase 1 Phase II

General Particular
Territory Selection of Site
Selection and Community
1 Market 
2 Raw Materials 
3 Power  
4 Transportation  
5 Climate and Fuel 
6 Labour and Wages  
7 Laws and Taxation  
8 Community Services and Attitude 
9 Water and Waste 
10 Ecology and Pollution 
11 Capital Availability  
12 Vulnerability to enemy attack  

A Typical team studying location possibilities for a large project might

involve economists, accountants, geographers, town planners, lawyers,
marketing experts, politicians, executives, industrial engineers, defence
80
 Facilities Location
analysts and ecologists etc. It is indeed an inter-disciplinary team that should
be set up for undertaking location studies.

Territory Selection – Phase I

Now in step (i) for the general territory/region/area selection, the following
are some of the important factors that influence the selection decision.

a) Markets: There has to be some customer/market for your

product/service. The market growth potential and the location of
competitors are important factors that could influence the location.
Locating a plant or facility nearer to the market is preferred if
promptness of service required, if the product is fragile, or is susceptible
to spoilage. Moreover, if the product is relatively inexpensive and
transportation costs add substantially to the cost, a location close to the
markets is desirable.

Assembly type industries also tend to locate near markets.

b) Raw Materials and Supplies: Sometimes accessibility to

vendors/suppliers of raw materials, parts supplies, tools, equipment etc.
may be very important. The issue here is promptness and regularity of
delivery and inward freight cost minimisation.

If the raw material is bulky or low in cost, or if it is greatly reduced in

bulk viz transformed into various products and by-products of it is
perishable and processing makes it less so, then location near raw
materials sources is important. If raw materials come from a variety of
locations, the plant/facility may be situated so as to minimise total
transportation costs. The costs vary depending upon specific routes,
mode of transportation and specific product classifications.

c) Transportation Facilities: Adequate transportation facilities are

essential for the economic operation of a production system. For
companies that produce or buy heavy bulky and low value per ton
commodities, water transportation could be an important factor in
locating plants. It can be seen that civilisations grew along
rivers/waterways etc. Many facilities/plants are located along river
banks.

d) Manpower Supply: The availability of skilled manpower, the prevailing

wage pattern, living costs and the industrial relations situation influence
the location.

e) Infrastructure: This factor refers to the availability and reliability of

power, water, fuel and communication facilities in addition to
transportation facilities.

Legislation and Taxation: Factors such as financial and other incentives

for new industries in backward areas or no-industry-district centres,
81
Operations exemption from certain state and local taxes and octroi etc. are
Management –
An Overview important.
and Facilities
Planning f) Climate: Climatic factors could dictate the location of certain type of
industries like textile industry which requires high humidity zones.

Site/Community Selection – Phase II

Having selected the general territory/region, next we would have to go in for
site/community selection. Let us discuss some factors relevant for this stage.

a) Community Facilities: These involve factors such as quality of life

which in turn depends on availability of facilities like schools, places of
worship, medical services, police and fire stations, cultural, social and
recreation opportunities, housing, good streets and good communication
and transportation facilities.

b) Community Attitudes: These can be difficult to evaluate. Most

communities usually welcome setting up of a new industry especially
since it would provide opportunities to the local people directly or
indirectly. However, in case of polluting, or ’dirty' industries, they would
try their utmost to locate them as far away as possible.

Sometimes because of prevailing law and order situation, companies

have been forced to relocate their units. The attitude of people as well as
the state government has an impact on industrial location.

c) Waste Disposal: The facilities required for the disposal of process waste
including solid, liquid and gaseous effluents need to be considered. The
plant should be positioned so that prevailing winds carry any fumes away
from populated areas and so that waste may be disposed off properly and
at reasonable expense.

d) Ecology and Pollution: These days there is a great deal of awareness

towards maintenance of natural ecological balance. There are quite a few
agencies / propagating the concepts to make the society at large more
conscious of the dangers of certain avoidable actions.

e) Site Size: The plot of land must be large enough to hold the proposed
plant and parking and access facilities and provide room for future
expansion. These days a lot of industrial areas/parks are being earmarked
in which certain/standard sheds are being provided to entrepreneurs.
(especially small scale ones).

f) Topography: The topography, soil structure and drainage must be

suitable. 1f considerable land improvement is required, low priced land
might turn out to be expensive.

g) Transportation Facilities: The site should be accessible by road and rail

preferably. The dependability and character of the available transport
82
 Facilities Location
carriers, frequency of service and freight and terminal facilities are also
worth considering.

h) Supporting Industries and Services: The availability of supporting

services. such as tool rooms and plant services etc. need to be considered

i) Land Costs: These are generally of lesser importance as they are non-
recurring and possibly make up a relatively small proportion of the total
cost of locating a new plant. Generally speaking, the site will be in a city,
suburb or country location. In general, the location for large-scale
industries should be in rural areas, which helps in regional development
also. It is seen that once a large industry is set up (or even if a decision to
this effect has been taken), a lot of infrastructure develops around it as a
result of the location decision. As for the location of medium scale
industries, these could be preferably in the suburban/semi-urban areas
where the advantages of urban and rural areas are available. For the
Small-scale Industries, the location could be urban areas where the
infrastructural facilities are already available. However, in real life, the
situation is somewhat paradoxical as people, with money and means, are
usually in the cities and would like to locate the units in the city itself.

Some of the industrial needs and characteristics that tend to favour each of
these locales are now discussed. Requirements, governing choice of a city
location are:

1) Availability of adequate supply of labour force,

2) High proportion of skilled employees.
3) Rapid public transportation and contact with suppliers and customers.
4) Small plant site or multi floor-operation.
5) Processes heavily dependent on city facilities and utilities.
6) Good communication facilities like telephone, telex and post offices.
7) Good banking and health care delivery systems.
Requirements governing the choice of a suburban location are:
1) Large plant site close to transportation or population centre.
2) Free from some common city building zoning (industrial areas) and other
restrictions.
3) Freedom from higher parking and other city taxes etc.
4) Labour force required resides close to plant.
5) Community close to, but not in, large population centre.
6) Plant expansion easier than in the city.
Requirements governing the choice of a country/rural location are:
1) Large plant site required for either present demands or expansion.
83
Operations 2) Dangerous production processes.
Management –
An Overview 3) Lesser effort required for anti-pollution measures.
and Facilities
Planning 4) Large volume of relatively clean water.
5) Lower property taxes, away from Urban Land Ceiling Act restrictions.
6) Protection against possible sabotage or for a secret process.
7) Balanced growth and development of a developing or underdeveloped
area.
8) Unskilled labour force required.
9) Low wages required to meet competition.

3.4 SUBJECTIVE, QUALITATIVE AND SEMI-

QUANTITATIVE TECHNIQUES
Three subjective techniques used for facility location are Industry
Precedence, Preferential Factor and Dominant Factor. Most of us are always
looking for some precedents. So in the industry precedence subjective
technique, the basic assumption is that if a location was best for similar firms
in the past, it must be the best for us now. As such, there is. no need for
conducting a detailed location study and the location choice is thus subject to
the principle of precedence-good or bad. However in the case or the
preferential factor, the location decision is dictated by a personal factor. 1t
depends on the individual whims or preferences e.g. if one belongs to a
particular state, he may like to locate his unit only in that state. Such
personal. factors may override factors of cost or profit in taking a final
decision. This could hardly be called a professional approach though such
methods are probably more common in practice than generally recognised.
However, in some cases of plant location there could be a certain dominant
factor (in contrast to the preferential factor) which could influence the
location decision. In a true dominant sense, mining or petroleum drilling
operations must be located where the mineral resource is available. The
decision in this case is simply ‘whether to locate or not at the source’.

For evaluating qualitative factors, some factor ranking and factor weight
rating systems may be used. In the ranking procedure, a location is better or
worse than another for the particular factor. By weighing factors and rating
locations against these weights, a semi-quantitative comparison of location is
possible. Let us now discuss some specific methods.

Equal Weights Method

We could assign equal weights to all factors and evaluate each location along
the factor scale. For example, Banson, a manufacturer of fabricated metal
products selected three factors by which to rate four sites. Each site was
assigned a rating of 0 to 10 points for each factor. The sum of the assigned

84
 Facilities Location
factor points constituted the site rating by which it could be compared to
other sites.

Table 2: Decision Matrix

Factor Potential S1 S2 S3 S4
Sites
F1 2 5 9 2
F2 3 3 8 3
F3 6 2 7 3
Site Rating 11* 10 24 8
Sample Calculation 11* 2+3+6
F1 = Factor 1, S1 = Site 1….etc.

Looking at Table 2, Site 3 has the highest site rating of 24. Hence, this site
would be chosen.

Variable Weights Method

The above method could be utilised on account of giving equal weightage to

all the factors. Hence, we could think of assigning variable weights to each of
the factors and evaluating each location site along the factor scale. Hence,
factor Fi might be assigned 300 points, factor 2 might be assigned 100 points
and factor 3 might be assigned 50 points. Thus the total points scored, out of
the maximum assigned to each of the factors, for each possible location site
could be obtained and then the site with the highest score would be the
obvious choice.

Table 3: Decision .Matrix

Factor Max. Pts. Potential Sites

S1 S2 S3 S4
F1 (300) 200 250 250 50
F2 (100) 50 70 80 100
F3 (50) 5 50 IO 40
Site 255* 370 340 190
Rating

*Sample Calculation 255 = 200 + 50 + 5

Looking at the Table 3, Site 2 has the highest site rating of 370. Hence, this
site would be chosen.

Weight-cum-Rating Method

We could have yet another method of evaluating a potential location site. We

could assign variable weights to each factor. The locations are then rated by a
common scale for each factor. The location point assignment for the factor is
then obtained by multiplying the location rating for each factor by the factor 85
Operations weight. For example, rating weights of 1 to 5 could be assigned to the three
Management –
An Overview factors F1 (Labour climate), F2 (community facilities) and F3 (power
and Facilities availability and reliability), as 5, 3, 2 respectively. Now for each of the
Planning
factors, sites S1, S2, S3, or S4 they could receive 0 to 10 points as shown
below. Now each site rating could be obtained.

Table 4: Decision Matrix

Factor Factor Rating Potential sites

Weights
S1 S2 S3 S4
F1 5 2 5 9 2
F2 3 3 3 8 3
F3 2 6 2 7 3
Site Rating : 31* 38 83 25

*Sample Calculation 31 = (5) × 2 + (3) × 3 + (2) × 6

As shown in Table 4, the sample calculation should hopefully suffice to

obtain the site ratings. Here, site S3 with the highest rating of 83 is chosen.

Factor-Point Rating Method

Now for a last one, establish a subjective.- scale common to all factors.
Assign points against the subjective scale for each factor and assign the factor
points of the subjective rating for each factor. For example, five subjective
ratings—Poor, Fair, Adequate, Good and Excellent were selected to be used
in evaluating each site for each factor (F1, F2 and F3). For each of these
factors, ’adequate’ was assigned a value zero and then negative and positive
weights were given to each factor F1 (water supply), F2 (appearance of site)
and F3 (supply of labour) (say) as shown in Table 5.

