Industrial Engineering

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Mechanical Engineering

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 Syllabus

Syllabus of Industrial Engineering

Production Planning and Control: Forecasting models, aggregate production planning,
scheduling, materials requirement planning.

Inventory Control: Deterministic and probabilistic models; safety stock inventory

control systems.

Operations Research: Linear programming, simplex and duplex method, transportation,

assignment, network flow models, simple queuing models, PERT and CPM.

Analysis of GATE Papers

Year Percentage of Marks Overall Percentage

2015 5.00

2014 6.00

2013 6.00

2012 5.00

2011 0.00 7.03%

2010 12.00

2009 11.00

2008 9.33

2007 5.33

2006 10.67

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 Contents

Contents
Chapter Page No.
#1. Production, Planning and Control 1 – 18
 Forecasting 1– 3
 Statistical Forecasting 3– 4
 Production Planning and Control 4– 6
 Break – Even - Point (B.E.P) 6–7
 Solved Examples 8 – 11
 Assignment –1 12 – 13
 Assignment –2 13 – 14
 Answer Keys Explanations 15 – 18

#2. Inventory Control 19 – 40

 Inventory 19 – 20
 Inventory Models 20 – 30
 Solved Examples 31 – 35
 Assignment – 1 36
 Assignment – 2 37 – 38
 Answer Keys Explanations 38 – 40

#3. Operations Research 41 – 98

 Introduction 41
 Linear Programing 41 – 51
 Transportation Problems 51 – 69
 Assignment Problems 70 – 71
 Algorithms to Solve Assignment Model 72
 Method to Find the Total Opportunity Cost Matrix 72 – 76
 Queuing Models 76 – 82
 CPM and PERT 82
 Methodology of CPM 83
 Terminology used in CPM/PERT 83 – 84
 Rules of Constructing Network Diagram 85
 Difference Between CPM and PERT 85 – 86
 Solved Examples 86 – 91
 Assignment – 1 92 – 93
 Assignment – 2 94 – 95
 Answer Keys Explanations 96 – 98

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 Contents

Module Test 99 – 105

 Test Questions 99 – 103
 Answer Keys Explanations 103 – 105

Reference Books 106

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 "If you don't set goals, you can't regret
not reaching them."

1
……Yogi Berra

1
CHAPTER

Production, Planning and

Control

Learning Objectives
After reading this chapter, you will know:
1. Introduction, Production System, Productivity.
2. Break Even Analysis, Fixed and Variable Cost, Margin of Safety.
3. Break Even Point (B.E.P.).

Forecasting
The main purpose of forecasting is to estimate the occurrence, timing or magnitude of future events.
Once, the reliable forecast for the demand is available, a good planning of activities is needed to
meet the future demand. Forecasting thus provides the input to the planning and scheduling
process.

Types of Forecasting
1. Long Range Forecast
Long range forecast consists of time period of more than 5 years. The long range forecasting is
useful in following areas,
 Capital planning
 Plant location
 Plant layout or expansion
 New product planning

2. Medium Range Forecast

Medium range forecast is generally from 1 to 5 years. The medium range forecasting is useful in
the following areas,
 Sales planning
 Production planning
 Capital and cash planning
 Inventory planning

3. Short Range Forecast

The short range forecast is generally for less than 1 year.
 Purchasing
 Overtime decision
 Job scheduling
 Machine maintenance
 Inventory planning
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 Production, Planning and Control

Quantitative Methods of Forecasting

1. Extrapolation
Extrapolation is one of the easiest ways to forecast. In this method, based on the past few
values of production capacity, next value may be extrapolated on a graph paper.

2. Simple Moving Average

In this method, mean of only a specified number of consecutive data which are most recent
values in the series is calculated. Forecast for ( t+1)th period is given by,
t
1
Ft+1 = ∑ Di
n
i=t+1−n
Where, Di = Actual demand for ith period & n= Number is periods included in each average.

3. Weighted Moving Average

In this method, more weightage of given to the relatively newer data. The forecast is the
weighted average of data.
t

Ft+1 ∑ Wi Di
i=t+1−n
Where, Wi = Relative weight of data for ith period and
t

∑ Wi = 1
i=t+1−n
It may be noted that when more weight is given to the recent values, the forecast is nearer to
likely trend. Weighted moving average is advantageous as compared to simple moving
average as it is able to give more importance to recent data.