Table 5: Factor Point Ratings Sample

Poor Fair Adequate Good Excellent

Factor F1, water Supply -15 -12 0 6 10

F2 Appearance of site -3 -1 0 1 2
F3 Supply of labour -4 -2 0 2 4

The range between minimum and maximum weights assigned to a factor in

effect weighs that factor against all other factors in a manner equivalent to the
method (iii) described just previous to this one. Each location site S1, to S4,
were then rated by selecting the applicable subjective rating for each factor
for each location and the equivalent points of that subjective ’factor rating
assigned to the factor. Thus we can now obtain Table 6.
86
 Facilities Location
Table 6: Decision Matrix

Factors Potential Sites

S1 S2 S3 S4

F1 (Adequate) 0 (Fair) -12 (Good) 6 (Adequate) 0

F2 (Adequate) 0 (Poor) -3 (Excellent) 3 (Fair) –1

F3 (Adequate) 0 (Adequate) 0 (Adequate) 0 (Adequate) 0

Site Rating 0 -15* 9 -1

Sample Calculation - 15* = (-12) + (-3) + (0)

Accordingly Site 3 with the maximum score of 9 will be chosen.

In most cases, hardly any attempt is made to establish a direct relationship

between the site rating point value and the cost values. Usually, this is left to
the management

The location analyst presents to management both the cost and the intangible
data results. In such cases, management could take a decision based on a
simple composite measure method illustrated below with the aid of a
numerical example.

Composite Measure Method

Let us enlist the steps of the composite measure method

Step-1 Develop a list of all relevant factors.

Step-2 Assign a scale to each factor and designate some minimum.

Step-3 Weigh the factors relative to each other in light of importance towards
achievement of system goals.

Step-4 Score each potential location according to the designated scale and
multiply the scores by the weights.

Step-5 Total the points for each location and either (a) use them in
conjunction with a separate economic analysis, or (b) include an economic
factor in the list of factors and choose the location on the basis of maximum
points.

Now let us illustrate the composite measure method with a numerical

example. There are three potential sites and five relevant factors like
transportation costs per week, labour costs per week, finishing material
supply, maintenance facilities and community attitude. The costs are in
rupees whereas for the last three factors, points are assigned on 0-100 scale.
The data collected is shown in Table 7 below.

87
Operations Table 7: Payoff Matrix
Management –
An Overview
and Facilities Potential Location Sites
Planning
Factors F1 S1 S2 S3
Transportation cost/ week (Rs.) 800 =1980
640 =1660
580
=1740
Labour cost/week (Rs.) F2 1180 1020 1160
Finishing Material Supply F3 30 80 70
Maintenance Facilities F4 60 20 30
Community Attitude F5 50 80 70

The location analyst has pre-established weights for various factors. This
includes a standard of 1.0 for each Rs. 10 per week of economic advantage.
Other weights applicable are 2.0 on finishing material supply, 0.5 on
maintenance facilities and 2.5 on community attitudes. Also the organisation
prescribes a minimum acceptable score of 30 for maintenance facilities.

First of all let us look at the economic factors F1, and F2 for which monetary
values were possible. If we total the costs for each site, we get the costs for
sites S1, S2 and S3 as Rs. 1980, Rs. 1660 and Rs. 1740, respectively. Thus site
S1 would be the worst cost wise. Site S2 would have an economic advantage
over site S1 to the extent of Rs. (1980 -1660) = Rs. 320. Similarly, site S3
would have an economic advantage over site S1 to the extent of Rs. (1980 -
1740) = Rs. 240. Now the monetary value in Rs. can be converted to a point
scale as you would realise that a standard of 1.0 is to be assigned for each Rs.
10 per week of economic advantage. Thus we could get the following Table
8.

Table 8: Decision Matrix

Potential Location Sites

Factor Weightage S1 S2
Combine (F1+ F2)
Economic Advantage 1.0 0 32 24
F3 2.0 30 80 70
F4 0.5 60 20 30
F5 2.5 50 80 70
Composite Site Rating *215 402 354
*Sample calculation *215 = (1.0) × 0 + 2.0 × 30 – 1 – 0.5 × 60

Now on referring to certain prerequisites for certain factors, because of the

nature of the situation., a constraint in the form of a site scoring of at least 30
on account of maintenance had been given. You would be able to observe
that this basic requirement is not met by site S2 though its score is the highest
at 402. Hence the next best score of 354 by S3 satisfying the constraint of at
least 30 on maintenance, is the obvious choice. Site S3 is chosen finally.
88
 Facilities Location
3.5 LOCATIONAL BREAK-EVEN ANALYSIS
Sometimes, it is useful to draw location break-even charts which could aid in
deciding which location would be optimal. The location of a Tractor factory
in a South Delhi site will result in certain annual fixed costs, variable costs
and revenue. The figures would be different for a South Bombay site. The
fixed costs, variable costs and price per unit for both sites are given below in
Table 9.

Table 9: Cost Data

Location Site Fixed Costs Variable Costs Price per

per unit Unit
South Delhi (S1) 40,00,000 30,000 75,898

South Bombay ( S2) 60,00,000 24,000 82,000

Let us assume that the expected sales volume as estimated by a market

research team is 95.

The data of Table 9 is depicted pictorially in Figure I showing the location

break- even charts. Now the break-even point is defined to be the point or
volume where the total costs equal total revenue. Thus for each site S1 and S2,
the break-even point can be determined by using a simple formula (which
could be easily derived) as follows:

Break-even Volume (BE)

At the South Delhi Location S1

BE = tractors

and at the South Bombay location S2 89

Operations
Management – BE = tractors
An Overview
and Facilities
Planning Let us see what would be the profit or loss for the two sites at the expected
volume of 95 Units. The calculations are shown in Table 10.

Table 10: Cost Comparisons

South Delhi (S1) South Bombay (S2)

Cost Cost
Fixed 40,00,000 Fixed 60,00,000
Variable 28,50,000 Variable 22,80,000
68,50,000 82,80,000
Revenue Revenue
75,898 × 95 = 72,10,310 82,000 × 95 = 77,90,000
Profit = (72,10,310-68,50,000 Loss = (77,90,000-82,80,000)
= 1,80,155 = 4,90,000

Now what do we find? The South Delhi (S1) site is preferable, even though
the revenues are lower, since the Company will lose money by locating the
plant in south Bombay (S2).

3.6 SOME QUANTITATIVE MODELS FOR

FACILITY LOCATION
Various types of quantitative models (or operations research models) have
been used to help determine the best facilities location. Let us describe a few
models that are simple to understand and powerful enough to give some good
answers that could aid you in taking a location decision.

Median Model

Let us discuss the simple median model which is based on the assumption
that the mode of interaction or the path of movement/transportation of load is
done on a rectangular/rectilinear pattern. The movement is similar to the
movement of ‘rooks’ on a chess board. Thus all movements are made
horizontally along and east-west and/or vertically in a north-south direction.

Diagonal moves are not considered.

Dr= Rectilinear Distance Between a new facility P(X,Y) and an anciliary

existing facility A(a¡,b¡)

= |X-a¡| + |Y - b¡|
m
(TC)Total Transportation Cost = Li Di Cost/unit distance/unit load
i 1

Where Li is the number of loads to be moved between the new facility to be

located and the ancillary existing ith Facility (say raw material sources or
90
 Facilities Location
market distribution outlet points), Di is the rectilinear distance between a new
facility and ith existing facility and m is the number of ancillary existing
facilities.

Thus as a location analyst, we essentially want to determine the least

transportation cost location solution. The simple median model can help
answer this question by using these three steps.

i) Identify the median value of the total number of loads moved.

ii) Find the X-Coordinate value of the existing facility that sends (or
receives) the median load and

iii) Find the Y-coordinate value of the existing facility that sends (or
receives) the median load.

The X and Y values found in steps (ii) and (iii) define the desired optimal
(best) location of the new facility.

The Gravity Model

The technique determines the low cost ‘Centre of Gravity’ location of a new
facility with respect to the fixed ancillary existing facilities like source
suppliers (S1S2 etc.) and distribution points (D1, D2, etc.) for which each type
of product consumed or sold is known. The only difference between the
Median model and the Gravity model is that the mode of interaction between
the single new facility and the existing facilities. In this case we assume that
all goods move in straight line joining the ancillary facilities and the new
facilities. This is so-called ‘Euclidean’ mode of interaction and is in fact the
shortest distance between the two reference points. The diagonal movements
are allowed here.

Thus De = Euclidean Distance = [(X- ai)2+(Y- bi)2]1/2

TCe(Total transportation cost)(Euclidean case)

The value of X and Y can be calculated as follows

The application of median model and gravity model will be illustrated in the
following Example.

Example 3.1 A new processing point is to be located which will be receiving

certain raw materials from three supply sources S1, S2 and S3 and will be
sending its finished products to two distribution points D1 and D2. The
coordinate locations of the sources and distribution points and loads are
91
Operations shown in Fig II. Find out the best location of the new processing point by
Management –
An Overview using both median model and gravity model and also find out the total cost of
and Facilities transportation for the above two models if the rate is rupees 2 per unit
Planning
distance per ton of load.

Load = 15 tons
Y S3 (30 tons)
(10, 60) S1
(30, 70)
 
(40 tons)
 D1
 (40, 50)
(X, Y)
(30, 5)
(Calculated) (50, 40)
 D2
(10 tons)
(20, 30)
 S2
(20 tons)

Solution-Median Model

Total load moved = 30 + 20 + 15 +10 +40 = 115 tons

The median number of loads is the value that has half an equal number of
loads above and below it which is equal to tons.

Next put the X-coordinate of existing facilities in Ascending Oder, these are:

S3 S2 S1 D1 D2
(10, 60) (20,30) (30,70) (40,50) (50,40)
(15t) (20t) (30t) (40t) (10t)
Loads 1t to 15t are shipped from S3 at x3 = 10
Loads 16t to 35t are shipped from S2 at x2 = 20
Loads 36t to 65t are shipped from S1 at x1 = 30

Since the median load 58t falls in the interval 36t to 65t, therefore X = 30 (X-
coordinate of the new facility).

Again put the Y-coordinates of existing facilities in Ascending order, these

are:

S2 D2 D1 S3 S1
(20, 30) (50,40) (40,50) (10,60) (30,70)
(20t) (10t) (40t) (15t) (30t)
Loads 1t to 20t are shipped from S2 at y2 = 30
Loads 21t to 30t are shipped to D2 at y2 = 40
Loads 31t to 70t are shipped to D1 at y1 = 50
92
 Facilities Location
Since median load 58t falls in the interval 31t to 70t, therefore Y = 50 (Y-
coordinate for the new facility)

Transportation cost from S1 to new facility

30{| X x1 | | Y y1 |} 2 30{| 30 30 | | 50 70 |} 2 30 20 2 Rs.1200
Transportation cost from S2 to new facility = Rs. 1200
Transportation cost from S3 to new facility = Rs. 900
Transportation cost from new facility to D1 = Rs. 800
Transportation cost from new facility to D2 = Rs. 600
Total cost = Rs. 4700

The median model is very simple to operate but it could suffer from the
following disadvantages:

(a) It assumes that only one single new facility is to be located.