Example: The value of moving average base n lies between

(A) 0 & 1 (C) −1 & 1
(B) 2 & 10 (D) None of these
Solution: [Ans. A]

4. Exponential Smoothing
In the exponential smoothing method of forecasting, the weightage of data diminishes
exponentially as the data become older. In this method all past data is considered. The
weightage of every previous data decreases by (1 – α), where α is called as exponential
smoothing constant.
Ft = α Dt−1 + α(1 − α)Dt−2 + α(1 − α)2 Dt−3 + α(1 − α)3 Dt−3 … . ..
Where,
Di = One period ahead forecast made at time t
Dt = Actual demand for tth period
α = Smoothing constant (0≤α ≤1)
Comments regarding Smoothing constant α,
Smaller is the value of α, more is the smoothing effect in forecast.
Higher value of α gives more robust forecast and response more quickly to changes
Higher value of α gives more weightage to past data as compared to smaller value.

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 Production, Planning and Control

Example: The limitation in moving average method for forecasting cans,

(A) Demand pattern is stationary
(B) Demand pattern is varying
(C) Demand pattern has a constant mean value
(D) Both A & C
Solution: [Ans. D]

Example: Find relationship between exponential smoothing coeff. (α) and N, so that responses are
same.
1 1 1 1 1
Solution: Average life of data S = 0 × + 1 × + 2 × + 3 × + … … + (N − 1) ×
N N N N N
(0+1+2+3……..+(N−1))
Or, average life of data =
N
1
(N−1)(N−1+1) 1 N
S= 2
= (N − 1)
N 2 N
1
= (N − 1) . . . . (i)
2
Average life of data for exponential smoothing
S = 0×α + 1× α (1 − α) + 2×α(1 − α)2 + . . . . . . . . + (N − 1) α(1 − α)N−1 + . . . . . ∞
= α(1 − α) + 2α(1 − α)2 +3α(1 − α)3 + . . . . . . . .
= α[(1 − α) + 2(1 − α)2 + 3(1 − α)3 + . . . . . .. . ] . . . . . . . (ii)
Now, multiplying (ii) by (1 – α) and subtracting from (ii) we get
S = α[(1 − α) + 2(1 − α)2 + 2(1 − α)3 + 3(1 − α)4 … … … . ]
−(1 − α)S = −α[(1 − α)2 − 2(1 − α)3 − 3(1 − α)4 . . . . . .. . ]
S[1 − (1 − α)] = α[(1 − α) + (1 − α)2 + (1 − α)3 + (1 − α)4 + . . . . . .. . ]
(1 − α) α(1 − α) 1−α
Or, S × α = α = = 1 − α or, S = … . . (iii)
1 − (1 − α) α α
From (i) & (iii)
1−α N−1
=
α 2
2 − 2α = Nα –α
Or, Nα = −2α + 2 + α = −α + 2 = 2 − α
Or, Nα + α = 2
2
Or, α(N+1) = 2 , Or, α=
N+1

Statistical Forecasting
Statistical forecasting is based on the past data. We evaluate the expected error for the statistical
technique of forecasting. Some common regression functions are as follows.
Let,
Ft = Forecast for time period t
dt = Actual demand for time period t
t = time period
1. Linear Forecaster
Ft = a+b(t)
Where a and b are parameters

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 Production, Planning and Control

2. Cyclic Forecaster
Ft = a+ u Cos (2/N)t + v Sin (2/N)t
Where a, u and v are parameters and N is periodicity
3. Cyclic Forecaster with Growth
Ft = a+ b(t)+ u Cos (2/N)t + v Sin(2/N)t
Where a, b, u and v are parameters and N is periodicity
4. Quadratic Forecaster
Ft =a +b(t)+c(t)2
Where a, b and c are parameters