(b) Every point in the (x, y) plane has been assumed to be an eligible point
for the location of the new facility. (There may be some restriction or
constraints at some point in the x-y plane)

(c) The median model is valid when the movement is based on a rectilinear
mode only.

Gravity Model

2 2
PQ x1 x 2 y1 y2

93
Operations
Management –
An Overview
and Facilities
Planning

It will be seen that for the same data of the problem, gravity model provides
less transportation cost compared to median model.

You would have noticed that we have only discussed the location problems
dealing with just a single new facility and also what is termed as a minisium
objective of minimising the sum weighted appropriate distances. There could
be cases when the location as determined above turn out to be non-feasible,
because of existence of certain restrictions or limitations. Methods are
available for drawing iso-cost contour lines which aid the decision maker to
take subsequent appropriate decisions. Sometimes a minimax objective might
be more suited in which case the location analyst attempts to minimize the
maximum weighted appropriate distances. Such a criterion would be
applicable in emergency like facility location problems of fire stations,
hospitals etc. Minisium objective situations are appropriate for locating
factories and warehouses etc.

You would have observed that facilities location decision is based on a set of
factors some of which are tangible/objective whereas some others are
intangible/ subjective in nature. Objective Factors are those that can be
evaluated in inventory terms such as labour, raw materials, utilities and taxes
etc. Subjective Factors are characterized by a qualitative type of
measurement. For example the nature of community support may be
evaluated but its monetary equivalent cannot be established. Similarly
research climate, recreation and entertainment, housing and community
attitude etc. are also subjective factors. Brown and Gibson have proposed a
composite location measure to aid the decision makers.

Composite Location Measure Model – 2 ( Brown Gibson Model)

Let us now discuss Brown Gibson Model which provides a composite

location measure of the objective and subjective factors. We illustrate the
procedure with the help of an example with some steps.

Step – 1

First of all identify the factors that deserve to be included in the study and
determine which of these must be absolutely satisfied, e.g, there is no point in
choosing a site having scarcity of water whereas the plant requires an
abundant water supply. Rest of the steps will be explained in the solution to
the Example 3.2

Example 3.2 (Brown Gibson Model) We have the following data for the
three possible sites 1,2 and 3 with annual cost(in thousand of Rs) for each in
respect of labour , marketing ,utilities and taxes:
94
 Facilities Location
Annual costs in thousands of rupees

Site (i) Labour Marketing Utilities Taxes Total Ci

1 248 181 74 16 519
2 211 202 82 8 503
3 230 165 90 21 506

The subjective factors for the sites include housing, recreation and
competition. We deal with the subjective intangible factors with the help of a
forced pair-wise comparison rating method. The procedure is applied to rank
the importance of the factors Ik (Ik is the Property weight – weight of a
subjective factor k relative to all subjective factors, (0 < 1k < 1) first and is
then applied to each site to rate how well the site satisfies the factors Sik(Sik is
the site weight – weight of the site i relative to all potential sites for
subjective factors k, 0 < Sik < 1. These two ratings are combined to obtain the
subjective factor (SFi) ranking for each site as SFi = ∑(Ik.Sik). The factor
comparison is shown in pairs. If one factor is preferred over the other , the
one preferred is given 1(one) point whereas the other factor is given 0(zero)
point. If one is indifferent between the two factors, 1(one) point each can be
assigned as seen in decision 3 while comparing factor B and C in Table 11
and likewise in Tables 12,13 and 14.

You are required to make selection for the most preferred site.

Solution: Step 2... Let us derive an objective factor (OFi) for the ith location
site by multiplying that site's rupees cost (Ci) by the sum of reciprocal of all

the costs 1 and take the inverse of the product

C1

Step 3.. Now we shall deal with the subjective factors Ik and Sik

Table 11 (Determination of Ik)

Factor Comparison Decision Sum of Factors
preferences Rating (Ik)
1 2 3
A: Housing 1 1 - 2 2/4 = 0.50

B: Recreation 0 - 1 1 1/4 = 0.25

C: Competition - 0 1 1 1/4 = 0.25

Total = 4 Total = 1.0

95
Operations Table 12: Factors A-Housing Table 13: Factor B-Recreation
Management –
An Overview Site Decision Decision
and Facilities Total SAk Site Total SBk
Planning 1 2 3 1 2 3
1 1 0 - 1 1/3=0.33 1 0 0 - 0 0
2 0 - 0 1 0 2 1 - 1 2 0.67
3 - 1 1 2 2/3=0.67 3 - 1 0 1 0.33

Table 14: Factor C-Competition Table 15: Summary of subjective factors

Site Decision Total SCk Site Site Rating Importance

1 2 3 1 2 3
1 1 0 - 1 0.25 A 0.33 0 0.67 0.50
2 1 - 0 1 0.25 B 0 0.67 0.33 0.25
3 - 1 1 2 0.50 C 0.25 0.25 0.50 0.25

We can now calculate the subjective factor value SFi for each site as follows:

Step 4.. Now depending upon the parties concerned, would depend the
objective factor decision weight (X) which is given to the objective versus
subjective factors. Objective factors being more important than subjective
ones, we give a 2/3 weightage to objective and only 1/3 weightage to
subjective factors i.e. X=0.67.

The value of X may be variated according to the situation of objective &

subjective factors such as availability of raw materials, labour, utilities and
extent of taxes levied and environmental condition, research climate, housing
facilities and community attitude etc.

The composite location measures (LM¡) = (X) (OF¡) + (1 – X) (SF¡)

We have LM1 = 0.67 × 0.3271 + 0.33 × 0.2275 = 0.29433

LM2 = 0.67 × 0.3374 + 0.33 × 0.2300 = 0.30203

LM3 = 0.67 × 0.3355 + 0.33 × 0.5425 = 0.4038 (max)

Obtaining the maximum score of 0.4038, site 3 is the obvious preferred

site.

A model that attempts to deal with multidimensional location problem can be

developed based on multiattribute preference theory. We present here a
modification of model developed by Brown and Gibson in the year 1972.

Example 3.3 (Brown Gibson modified model) (see Buffa and Sarin 2016
Modern production/Operations Management, Wiley India Pvt.ltd.New Delhi.

96
 Facilities Location
The following table shows the various subjective factors of the six possible
sites along with their annual costs in thousands of rupees. You are required to
determine the most preferred site amongst the six sites mentioned below.

Objective Availability of Availability Managerial Support of

factor Transportation of labour control community
Site cost(OFi) in
thousand Rs

1 3.0 Good Good Fair High

2 5.5 Excellent Fair Good Very high
3 4.1 Good Good Excellent Good
4 3.5 Low Very Good Good Low
5 3.9 Good Fair Very Good High
6 3.2 Very Good Excellent Very Good Very High

Solution: The objective factor measure for site i, OF in terms of the objevtive
i

function costs is defined as follows:

Maximum OF OFi
OFi =
Maximum OF Minimum OF

For example for site 3 we have OF3 = (5.5 – 4.1) / (5.5-3.0)= 0.56

Similarly OF1 = 1.00, OF2 = 0.00, OF4= 0.80, OF5 = 0.64 and OF6= 0.92

The subjective factor measure SF¡=∑(Ik.Sik) where Ik is the property weight –

weight of subjective factors k relative to all subjective factors, Sik is the site
weight – weight of the site i relative to all sites for subjective factor k.

Assumptions – As per the opinion of the manager incharge of the project and
also by group consensus, the percentage contribution of the subjective factors
and also the rating scale of these factors have been finalized as below :
% Contribution Rating scale
Availability of transportation = 20 % Very high/Excellent = 1.00
Availability of labour =30% High/Very Good = 0.75
Managerial control = 30% Good = 0.50
Support of community = 20% Fair = 0.25
Low = 0.00

Objective Factors Decision Weight (X) is taken to be equal to 0.67

Calculation of Subjective Factor Measure (Table 16)

Availability of Availibility Managerial Support of Subjective

Site transportation of labour control community factor
(0.20) (0.30) (0.30) (0.20) measure
1 0.50 0.50 0.25 0.75 0.340*
2 1.00 0.25 0.50 1.00 0.625
3 0.50 0.50 1.00 0.50 0.650
97
Operations 4 0.00 0.75 0.50 0.00 0.375
Management –
An Overview 5 0.50 0.25 0.75 0.75 0.550
and Facilities 6 0.75 1.00 0.75 1.00 0.875
Planning

*0.2 × 0.50 + 0.3 × 0.50 + 0.3 × 0.25 + 0.2 × 0.75 = 0.340

Location Measure for six sites(X=0.67 taken) Table 17

Site Objective factor Subjective factor Location measure

measure measure(From Table 15)
1 1.00 0.340 0.782**
2 0.00 0.625 0.206
3 0.56 0.650 0.590
4 0.80 0.375 0.660
5 0.64 0.550 0.611
6 0.92 0.875 0.905(Max)

**0.67 × 1.00 + 0.33 × 0.340 = 0.782

Site 6 produces the largest overall location measure and hence this Site 6 is
the preferred choice.

Note : The decision for the choice of scale and relative importance of the
subjective factors is commonly based on managerial judgement that requires
a careful analysis of the trade-off between cost and combined effect of the
dictating factors.

Bridgeman’s Dimensional Anaysis: The comparison and selection of a site

is very easy in case all the costs were tangible and quantifiable and the least
cost site would have been the obivious choice. In most cases, however, there
are many intangible costs which may be better expressed in relative terms
rather than absolute terms. For example, educational facilities for children or
lack of it at a site is difficult to quantify in absolute term but relative
merits/demerits of two alternative sites can be compared more easily. One
site may be said to have a facility twice as good as the other site. Since both
tangible and intangible costs need to be considered for the selection of a site,
a procedure of comparing relative merit of alternative sites requires to be
worked out and Bridgeman’s Dimensional Analysis is the answer.

It consists in computing the relative merits (or cost ratios) for each of the cost
items giving every ratio an appropriate weightage by means of the power
(index) raising and then multiplying these weighted ratio together to come up
with a comprehensive figure. This figure gives the relative merit of the two
alternate sites. Thus if X11, X12, X13. are the different costs associated with
site M and X21, X22,X23.. are the different costs associated with site N and
w1,w2,w3.... are the weightages given to these items, then the relative merit of
site M and site N is given by .

98
 w1 w2 w3 Facilities Location
X11 X 21 X 31
R MN ... ...
X12 X 22 X 32

If RMN> 1 then site N is superior

If RMN <1 then site M is superior

The examples that follow would make understanding quite clear.

A five point scale for dimensional analysis is developed for Reasearch

Climate, Labour Supply, Community Attitude and Community Services. The
scores range from 1 to 5 from the best to the worst conditions. The scores
could be determined by the manager incharge of the project and by the group
consensus. The decision is commonly based on managerial judgement that
requires a careful analysis of the trade-off between the cost and the combined
effect of the subjective and the objective factors.

Dimensional- Analysis Scale

(Intangible Factor)

Research Climate Point

No schools, research organization or societies exist ............ 5

A few low quality schools and nothing else ...................... 4

Good research organization but nothing else ..................... 3

Good schools, research group and societies....................... 2

Excellent research climate ................................... 1

Labour Supply

None available ........................... 5

Limited Supply at premium rates.................................. 4

Acceptable supply for now but doubtful for future................ 3

Adequate supply of acceptable ability............................ 2

Plentiful supply of excellent ability ........................... 1

Community Attitude

Active pressure groups against company activity ............... 5

Will accept company activity with reservations................. 4

Ambivalent .......................................... 3

Cooperative.......................................... 2

Very cooperative, encouraging and helpful...................... 1 99

Operations Community Services
Management –
An Overview
and Facilities Practically no picture halls or marketing malls ................ 5
Planning Only a few entertainment places for name sake.................. 4
Good sources of amusement and pass-time..................... 3
Better malls, big bazars, cinema hall etc...................... 2
Excellent places for enjoyments like parks, community centers etc. 1

Example 3.4 The following dimensional analysis is given for selecting the
best site out of the two with their tangible and intangible factors. Select the
preferred one by Bridgeman's Analysis.

Factor Site Weight

M N
Labour Rs. 1,50,000 Rs. 1,00,000 1
Power Rs. 40,00,000 Rs. 25,00,000 1
Educational facilities 2 6 2
Community attitude 2 4 2

Solution: Relative cost of site M to site N is

1 1 2 2
1,50,000 40,00,000 2 2
RMN =
1,00,000 25,00,000 6 4

= 0.066<1.00 so site M is preferred.

Although the tangible costs for site M are higher than those for site N, the
effect of the intangibles is seen to be overwhelming. In practice such things
do happen. There are many reasons other than quantifiable costs which go
into the choice making between alternate sites. However when such choice is
important from the national or social point of view, then choice of the
intangibles and weightages attached to them assumes a critical importance.

Example 3.5 The intangible and tangible figures for the three sites S1, S2 and
S3 are given below in a tabular form. Make out your calculations by
Bridgeman’s Dimensional Analysis to select the best site out of the three.

Factors Sites Weight

S1 S2 S3
Building cost and
Equipment cost(Rs.) 25,00,000 15,00,000 20,00,000 4
Taxes per year (Rs) 2,50,000 1,00,000 1,80,000 4
Power cost per year Rs. 1,00,000 1,50,000 1,20,000 4
Community attitude 2 4 3 1
Labour Supply 4 6 5 3
Research Climate 5 30 20 2
100
 Facilities Location

From the above analysis, we conclude that the overall choice is site 1.

Recent Trends in Facility location

The following most important trends have come to fore recently with regards
to plant location.

1) To locate the plant away from cities.

2) Development of industrial estates.

3) Competition among states to develop industries.

4) Trends towards decentralization.

5) Pollution control

6) Location of industries leading to balanced regional development

7) Growth of multinational firms thereby transcending the geographical

area of the country

3.7 SOME CASE EXAMPLES

By now we have had quite an exposure to qualitative, semi-qualitative,
quantitative and analytical techniques which could aid in taking a proper
location decision. A location decision is quite a difficult and complex
problem especially in the context of a developing country like ours which has
a large variety of problems.

Most of the factory workers are found in Delhi, Mumbai, Kolkata, Surat,
Ahmedabad and Ludhiana. A few years back a number of factories were in
the above cities where more than 67% share of total industrial capital was
invested and more than 63% share of industrial workers was engaged. The
distribution of industrial activity in the country had been extremely uneven
because of concentration and centralization of the workers in these cities
only.

Such tendencies of centralization are because of factors of agglomeration.

Agglomeration refers to the advantages gained due to production being made
less expensive on account of the concentration of industries. In the industrial
field, one can easily note the clustering/grouping together (localization of the
jute industry in West Bengal and Textile Industry in Mumbai , Ahmedabad
and Surat). However, if due to any reason, the industrial unit is either
unsuccessful or some difficult labour problems crop up, then there are a lot of
subsequent hardships. Also with the point of a view of war and safety, the
101
Operations concentration of industry might not be a wise decision. The concentration of
Management –
An Overview industry leads to the accumulation of unreasonable amount of workers which
and Facilities in turn creates crowded conditions, pollution explosion, housing and
Planning
schooling problems etc.

After independence, the government is trying to bring about a regional

balance in industrial location as reflected in the Industrial Policy resolutions
that favour dispersal/decentralisation (because of the advantages of
deglomeration factors). Balanced growth of all the areas or judicious
dispersion of facilities in all the regions enables the nation to utilise both
human and physical resources more effectively and efficiently. Agricultural,
mineral and other resources can properly be tapped.

Moreover, employment opportunities would be more equitably distributed.

The North-Eastern Region has now being given its due consideration. Several
problems of a socio-economic nature such as, acute shortage of housing and
essential food materials, spread of epidemics, diseases and gambling etc.
arise due to the creation of slums. The slums can hopefully be reduced by
proper dispersion of industries. The people come to cities in search of
employment. This migration could be checked provided the right
opportunities are provided at the right time at their local places.

Let us see where some industries other than the jute and textile industries
which prefer a climate having high humidity are located.

Steel Plants: We find that most of the steel plants lie along the Bihar and
Bengal, Orissa belt. In the manufacture of steel, it is always economical to
transport the finished product rather than the raw material inputs like coal,
lime-stone and iron ore because during production considerable weight
reduction is involved. There also exists a port based steel plant at
Vishakhapatnam, which in addition to taking advantage of proximity of iron-
ore and coal also avails of the port facilities which aids in importing plant and
machinery during the construction phase of the steel plant and in exporting
the finished products when the plant goes into production run.

Cement Plants: Again in the case of cement manufacturing plants, the raw
materials lose weight significantly in the process of transformation, and so
the cement plants are located near the lime stone and coal deposits.

Fertiliser Industry: The main feed stocks for the fertiliser industry are gas,
oil or naphtha and coal. Here again the fertiliser plants are located near the
source of raw materials. The locations of fertiliser plants at Namroop and
Thal Vaishet based on gas, and those at Ramagundam, Talcher and Sindri
based on coal are examples. In the case of naphtha or oil based plants most of
the feed stock required is imported and hence, the plants are located near the
ports.

102
 Facilities Location
Mangalore Fertilizers at Mangalore, Madras Fertilizers at Chennai, FACT at
Cochin and Hindustan Fertilisers at Haldia are the relevant location
examples.

Machine-tool Industries: Unlike the previous cases discussed, in the

machine-tool industry case, the proximity to the source of raw material is not
very significant. A number of other factors such as market factors and
infrastructure will come into the picture. The machine tool industry is
scattered over different parts of the country such as Bangaluru, Mumbai,
Kolkata and Ludhiana etc.

Nuclear Power Stations: The selection and evaluation of sites of nuclear

power plants throughout the world have become increasingly difficult in
recent years as pressure from various societal segments has resulted in strict
consideration of the institutional environmental, safety, socio-economic and
engineering factors affecting the siting, construction and operation of such
facilities. A comprehensive site selection process presents a formidable task
to the decision makers. The site selection methodology combines selective
screening to narrow down the search area and a classification and rating
scheme to rank siting possibilities in order of preference for detailed
consideration.

The basic procedural steps used in the selective screening policy are
summarised below:

a) Countrywide screening — land availability, water availability and

seismotectonic areas,

b) Candidate regions screening — hydrology, geology, land use, meteorology,

accessibility, transmission lines, demography and topography.

c) Candidate siting areas screening — ecology and other factors as in (b)

above.

This concludes the regional' approach heading to an aggregate of possible

sites to be evaluated in detail for their suitability to host a nuclear power plant
facility.

Basic siting considerations are, Institutional (required service data, system

reliability requirements), Engineering (safety, geology, hydrology,
meteorology), Environmental (ecological sensitivity), Economic (Land cost,
cooling system alternatives) and Socio-economic (land owner dislocations,
community attitude and public acceptance).

Many electric generating facilities have been located along the banks of
rivers so as to strategically utilise readily available cooling water for plant
condenser needs. It is important to plan for effluent disposal so as to
minimise pollution whether it be in the air, water or soil and also to make
schemes to arrest the notorious noise intensity.
103
Operations
Management –
3.8 SUMMARY
An Overview
and Facilities In this unit we have dealt with an important strategic long term and non-
Planning
repetitive problem namely the facilities location problem. The traditional
factory/plant location concept has enlarged to include non-manufacturing
enterprises and service industries etc. You would have realised that facilities
location depends on a large number of factors, some concerned with the
general territory selection whereas some other factors that are relevant for
site/community selection. A large number of methods are proposed that
include subjective, qualitative, semi-quantitative and quantitative models for
facility location. Locational break-even analysis is also an aid. Weights and
ratings of factors are discussed; a median model for the single facility
rectilinear model and a gravity model for the Euclidean norm have been
outlined. Some composite location measure models like the Brown and
Gibson's model and the Bridgeman s dimensional analysis have also been
explained. At the end, some case examples of different types of requirements
for site, location for steel plant, cement mill and fertilizer factory etc. have
been discussed.

3.9 KEY WORDS

Agglomeration: Refers to advantages gained in production due to
centralisation/ concentration of industries.

Deglomeration is the antithesis of Agglomeration. It leads to a reduction in

the cost of production due to decentralisation.

Euclidean norm: The shortest path obtained by joining the reference points
by a straight line.

Facility: A facility could connote any physical object, be it a factory, hospital

or bank, relevant to location analysis.

Location of a facility: Geographic site at which a productive facility is

suited between the two reference points.

Minisium objective: An objective whereby the location analyst wishes to

minimise the sum of weighted appropriate distances between all relevant
reference points.

Rectilinear norm: A path obtained by either moving horizontally or

vertically between the two reference points.

3.10 SELF-ASSESSMENT EXERCISES

1) A manufacturer of farm equipment is considering three locations (P,Q
and R) for a new plant. Cost studies show that fixed costs per year at the
sites are

104
 Facilities Location
Rs. 4,80,000, Rs. 5,40,000 and Rs. 5,04,000, respectively whereas variable
costs are Rs. 100 per unit, Rs. 90 per unit and Rs. 95 per unit,
respectively. If the plant is designed to have an effective system capacity
of 2,500 units per year and is expected to operate at 80 per cent
efficiency, what is the most economic location? If the operational
efficiency that can be obtained is only 60, what effect would this have on
the site you had determined earlier on?

[ i) Site P (ii) Still Site P]

2) An equipment supplier has collected the following data on possible plant

locations. Costs are in Rs per year

Site P Site Q Site R

Rent and utilities Rs. 20,000 Rs. 24,000 Rs. 30,000
Taxes 4,000 3,000 2,000
Labour 1,90,000 1, 60,000 1, 80,000
Materials 2,60,000 2,64,000 2,54,000
Community service Good Poor Average
Community attitude Indifferent Indifferent Favourable
If you were responsible for making the decision on the basis of the
information given above, which site would you select and why?
Hint: Follow example 3.3 OFP =(474-474) / (474-451)= 0, OFQ = 1, OFR= 0.348
Subjective factor measure : poor – 0; Average/indifferent-1; Good/favourable – 2
Subjective Factor measure Location measure
Site C. C. Subjective Site OF SF Location
service attitude factor (x=0.67) (0.33) measure
50% 50% measure
taken taken
P 2 1 1.5* P 0 1.5 0.495**
Q 0 1 0.5 Q 1 0.5 0.835
R 1 2 1.5 R 0.348 1.5 0.728
1.5* = 2×0.50+1×0.50 0.495** = 0×0.67 + 1.5 × 0.33

Location measure score of Q is the highest, but because community

service(poor) and community attitude (indifferent), both the subjective
factors are in bad shape at this site, it cannot be recommended to be selected.
So the next preferred site is R

3) Discuss the factors that influence the location of a plant with particular
reference to Mathura Petroleum Refinery. Do you justify such a
decision?