Accuracy of Forecast
Many factors affect the trend in data therefore it is impossible to obtain an exact right forecast.
Below are the tools that are used to determine the error in the forecasted value.
1. Mean Absolute Deviation (M.A.D.)
This is calculated as the average of absolute value of difference between actual and forecasted
value.
∑nt=1|Dt − Ft |
MAD =
n
Where,
Ft = Actual demand for period t
Dt = Forecasted demand for period t
n= number of periods considered for calculating the error
2. Mean Sum of Square Error (M.S.E.)
The average of squares of all errors in the forecast is termed as MSE. Its interpretation is same
as MAD.
2
∑nn=1(Dt − Ft )
MSE =
n
3. BIAS
BIAS is calculated as the average of the difference between actual and forecast value. A
positive value means under-estimation and negative value means over-estimation.
∑nt=1(Dt − Ft )
BIAS =
n

Production Planning and Control

Production planning and control is one of the most important areas of industrial management. This
aims at achieving the efficient utilization of resources in any organization through planning,
co-ordination and control of production activities.

Phases of P.P.C.
1. Preplanning
 Product development and design
 Process design
 Work station design
 Factory layout and location

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 Production, Planning and Control

2. Planning Different Resources

 Material
 Method
 Machine
 Men
3. Control
 Inspection
 Expedition
 Evaluation
 Dispatching

Production Planning and Control Steps

Routing: Routing is the process of deciding sequence of operations (route) to be performed during
production process, the main objective of routing is the selection of best and cheapest way to
perform a job. Procedure for routing is as follows,
 Conduct an analysis of the product to determine the part/ component/ sub-assemblies required
to be produced.
 Conduct the analysis to determine the material needed for the product.
 Determine the required manufacturing operations and their sequence.
 Determine the lot size.
 Determine the scrap.
 Estimate product cost.
 Prepare different forms of production control.

Scheduling: Scheduling involves fixing the priorities for different jobs and deciding the starting and
finishing time of each job. Main purpose of scheduling is to prepare a time-table indicating the time
and rate of production, as indicated by starting and finishing time of each activity. Scheduling will be
discussed in detail in next section.

Dispatching: Dispatching is the selection and sequencing of available jobs to be run at the individual
workstations and assignments of those jobs to workers. Functions of dispatching are as under,
 Collecting and issuing work centre.
 Ensuring right material, tools, parts, jigs and fixtures are available.
 Issues authorization to start work at the pre-determined date and time.
 Distribute machine loading and schedule charts.

Expediting: This is the final stage of production planning and control. It is used for ensuring that the
work is carried out as per plans and due dates are met. The main objective is to arrest deviations
from the plan. Another objective is to integrate different production activities to meet the
production target. The following activities are done in expediting phase.
 Watching the progress of the production process.
 Identification of delays, disruptions or discrepancies.
 Physical control of work-in-progress through checking.
 Expediting corrective measures.

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 Production, Planning and Control

 Coordinating with other departments.

 Report any production related problems.

Scheduling Method
Scheduling is used to allocate resources over time to accomplish specific tasks. It should take
account of technical requirement of task, available capacity and forecasted demand. The output plan
should be translated into operations, timing and schedule on the shop floor. Detailed scheduling
encompasses the formation of starting and finishing time of all jobs at each operational facility.

Gantt Chart: Gantt chart is a graphical tool for representing a production schedule. Normally, Gantt
chart consists of two axis. On X-axis, time is represented and on Y-axis various activities or tasks,
machine center’s and facilities are represented. The Gantt chart is explained by an example as under

Break – Even – Point (B.E.P.)

Break even analysis is used to show a relationship between the cost, revenue and profit with sales
volume.
B.E.P. refers to the sales paint, at which the total sales income (revenue) because equal to the total
cost (fixed + variable cost).
Below the B.E.P. the result shows losses
B.E.P. Profit zone

V.C. Total cost

Loss zone F.C.

Sales revenue

B.E.P. Quantity

Here F.C. = Fixed cost (cost of building etc.)

V.C. = Variable cost (unit price)
Fixed cost + Variable = Total sales revenue
If X = Units, V = Variable cost per unit, S= Selling cost per unit, F = Fixed Cost
F + VX = SX
F
= X(Quantity at B. E. P. )
S−V

Assumption
(i) Selling price will remain constant with quantity levels.
(ii) Linear relationship between sales volume with cost.
(iii) No other factors effects only cost and quantity is included.

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