4) It is generally felt that ”rural areas are good for locating large plant,
semi-urban areas for locating medium-sized plants, and urban areas for
small-scale plants". Comment.

105
Operations 5) A particular city is trying to find the best location for a master solid
Management –
An Overview waste disposal station. At present four substations are located at the
and Facilities following coordinate locations: station 1 (4, 12), station 2 (6.5, 4) station
Planning
3 (11, 9) and station 4 (1, 13).

The number of loads hauled monthly to the master station will be 300,
200, 350 and 400 from stations 1, 2, 3 and 4, respectively.. Use the
simple median model to find the best location. [X=4,Y=12,Haulage cost=7200p
(where p = each distance unit cost per load)]

6) For the data given in exercise 5, what would be the best location in case
the gravity model is used? Which do you think is the appropriate model
to apply in the above situation-median or gravity model?

[X=5.4, Y=10.2,TC=6037.50p(gravity) < 7200p and gravity model preferred]

7) What are the steps of a facility location study? In case you want to locate
a soft drink bottling plant, what factors would you consider relevant for
taking a location decisions? How would you go about conducting the
location study?

8) The following table gives information about the existing facilities of a

beverage company

Facility (F) Coordinate Cost of Annual load

location moving one (L) Units
(x, y) unit by unit
distance
(Rs.)
Bareilly 10, 80 10 452
Shahjahanpur 30,60 10 678
Gonda 80. 50 10 483
Kanpur 50, 10 10 711
Sultanpur 80, 10 10 539

The company wants to locate a new facility such that the total transportation
cost is the minimum. Find out the new location and the minimum cost by
using Median model and Gravity model.
[(Median (50,50), TC= Rs. 13,26,400
Gravity (49.66, 39.64), TC= Rs. 10,40,130)]

9) Udhampur Distilleries Ltd has four existing facilities A. B. C and D. The

details of these facilities are given the table below : It is desired by the
company to locate a new facility such that the total transportation cot is
the minimum. Advise the company about the best possible location using
the Median model and the gravity model. Also find the total
transportation cost.

106
 Facilities Location
Existing Facility Annual loads Cost of moving Coordinate
(F) between F and one unit by unit location (x, y)
new facility distance (Rs.)
(units)
A 279 10 20,30
B 473 10 70,10
C 350 10 50,40
D 266 10 10,80

(Median (50,30), TC = R < 5,47,5000

Gravity (43,36), TC = Rs. 3,84,900)

10) Consider a problem in which a single facility out of the three alternatives
must be located location A in Mumbai, B in Delhi and C' in Kolkata. The
following six factors are seen as the ones which should e.ume the
decision, cost of land, cost of building, taxes, labour supply, research
climate and community attitudes (details for which given below).

Factor A B C weight
land Cost (Rs.) 6,00,000 3,00,000 4,50,000 5
Building Cost (Rs.) 10,00,000 8,00,000 9,00,000 5
Taxes (Rs.) 8,00,000 5,00,000 6,50,000 5
labour supply 2 1 3 3
Research Climate 1 2 2 2
Community attitudes 3 1 3 3

Which one is your preferred choice? (use Bridgeman's Dimensional Analysis).

[(RAB> 1, B is superior to A; RAC > I, C is Superior to A; RBC < I, B is

Superior to C. Hence B is the preferred Location)]

FURTHER READINGS
Adam Jr. E.E. and R.J. Ebert. Production and Operations Management,
Prentice-Hall Inc:. Englewood-Cliffs.
Ballou, R.H. Business Logistics Management, Prentice-Hall Inc.: Englewood
Cliffs.
Buffa, E.S. Operations Management: The Management of Productive
Systems, John Wiley: New York.
Chase R.B and N.J Aquilano Production and Operations Management (8th
edition) Richard D. Irwin : Homewood
Coyle, J.J. and E.J. Bardi. The Management of Business Logistics. West
Publishing Company: New York.
Francis, R.L. and J.A. White. Facility Layout and Location. An Analytical
Approach, Prentice-Hall Inc.: Englewood-C liffs.

107
Operations
Management – UNIT 4 FACILITIES LAYOUT AND
An Overview
and Facilities MATERIALS HANDLING
Planning

Objectives
After going through this unit, you should be able to
• Appreciate different types of layout problem, become familiar with the
basic types of plant layouts and the factors to be considered for layout
design and comprehend the procedure for designing the layouts in a
systematic manner
• Understand different kinds of tools that can be used for the analysis of
material flow and activities in a plant, realise how the space is estimated
and allocated for different work centres and the facilities and know the use
of computerised techniques for designing the layouts.
• Learn how to evaluate, specify, present and implement a layout,identify
the factors that should be considered in the selection of material handling
system, become familiar with different types of material handling
equipments used in plant design and appreciate the integrated approach to
layout planning and material handling system design and the role of
automation in plant design.
Structure
4.1 Introduction
4.2 Basic Types of Plant Layouts
4.3 Plant Layout Factors
4.4 Layout Design Procedure
4.5 Flow and Activity Analysis
4.6 Space Determination and Area Allocation
4.7 Computerised Layout Planning
4.8 Evaluation, Specification, Presentation and Implementation
4.9 Materials Handling Systems
4.10 Materials Handling Equipment
4.11 Summary
4.12 Key Words
4.13 Self-assessment Exercises
4.14 Further Readings

108
 Facilities Layout
4.1 INTRODUCTION and Materials
Handling

Importance and Function

Facilities layout refers to an optimum arrangement of different facilities

including man, machine, equipment, material etc. Since a layout once
implemented cannot be easily changed and costs of such a change are
substantial, the facilities layout is a strategic decision. A poor layout will result
in continuous losses in terms of higher efforts for material handling, more scrap
and rework, poor space utilisation etc. Hence, need to analyse and design a
sound plant layout can hardly be over emphasised. It is a crucial function that
has to be performed both at the time of initial design of any facility, and during
its growth, development and diversification.

The problem of plant layout should be seen in relation to overall plant design
which includes many other functions such as product design, sales planning,
selection of the production process, plant size, plant location, buildings,
diversification etc. The layout problem occurs because of many
developments including:

• change in product design

• introduction of new product
• obsolescence of facilities
• changes in demand
• market changes
• competitive cost reduction
• frequent accidents
• adoption of new safety standards
• decision to build a new plant

Plant layout problem is defined by Moore (1962) as follows:

“Plant layout is a plan of, or the act of planning, an optimum

arrangement of facilities, including personnel, operating equipment,
storage space, materials- handling equipment, and all other supporting
services, along with the design of the best structure to contain these
facilities.”

Objectives and Advantages

Some of the important objectives of a good plant layout are as follows:

i) Overall simplification of production process in terms of equipment

utilisation, minimisation of delays, reducing manufacturing time, and
better provisions for maintenance.
ii) Overall integration of man, materials, machinery, supporting activities
and any other considerations in a way that result in the best compromise.
109
Operations iii) Minimisation of material handling cost by suitably placing the facilities in
Management –
An Overview the best flow sequence.
and Facilities
Planning iv) Saving in floor space, effective space utilisation and less congestion/
confusion.
v) Increased output and reduced inventories-in-process.
vi) Better supervision and control.
vii) Worker convenience, improved morale and worker satisfaction.
viii) Better working environment, safety of employees and reduced hazards.
ix) Minimisation of waste and higher productivity
x) Avoid unnecessary capital investment
xi) Higher flexibility and adaptability to changing conditions.

Types of Layout Problems

The facilities layout problems can be classified according to the types of facility
under consideration e.g.

i) Manufacturing Plants
ii) Commercial facilities, e.g., shops, offices, Bank etc.
iii) Service facilities, e.g., Hospitals, Post Offices etc.
iv) Residential facilities, e.g., houses, apartments etc.
v) Cities, townships
vi) Recreational facilities, e.g. parks. theatres etc.

According to the nature of layout problem, it can be categorised into four types
as follows:

• Planning a completely new facility

• Expanding or relocating an existing facility
• Rearrangement of existing layout
• Minor modifications in present layout

Flow Patterns

According to the principle of flow, the layout plan arranges the work area for
each operation, or process so as to have an overall smooth flow through the
production/service facility. The basic types of flow patterns that are employed
in designing the layouts are I-flow, L-flow, U-flow, 0-flow, S-flow as shown in
Figure 1. These are briefly explained below:

110
 Facilities Layout
and Materials
Handling

I- Flow: separate receiving and shipping area

L-Flow: when straight line flow chart to be accommodated.

U-Flow: very popular as a combination of receiving and shipping.

O-Flow: when it is desired to terminate the flow near where it is originated.

Serpentine or S-Flow: when the production line is long and zigzagging on the
production floor is required.

4.2 BASIC TYPES OF PLANT LAYOUTS

Depending upon the focus of layout design there are five basic or classical types
of layouts. Most of the practical layouts are a suitable combination of these basic
types to match the requirements of activities and flow. The basic types of the
layouts are:
111
Operations A) Product or Line Layout (B) Process or functional Layout (C) Cellular
Management –
An Overview or Group Layout (D) Project or Fixed Position Layout
and Facilities
Planning A) Product or Line Layout

This type of layout is developed for product focused systems. In this type of
layout only one product, or one type of product, is produced in a given area. In
case of product being assembled, this type of layout is popularly known as an
‘assembly line’

The work centres are organised in the sequence of operations. The raw
material enters at one end of the line and goes from one operation to another
rapidly with minimum of work-in-process storage and material handling. A
typical product layout is shown in Figure II (a).

Fig II (a) Product or Line Layout

The decision to organise the facilities on a product or line basis is dependent

upon a number of factors and has many consequences which should be carefully
weighed. Following conditions favour the decision to go for a product focused
layout.

i) High volume of production for adequate equipment utilisation.

ii) Standardisation of product and part interchangeability.
iii) Reasonably stable product demand.
iv) Uninterrupted supply of material.

The major problem in designing the product-focused systems is to decide the

cycle time and the sub-division of work which is properly balanced (popularly
known as line balancing).

Some of the major advantages of this type of layout are:

i) Reduction in material handling.

ii) Less work-in-process
iii) Better utilisation and specialisation of labour
112
 Facilities Layout
iv) Reduced congestion and smooth flow and Materials
Handling
v) Effective supervision and control.

(B) Process or Functional Layout

This type of layout is developed for process focused systems. The processing
units are tandardi by functions into departments on the assumption that.
Certain skills and facilities are available in each department. Similar
equipments and operations are grouped together, e.g., milling, foundry,
drilling, plating, heat treatment etc. A typical process layout is shown in Figure
II (b)

The use of process-focused systems is very wide both in manufacturing and other
service facilities such as hospitals, large offices and municipal services etc.

The functional layout is more suited for low-volumes of production (batch

production) and particularly when the product is not tandardized. It is
economical when flexibility is the basic system requirement. The flexibility
may be in terms of the

Fig II (b)- Process Layout

routes through the system, volume of each order, and the processing
requirements of the 'items.

The major advantages of a process layout are:

i) Better machine utilisation

ii) Higher flexibility
iii) Greater incentive to individual worker
iv) More continuity of production in unforeseen conditions like breakdown,
shortages, absenteeism etc.

(C) Cellular or Group Layout

It is a special type of functional layout in which the facilities are clubbed

together into cells. This is suitable for systems designed to use the concepts,
principles and approaches of group technology'. Such a layout offers the
advantages of mass production with high degree of flexibility. We can employ
113
Operations high degree of automation even if the number of products are more with flexible
Management –
An Overview requirements. In such a system the facilities are grouped into cells which are
and Facilities able to perform similar type of functions for a group of products. A typical
Planning
cellular layout is shown in Figure II (c).

Fig : II (c) Cellular layout

Job-shop Layout

It is a layout for a very general flexible system that is processing job production.
The preparation of such a layout is dependent on the analysis of the possible
populations of orders and is a relatively, complex affair.

Project or Fixed Position Layout

This is the layout for project type systems in which the major component is kept
at a fixed position and all other materials, components, tools, machines, and
workers etc. are brought and assembly or fabrication is carried out. This type
of layout is now not used very commonly as the machines required for
manufacturing work are big and complicated. The fixed position layout is used
only when it is difficult to move the big and major components and fabrication
is to be carried out. A typical example is- production of ships.

Some of the major advantages of fixed position layout are as follows:

i) The handling requirements for major unit are minimised.

ii) Flexible with reference to the changes in product design.
iii) High adaptability to the variety of product and intermittent demand.
iv) The responsibility for quality can be pin-pointed.
v) The capital investment is minimum.

A typical fixed position layout is shown in Figure II (d).

114
 Facilities Layout
and Materials
Handling

Figure II (d) Fixed position layout

The fixed position layout is used ideally for a project situation i.e. for one
product of a different type. As the quantity increases the production operations
can be broken down into different work centres and material can be allowed to
move rather than the machines and a process layout is preferred. With further
increase in volume i.e. with mass production the advantages of production line
can be better derived and a product layout is desirable. The break-even
analysis comprising the production volume of the three basic layouts i.e.,
product, process and fixed position layout is shown in Figure III.

Fig II: Breakeven point analysis of Basic types of Layout

Fig. III Break-even Point Analysis of Basic Types of Layouts

115
Operations
Management –
4.3 PLANT LAYOUT FACTORS
An Overview
and Facilities
Planning
The design of any layout is governed by a number of factors and the best layout
is the one that optimises all the factors. As discussed by Muther (1955) the
factors influencing any layout are categorised into the following eight groups:

i) The material factor: Includes design, variety, quantity, the necessary

operations, and their sequence.
ii) The man factor: Includes direct workers, supervision and service help, safety
and manpower utilisation.
iii) The machinery factor: Includes the process, producing equipment and
tools and their utilisation.
iv) The movement factor: Includes inter and intradepartmental transport and
handling at the various operations, storages and inspections, the materials
handling equipments.
v) The waiting factor: Includes permanent and temporary storages and
delays and their locations.
vi) The service factors: Include service relating to employee facilities such as
parking lot, locker rooms, toilets and waiting rooms etc. service relating to
materials in terms of quality, production control, scheduling,
despatching, waste control; and service relating to machinery such as
maintenance.
vii) The building factor: Includes outside and inside building features and utility
distribution and equipment.
viii) The change factor: Includes versatility, flexibility and expansion.

Each of the above mentioned factors comprise a number of features and the
layout engineer must review these in the light of his problem. Usually the layout
design process is a compromise of these various considerations to meet the
overall objectives in the best possible manner.

4.4 LAYOUT DESIGN PROCEDURE

The overall layout design procedure can be considered to be composed of four
phases viz., Phase I Location

Phase II General Overall Layout

Phase III Detailed layout

Phase IV Installation

Some important guidelines that help in the layout design are:

i) Plan from whole to details

ii) First plan the ideal and then move to the practical aspects
116
 Facilities Layout
iii) Material requirements should be central to the planning of process and and Materials
machinery. Handling

iv) Modify the process and machinery by different factors to plan the layout.

Though there is always an overlap in the different phases of layout design the
major steps that have to be followed in the layout design are outlined as
follows:

i) Statement of the problem in terms of its objective, scope and factors to be

considered.
ii) Collection of basic data on sales forecasts, production volumes, production
schedules, part lists, operations to be performed, work measurement,
existing layouts and building drawings etc.
iii) Analysis of data and its presentation in the form of various charts.
iv) Designing the production process
v) Planning the material flow pattern and developing the overall material
handling plan.
vi) Calculation of equipment requirements and work centres
vii) Planning of individual work centres
viii) Selection of material handling equipment
ix) Determining storage requirements
x) Designing activity relationships
xi) Planning of auxiliary and service facilities
xii) Calculation of space requirements and allocation of activity areas
xiii) Development of Plot Plan
xiv) Development of Block Plan
xv) Development of detailed layouts in terms of steps (vii) to (xi)
xvi) Evaluation, modification and checking of layouts
xvii) Installation of layouts
xviii) Follow up.

The S.L.P. (Systematic Layout Planning) procedure as presented by Francis

and White (1974) is shown in Figure IV. We see that once the appropriate
information is gathered, a flow analysis can be combined with an activity
analysis to develop the relationship diagram. Space considerations when
combined with the relationship diagram lead to the construction of the space
relationship diagram. Based on the space relationship diagram, modifying
considerations and practical limitations, a number of alternative layouts are
designed and evaluated.

117
Operations
Management –
An Overview
and Facilities
Planning

Fig IV- Systematic Layout Planning Procedure

4.5 FLOW AND ACTIVITY ANALYSIS

Data Collection

The development of any layout is dependent on the quality and quantity of facts
that we have about the various factors influencing it. The data collection phase
is not a one time effort but an ongoing function. The data for overall plan is to be
collected at initial stages whereas the data for detailed layouts may be obtained
at a later stage.

The facts have to be obtained regarding various materials and processes, the
flow routing and sequencing, space requirements, and different activities and
relationships. The information required about the materials and processes is
listed in Table 1. We will now discuss some of the tools and techniques that help
in the layout analysis..

118
 Facilities Layout
and Materials
Handling

Process Charts

There are many types of process charts that can be developed. The most
commonly used ones are operation process charts and Flow Process Charts. ,

Operation Process Chart: This is a graphic representation that describes the different
operations (O) and inspection () in a sequential manner including information
regarding time and location etc.

xix) Flow Process Chart: The arrangement of facilities in a production process

govern the flow of product and vice-versa. Thus the analysis of flow should
be carried out closely when formulating a plant layout proposal. The flow
process chart summarises the flow and activity of a component/man through
a process or procedure in terms of sequence of operation, transportation,
inspection, delay and storage. It includes the information about time
required and distance moved. A sample flow process chart is shown in
Figure V.

Flow -Diagram

It is a sketch of the layout which shows the location of all activities appearing on
a flow process chart. The path of movement of material or man is traced on the
flow diagram. The different activities are given by process chart symbols with a
number. This gives an idea about the overall flow through the plant in a
pictorial manner.

Any back tracking or crisis crossing of the flow can be pin-pointed and the
layout engineer can redesign the layout for a smoother flow by minimising these
wasteful flows. If necessary a three dimensional flow diagram can be developed,
particularly in case of multi-storeyed buildings. This helps in the activity
relationship diagram which when superimposed by space relationship results
in block plan. 119
Operations Travel Chart
Management –
An Overview
and Facilities It is also known as From-To Chart.
Planning
This chart is helpful in analysing the overall material flow. It indicates the
distance and number of moves between different pairs of departments taken as
origin and destination. The travel chart is helpful in the process type layout
design; but in product layout, it is not important. It indicates the relationship
between different departments in terms of material interaction. Attempts
should be made in layout design to put those departments close to each other
which have high level of material interaction so as to minimise the materials
handling requirements provided other objectives are also satisfied. In most of
the practical situations, it may be difficult to achieve the theoretical optimum,
but the closest possible solution to the optimum. should be approached.

Figure V: Flow Process Chart Summaries The Flow and All Activity of A Component
Through its Manufacturing Process

The travel chart summarises the data on material handling in compact matrix
120 form, which is amenable to computer applications also. Further, the information
 Facilities Layout
regarding the bulk of material handled, mode of material handling and material and Materials
handling equipment etc. may also be listed to make it more informative. Handling

The following example will explain the travel chart.[Fig VI(a to d)]

Existing plant layout showing the locations of various departments (A to F) is

given in the Fig VI (a)

A B C
D E F

Fig VI (a) First step: (Existing Layout)

2nd Step : Movements from A to B are 20,B to A 10, B to C 15, A to F 25, C

to D 30,D to C 50,D to F 40,E to F 10 and F to E 15

3rd Step : A square Grid is drawn and the various movements are marked Fig
VI (b)

4th Step : Fig VI(c) is simplified by combining movements like A to B (20)

and B to A (10) which involve same distance and ,therefore, total movement.

From A B C D E F From A B C D E

To To
A 10 A
B 20 B 30

C 15 50 C 15

D 30 D 80
E 15 E

F 25 40 10 F 25 40 25

Fig. vi(b) Fig. VI(c)

This Simplified Travel Chart (see Fig VI (c)) shows the movement as follows

According to these figures maximum number of movements are between

departments C and D, Hence in the plant layout these two departments should
be side by side. The next lesser number of movements are between D and F,
hence D and F should also lie closer to each other and so on.As a result the
existing plant layout can be modified as shown in Figure VI (d)
121
Operations C D A
Management –
An Overview E F B
and Facilities
Planning
Fig VI(d) Modified Layout

Departement C and D (80), D and F (40), A and B (30), A and F (25), E and
F (25) are closure to each other whereas B and C which have minimum
number of movements (i.e 15) between them, are away from each other

Some of the important advantages and uses of travel chart are:

i) It helps in analysing the material movement

ii) It aids in determining activity locations
iii) It alternates flow patterns and layouts can be compared
iv) It shows relationship of different activities in terms of volume of
movement.
v) It depicts quantitative relationships which can be used for computerised
analysis and OR applications.

REL CHART. This is known as ‘Relationship Chart’ which indicates the

relationship between pairs of departments in terms of closeness depending
upon the activities of the departments as A-Absolutely essential, E-Essential,
I-Important, O-Ordinary, U-Unimportant and X-Undesirable. A typical Rel
Chart is shown in Fig VII.

Fig VII: REL Chart

For the given nearness diagram expressing the proximity requirements, we

can attempt to arrange the work centres into a suitable 2×4 or 4×2 grid.
Shown below is the method of construction of the proximity grid (The
method is self-explanatory).
122
 1 Facilities Layout
3
2 and Materials
Handling

2(A) 8(I)
8(I) 3(E) 8(I) 4(A)
3(I) 6(U)
4(I) 5(X) 6(0) 7(I) 4(E) 7(E) 5(0) 6(U)
5(X) 6(0)

4 5 6 7

5(U) 8(A)
6(O) 7(I) 6(U) 7(X) 8(A) 7(0) 8(0) 8(0)

Step 1. Show the various work centres with their nearness with respect to
other work centres in an exploded form as shown above.

2(A) 3,4, 7(E) 4(A)

3,4,6, 8(I) 8(I) 8(I)

I 2 3

6(O) 6(O) 5(O)

5(X)
5(X) 6, 7(U)

8(A)
8(A)

7(I)
4
5 6(U) 6 7, 8(O) 7 8(O)
6(O)

5(U)
7(X)

Step 2. Next show the nearness of other centres with their attributes of
proximity (A, E, I, O, U, X) with respect to work stations 1, 2, 3, 4, 5, 6. 7, 8
as shown above.

1 3
1 2 7 6 Or 2 4
3 4 8 5 7 8
6 5

Arrangement of work centres in 2 x 4 or 4 x 2 grid.

123
Operations Step 3: Finally arrange the various work centres in the proximity grid of 2×4
Management –
An Overview or 4×2 as shown above
and Facilities
Planning Example 4.1: Given the following nearness diagram expressing the
proximity requirements.

Arrange the work centres into a suitable 2×3 or 3×2 grid. The symbols
A,E,I,O,U,X have their usual meaning.

Work Centre 1
I
Work Centre 2 U
U A
Work Centre 3 E E
X E X
Work Centre 4 I I
O E
Work Centre 5 U
U
Work Centre 6

2 1 3 or 2 5
Solution 5 4 6 1 4
3 6

2 × 3 grid 3 × 2 grid

Application of Quantitative Techniques

The techniques of Operations Research can be applied to quantitatively analyse

the layout problems, particularly. in terms of material flow. Some of the
important techniques that have been applied by different researchers in the field
of layout planning are as follows:

i) Linear Programming
ii) Transportation Algorithm
iii) Transhipment Problem
iv) Assignment Problem
v) Travelling Salesman Problem
vi) Dynamic.Programming
vii) Queueing Theory
viii) Simulation.

Linear Programming is used when there is a linear objective function which is to

be maximised/minimised subject lo certain linear constraints. In the layout
design the objective is to minimise the Materials handling. 'Transportation
and assignment problems are special cases of Linear Programming. Further, to
meet the multiple objectives of layout planning attempts have also been made
to apply Goal Programming as a technique of Multi-criteria Decision-
124 making. These operations research techniques are discussed in other course.
 Facilities Layout
4.6 SPACE DETERMINATION AND 'AREA and Materials
ALLOCATION Handling

In the layout planning process the space is allocated to different activities.

The requirement of space by a facility bears a close relationship to equipment,
material, personnel and activities. Two major methods that are being used for
space calculations are space based on present layout and production centre
method.

Space Based on Present Layout

This approach is suitable when the proposed layout is to be developed for an

existing product. While determining the space, consideration should be given
to space required for the following:
• operating equipment
• storage
• service facilities,
• operators

Allowance must be made for space between machines for operator movement,
work in-process, access of materials handlers and maintenance personnel etc.

Production Centre Method

The space for each production centre is determined including the space for
machines, tool cabinets, worked and unworked parts, access to the aisle and
maintenance. In this method actual arrangement of equipment is considered
for space calculation. The departmental space is calculated by multiplying it
with the number of production centres in that department.

Work Place Layout

The details of the arrangements at a work centre is to be provided in terms of the

machines and auxiliary equipment, operator, tools, materials and auxiliary
services. The procedure for work place design is as follows:

i) Determination of direction of overall flow

ii) Determination of the desired direction of flow at work place
iii) Determination of the items contained in a work place
iv) Sketching the arrangement of these items
v) Specifying the sources of material and direction of flow
vi) Indicating the destination of material
vii) Method of waste disposal specified
viii) Sketching the material handling equipment
ix) Checking the arrangements against the principles of motion economy
x) Marking of distances between items 125
Operations xi) Recording the layout on scale
Management –
An Overview xii) Indicate method of operation on chart,
and Facilities
Planning
Area Allocation

The activity relationships and space requirements are integrated to allocate the
areas which forms the basis for detailed layout planning. There are a number of
factors that should be considered for area allocation, some important ones are:

i) Area should be allocated for expansion purposes. The allocation of

expansion area depends upon the type of flow pattern i.e. straight line, U-
flow and 0-flow etc.
ii) Area allocation to maintain flexibility in layout.
iii) Maximum use of third dimension
iv) Area allocation for point of use storage and centralised storage
v) Area allocation for aisles
vi) Consideration of column spacing.

4.7 COMPUTERISED LAYOUT PLANNING

A recent trend has been the development of computer programme to assist the
layout planner in generating alternative layout designs. Computerised layout
planning can improve the search of the layout design process by quickly
generating a large number of alternative layouts.

Computer programmes are generally either construction programmes or

improvement programmes:

i) Construction programmes CORELAP (Computerised

Relationship Layout Planning)
(Successive selection and placement
ALDEP (Automated Layout Design
of activities)
Programme)
ii) Improvements programmes CRAFT
(Computerised Relative Allocation
of Facilities Techniques)

A complete existing layout is required initially and locations of department

are inter-changed to improve the layout design.

Both ALDEP and CORELAP are concerned with the construction of a layout
based on the closeness ratings given by the REL chart.

CRAFT is concerned. with the minimisation of a linear function of the

movement between departments. Typically CRAFT employs an improvement
procedure to obtain a layout design based on the objective of minimising
material handling costs.
126
 Facilities Layout
CORELAP (computerised Relationship layout Planning) and Materials
Handling
It begins by calculating which of the activities in the layout is the busiest or
most related. The sums of each activity's closeness relationships with all other
activities are compared and the activity with the highest total closeness
relationship (TCR) count is selected and located first in the layout matrix. This
activity is named Winner. Next, an activity which must be close to the winner
is selected and placed as adjacent as possible to winner: This activity is denoted
as A (closeness absolutely necessary) and is named Victor. A search of
winner's remaining relationships for more A-related victors is then made.
These are placed, again, as close to each other as possible. If no more A's can be
found, the victors become potential winners and their relationships are
searched for A's. If an A is found, the victor becomes the new winner, and the
procedure is repeated. When no A's are found, the same procedure is repeated
for E's (closeness Especially important), I's (closeness important), and 0's
(Ordinary closeness o.k.) until all activities have been placed in the layout.
CORELAP also puts a value on the U (closeness Unimportant) and X
(closeness not desirable) relationship.

ALDEP (Automated layout Design Programme)

It uses a preference table of relationship values in matrix form to calculate the

scores of a series of randomly generated layouts. If for example, activities 11
and 19 are adjacent, the value of the relationship between the two would be
added to that layout's score. A modified random selection technique is used to
generate alternate layouts. The first activity is selected and located at random.
Next, the relationship data are searched to find an activity with a high
relationship to the first activity. This activity is placed adjacent to the first. If
none is found, a second activity is selected at random and placed next to the first.
This procedure is continued until all activities are placed. The entire procedure
is repeated to generate another layout. The analyst specifies the number of
layouts wanted which must satisfy a minimum score.

CRAFT(computerised Relative Allocation of Facilities Techniques)

It is the only one which uses flow of materials data as the sole basis for
development of closeness relationships. Material flow, in terms of some unit
of measurement (pounds per day, in terms of skid-loads per week), between
each pair of activity areas, forms the matrix to the programme.

A second set of input data allows the user to enter cost of moving in terms of cost
per unit moved per unit distance. In many cases this cost input is unavailable
or inadequate, in which case it can be neutralised by entering 1.0 for all costs
in the matrix.

Space requirements are the third set of input data for CRAFT. These take the
form of an initial or an existing layout. For new area layouts, hest guess or even
completely random layouts can be used. In any case, activity identification
numbers, in a quantity approximate to their space requirements, are entered in 127
Operations an overall area of close proximity. The location of any activity can be fixed in
Management –
An Overview the overall area through control cards. CRAFT limits the number of activities
and Facilities involved in the layout to 40.
Planning

4.8 EVALUATION, SPECIFICATION,

PRESENTATION AND IMPLEMENTATION
Plot Plan

It is a diagrammatic representation of the building outline, showing its location

on the property, the location of external transportation facilities and other
items such as tanks, storage areas and parking lots etc. It can be used as a key
or master drawing for locating separate detailed drawings of the layout. The
plot plan is presented in the form of a drawing or as a scaled model.
Block Plan
A block plan is a diagrammatic representation showing internal partitions of
departments, columns and area allocation but not machinery, equipment and
facilities. This is usually presented in the form of drawings and is used as a
reference or master for detailed layouts of different departments. This shows the
area allocations for aisles and column spacing etc.
Detailed Layout
It is a diagrammatic representation of the arrangement of equipment operator
and materials along with the arrangement of supporting activities. The detailed
layout can be constructed by utilising any one of the following methods
• drafting or sketching
• templates
• models

A template is a scaled representation of a physical object in a layout may be of a

machine, workman, material handling equipment, work-in-process and
storage etc.

Models are three dimensional representations of the physical objects which give
depth to the layout and make it more presentable.

These templates and models may be prepared from cardboard, paper, sheet
metal, plastic or wood and may be black and white or coloured. These may be
attached to the backing material by using various fastening devices such as glue,
staples, rubber cement, thumbtacks and magnetism etc.

Checking the Layout

The layout finally developed should be checked for

• overall integration
• minimum distance moved
• smooth flow of the product
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• space utilisation Facilities Layout
and Materials
• employee satisfaction and safety Handling
• flexibility

The flexibility should be introduced in building and services by providing

unobstructed floor area and in equipment by mounting them on wheels or skids.

Evaluation of Layout

The evaluation may be done of an existing layout or of an alternative layout. The

basis for evaluating the layout might include:

i) the objectives of layout planning

ii) cost comparison with other alternatives
iii) return on investment
iv) intangible factors which must be evaluated on the basis of judgment.
v) productivity evaluation
vi) space evaluation
vii) ranking
viii) pilot plant
ix) sequence demand-straight line-considering the sequence of operations on
a variety of parts.
x) Factors analysis by weighing various factors according to their
importance.

The optimising evaluation can also be done by using Operations Research

Techniques such as
• Linear Programming
• Line Balancing
• Level Curve Concept

Mathematical models express the effectiveness of layout as a function of a set

of variables which can be evaluated. Some other mathematical techniques of
evaluation are:
• Monte Carlo Method
• Queuing Theory
• Engineering Economy
• Analogues

These are not discussed in details here.

Installation of Layout

The layout is presented in the following ways:

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Operations i) The Visual presentation of the layout itself, supplementary details and facts
Management –
An Overview and supplementary charts and displays.
and Facilities
Planning ii) An Oral report
iii) A Written report

When the final layout is approved it is installed in a number of phase, and it is

needed to prepare
• detailed drawings
• precise specifications of production and materials handling equipment
• detailed listing of all equipment and utility requirements
• actual plans and schedule of construction and installation.

The techniques of project management such as CPM/PERT may be used for

planning and monitoring the progress of the layout installation.

4.9 MATERIALS HANDLING SYSTEMS

We have discussed in previous sections the analysis of material flow and the
design of layout based on it. We have referred to the selection of material
handling equipment and area allocation for it. Materials handling is the art
and science involving the movement, packaging and storing of substances in
any form.Material Handling is a system which forms the various factors
of movement, tranfer, warehousing, in-process handling and shipping
into one independent cycle considering the most economical solution for
the respective plant. In this section we will discuss about the objectives of the
material handling system design, basic types of material handling systems and
the procedure for the design and selection of material handling system while
developing a plant layout.

Objectives and Functions

In order to perform the activities of materials handling the basic goal is to

minimise the production costs. This general objective can be further subdivided
into specific objectives as follows:

i) To reduce the costs by decreasing inventories, minimising the distance to be

handled and increasing productivity.
ii) To increase the production capacity by smoothing the work flow.
iii) To minimise the waste during handling
iv) To improve distribution through better location of facilities and improved
routing.
v) To increase the equipment and space utilisation.
vi) To improve the working conditions.
vii) To improve the customer service.
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 Facilities Layout
The analysis of materials handling requirements can be carried out by using and Materials
travel charts and other quantitative techniques as outlined in section 4.5. Handling

The basic materials handling function has to answer a number of questions as

follows:

i) Why do this at all? Justifying the necessity of material handling.

ii) What material is to be handled? Giving the type (unit, bulk etc.),
characteristics (shape, dimension etc.) and quantity.
iii) Where and when? Specifying the move in terms of source and destination,
logistics, characteristics (distance, frequency, speed and sequence etc.) and
type (transporting, conveying and positioning etc.)
iv) How? And Who? Specifying the method in terms of the handling unit (load
support, container, weight, number etc.), equipment, manpower, and
physical restrictions (column spacing, aisle width and congestion etc.)

Basic Materials Handling Systems

The different material handling systems can be classified according to the type of
equipment used, material handled, method used or the function performed.

Equipment-Oriented Systems: Depending upon the type of equipment

used, there are several systems.

i) Overhead systems
ii) Conveyer systems
iii) Tractor-trailor system
iv) Fork-lift truck and pallet system
v) Industrial truck systems
vi) Underground systems.

Material Oriented Systems: These may be of the following types.

i) Unit handling systems

ii) Bulk handling systems
iii) Liquid handling systems

A unit load consists of a number of items so arranged that it can be picked up

and moved as a single entity such as a box, bale, roll etc. Such a system is more
flexible and requires less investment.

Method Oriented Systems: According to the method of handling and method of

production, the material handling systems can be:

i) manual systems
ii) mechanised or automated systems
iii) job-shop handling systems, or 131
Operations iv) mass-production handling systems
Management –
An Overview
and Facilities
Function Oriented Systems: The systems can be defined according to the
Planning material handling function performed as follows:

i) Transportation systems
ii) Conveying systems
iii) Transferring systems
iv) Elevating systems

Selection and Design of Handling System

The selection and design of the material handling system should be done
alongside the development of the layout as each one affects each other. Hence,
an integrated approach to the design process is usable. A computerised
technique known as COFAD (Computerised Facilities Design) has been
developed for integrated handling system and layout design. The steps to be
followed in the selection and design of handling systems are as follows:

i) Identification of system
ii) Review of design criteria and objectives of the handling system
iii) Data collection regarding flow pattern and flow requirements
iv) Identification of activity relationships
v) Determining space requirement and establishing material flow pattern
vi) Analysis of material and building characteristics
vii) Preliminary selection of basic handling system and generation of
alternatives considering feasibility of mechanisation and equipment
capabilities
viii) Evaluation of alternatives with respect to optimal material flow, utilising
gravity, minimum cost, flexibility, ease of maintenance, capacity
utilisation and other objectives of the system design considering various
tangible and intangible factors
ix) Selection of the best suited alternative and checking it for compatibility
x) Specification of the system
xi) Procurement of the equipment and implementation of the system

4.10 MATERIALS HANDLING EQUIPMENT

After the simplification of the handling method the selection of equipment is
important with respect to the different objectives of speed, efficiency-cost etc.
There are both the manual and powered kind of handling equipments. Some of
the typical handling equipments arc shown in Figure VIII. Apple (1982)
(Apple James M-plant Layout and Material Handling- New York. James

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 Facilities Layout
Wiley and Sons-1982) has classified the handling equipments into four basic and Materials
types, viz., conveyers, cranes and hoists, trucks, and auxiliary equipment. Handling

Conveyers

These are gravity or powered devices commonly used for moving uniform loads
from point to point over fixed paths, where the primary function is conveying.
Commonly used equipment under this category are:

i) Belt Conveyer
ii) Roller Conveyer
iii) Chain Conveyer
iv) Bucket Conveyer
v) Trolley Conveyer
vi) Screw Conveyer
vii) Pipeline Conveyer
viii) Vibratory Conveyer
ix) Chute.

Cranes, Elevators and Hoists

These are overhead devices used for moving varying loads intermittently
between points within an area, fixed by the supporting and binding rails, where
the primary function is transferring or elevating. Some common examples are:

i) Overhead travelling crane

ii) Gantry crane
iii) Jib crane
iv) Elevators
v) Hoists
vi) Stacker crane
vii) Winches
viii) Monorail

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An Overview
and Facilities
Planning

(a) Bell conveyer

(d) Mobile crane

(e) Hand trolley

(b) Roller conveyor

(f) Fork lift truck

(c) Mono rall

Fig. VIII: Material Handling Equipment

Industrial Trucks and Vehicles

These are hand operated or powered vehicles used for movement of uniform or
mixed loads intermittently over various paths having suitable running
surfaces and clearances where the primary function is manoeuvering or
transporting. These include:

i) Fork lift truck

ii) Platform truck
iii) lndustrial tractors and traitors
iv) lndustrial cars
v) Walkie truck
vi) Two-wheeled hand truck or trolley
vii) Hand stacker

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 Facilities Layout
Auxiliary Equipment and Materials
Handling
These are devices or attachments used with handling equipment to make their
use more effective and versatile. Some common examples are:

i) Ramps
ii) Positioners
iii) Pallets and skids
iv) Pallet loader and unloader
v) Lift truck attachments
vi) Dock boards and levelers
vii) Containers
viii) Below the hook devices
ix) Weighing equipment

4.11 SUMMARY
1n this unit we have discussed different types of layout problems. The basic
types of plant layouts have been identified as product layout, process layout, job
shop layout, cellular layout and fixed position layout. The factors to be
considered in designing plant layout are outlined as man, material, machine,
movement or flow, service facilities, building and flexibility.

The tools and techniques for analysing the flow of materials and the activities
have been discussed. Some important tools are, flow process chart, flow
diagram, travel chart, REL chart etc. By making use of these tools a
systematic layout planning procedure has been discussed starting from the
development of plot plan to detailed work place layout. The use of computers in
layout planning has been highlighted and computerised techniques named as
CORELAP, ALDEP and CRAFT have been outlined. The art of presentation
and implementation of the layout has been briefly dealt with. The selection of
materials handling system has been presented along with the important types of
materials handling equipments. The important concepts in automation in
layout and materials handling have been touched upon.

4.12 KEY WORDS

ALDEP: Automated Layout Design Programme

Block Plan: A diagrammatic representation showing internal partitions of

departments, columns and area allocation but not machinery, equipment or
facilities.

CORELAP: Computerised Relationship Layout Planning

CRAFT: Computerised Relative Allocation of Facilities Technique.

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Operations Facility: Any production, operation or service unit is termed as facility, e.g.
Management –
An Overview plant, stores, bank, hospital, machine, equipment and service centre etc.
and Facilities
Planning Flow Diagram: A sketch of the layout which shows the location of all activities
appearing on a flow process chart.

Flow Process Chart: 1t summarises the flow and activity of a component/man

through a process or procedure in terms of sequence of operation, transportation,
inspection, delay and storage.

Materials Handling: It is the art and science involving the movement,

packaging and storing of substances in any form.

Plant Layout: A plan or the act of planning, an optimum arrangement of

industrial facilities including operating equipment, personnel, storage space,
materials handling equipment and all other supporting services, along with
the design of the best structure to contain these facilities.

Plot Plan: A diagrammatic representation of the building outline, showing its

location on the property, the location of external transportation facilities and
other items such as tanks, storage areas and parking lots etc.

Process Layout: Also known as functional layout groups together the facilities
according to process or function in a department.

Product Layout:. Also known as line layout is an arrangement of facilities

according to the product; suitable for one type of product.

REL Chart: It indicates the relationship between pairs of departments in terms

of closeness rating dependent upon the activities of the department as
absolutely essential, essential, important, ordinary, unimportant or not
desirable.

SLP: Systematic Layout Planning.

Template: A scaled representation of a physical object in a layout may be of a

machine, workman, materials handling equipment, work in process, and
storage etc.

Travel Chart: It indicates the distance and number of moves between different
departments, taken as origin and destination.

4.13 SELF-ASSESSMENT EXERCISES

1) Enumerate the basic types of plant layouts. Haw does a cellular layout differ
from a process layout?

2) What are the different factors that should be considered for designing a plant
layout?

3) Prepare a flow chart for overhauling the engine of an automobile.

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 Facilities Layout
4) What is the significance of travel charts in layout design? Prepare a travel and Materials
chart for a hypothetical engineering concern with five functional Handling
departments, i.e foundry, forging, machining, welding and inspection
(you may assume your own data). Given this travel chart proceed to find
the locations of different departments.

5) How can the relationships of different departments be considered in

preparing a layout? Prepare a REL chart for the different departments of a
typical hospital.

6) What is Systematic Layout Planning?

7) What are the different factors that you will consider in determining the space
requirement of a particular facility? Allocate the areas to different
departments considered in exercise 4 and develop a block plan.

8) Outline the basic logic used in CORELAP, ALDEP and CRAFT. Can the
layout generated by these computerised techniques be directly
implemented?

9) How will you specify and present a layout developed for the purposes of
implementation?

10) What is the importance of materials handling in designing a layout? How

will you go about selecting the materials handling system?

11) What are the different kinds of materials handling equipments used? is a
totally automated materials handling system desirable in a job shop?

4.14 FURTHER READINGS

Adam Jr E.E and R.J.Ebert,. Production and Operations Management
Prentice- Hall Inc:.Englewood-Cliffs

Ballou,R.H. Business Logistics Management, Prentice-Hall Inc:.Englewood-

Cliffs.

Buffa,E.S. Operations Management: The Management Of Productive

Systems,John Wiley:New York

Chase R.B and N.J Aquilano. Production in operations Management. Richard

D Edwin:Homewood.

Waghodekar, P.H. and S. Sahu: A critique of Some Current Plant Layout

Techniques, International Journel Of Operations and Production
Management, Vol 6 (No 1)

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Management –
An Overview
and Facilities
Planning

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