MBA (SEM – II)

DBM – 558_2

Production, Operation & SCM

Q.1) A. Explain the importance of Vendor Relations and Purchase Management?

Answer: John C. Maxwell said, “Teamwork makes the dream work, but the vision becomes
a nightmare when the leader has a big dream and a bad team”. This quote applies well
when looking at an organization’s supply chain, which is the network of organizations that
participate in producing goods or providing services. The purpose of the network is to
work well together, to facilitate the flow and transfer of goods and services, from raw
material extraction through use by the final consumer. Establishing and maintaining solid
vendor relationships is crucial to customer service, cost efficiency, quality, and market
development. Vendors, as allies in business, can play a crucial role in the success or failure
of an organization. Organizations should work to nurture their vendor relationships in the
same manner that they focus on fostering customer loyalty. Having a great relationship
with a supplier who has a vested interested in your business can prove to be beneficial in
a number of ways:
Cost Savings: When you are a good customer to your vendor, with consistent orders and
on-time payments, this can lead to having volume discounts and special deals offered to
your company.
Timely Deliveries: For you to meet your obligations and provide excellent service to
customers, you need to have the things you need on time. What’s great about having an
excellent relationship with your vendor is they will prioritize you. They will deliver the
goods ahead of time. In addition, they’ll make sure that you get the best goods.
Vendor Support: When issues such as late or damaged shipments arise, the vendor will
be prompt in their responses. More than likely, they’ll go beyond the bare necessities to fix
your problem and compensate you for your trouble.
Customization Opportunities: As the vendor understands the nature of your business
more and more, they may be able to provide you with unique and exclusive products that
can create a competitive advantage over other businesses in the marketplace.
Customer Satisfaction: A strong client-vendor relationship can also impact another
relationship: that of your customers/end users and your company. Because you are able
to deliver goods and services on time and free from defects, your customers will enjoy
doing business with you. This can foster loyalty and trust as they will feel that their money
is well-spent. The benefits noted above do not just magically appear overnight; businesses
need to cultivate the vendor relationship. To have a balanced and mutually beneficial
relationship, businesses can take steps to ensure they are an ideal client by:
 Promptly paying invoices. You can’t expect a cash payment discount if you’re late in
payments. Contact vendors as early as possible if you’ll be delayed in payments.
 Allowing proper lead times for orders. Don’t place orders and expect them the next
day. This is often a result of poor planning and inventory management, so make sure
that you deal with those issues as well.
 Sharing lessons learned or customer preferences on products to allow for
continuous improvement opportunities.
 Treating the vendor’s representatives with respect. Be considerate and fair because
they represent your suppliers.
 Being transparent. Any issues you may have must be escalated properly and
promptly.
 The client-vendor relationship is a key component to the success of any
organization. If not handled properly, it can lead to miscommunications, delayed
products, and even a contentious relationship with the vendor. However, when
properly executed, vendors take a vested interest in your business, leading to a
greater integration of the supply chain and development of methods that can
improve quality and lower costs as well as create a higher level of dependency
between the customer and the supplier.
Vendor relationship management isn’t restricted to managing an up-to-date database
of your vendors and communicating with them regularly. In fact, this process is actually
designed to help you know your vendors better, making them an active partner in your
business operations. In addition to supplier information management, managing
vendors involves things like efficient vendor onboarding, transparent vendor
performance reviews, robust risk mitigation, and more.
Manual vendor management tools such as paper forms and spreadsheets cause a
number of disruptions like delayed payments, missed discounts, lost opportunities for
savings, and strained vendor relationships.
C. What are the Free Trade Zones?
Answer: A free-trade zone (FTZ) is a class of special economic zone. It is a geographic
area where goods may be imported, stored, handled, manufactured, or reconfigured
and re-exported under specific customs regulation and generally not subject to
customs duty. Free trade zones are generally organized around major seaports,
international airports, and national frontiers—areas with many geographic advantages
for trade.
The World Bank defines free trade zones as "in, duty-free areas, offering warehousing,
storage, and distribution facilities for trade, transshipment, and re-export operations".
Free-trade zones can also be defined as labor-intensive manufacturing centers that
involve the import of raw materials or components and the export of factory products,
but this is a dated definition as more and more free-trade zones focus on service
industries such as software, back-office operations, research, and financial services.
Synonyms
Free-trade zones are referred to as "foreign-trade zones" in the United States (Foreign
Trade Zones Act of 1934), where FTZs provide customs-related advantages as well as
exemptions from state and local inventory taxes. In other countries, they have been
called "duty-free export processing zones," "export-free zones," "export processing
zones," "free export zones," "free zones," "industrial free zones," "investment
promotion zones," "maquiladoras," and "special economic zones". Some were
previously called "free ports". Free zones range from specific-purpose manufacturing
facilities to areas where legal systems and economic regulation vary from the normal
provisions of the country concerned. Free zones may reduce taxes, customs duties, and
regulatory requirements for registration of business. Zones around the world often
provide special exemptions from normal immigration procedures and foreign
investment restrictions as well as other features. Free zones are intended to foster
economic activity and employment that could occur elsewhere.
Export-processing zone
An export-processing zone (EPZ) is a specific type of FTZ usually set up in developing
countries by their governments to promote industrial and commercial exports.
According to the World Bank, "an export processing zone is an industrial estate, usually
a fenced-in area of 10 to 300 hectares, that specializes in manufacturing for export. It
offers firms free trade conditions and a liberal regulatory environment. Its objectives
are to attract foreign investors, collaborators, and buyers who can facilitate entry into
the world market for some of the economy's industrial goods, thus generating
employment and foreign exchange". Most FTZs are located in developing countries;
Brazil, Colombia, India, Indonesia, El Salvador, China, the Philippines, Malaysia,
Bangladesh, Nigeria, Pakistan, Mexico, the Dominican Republic, Costa Rica, Honduras,
Guatemala, Kenya, Sri Lanka, Mauritius, and Madagascar all have EPZ programs. In
1997, 93 countries had set up export processing zones, employing 22.5 million people,
and five years later, in 2003, EPZs in 116 countries employed 43 million people.
 A free trade zone is any location where goods can be shipped, handled,
manufactured, reconfigured and re-exported without the involvement of customs
agencies. A major seaport, an international airport or a border facility between two
or more countries may be designated a free trade zone.
 Customs duties are applied when goods are shipped outside the free trade zone.
 Where a free trade zone does not exist, a company selling products into a foreign
market may use a bonded warehouse to store goods without paying duties.
 Free Trade Zones are called 'Special Economic Zones' (SEZs) in India. Presently,
there are 265 SEZs operational in India spread across the country.
Pros and Cons of Free Trade
 Pro: Economic Efficiency. The big argument in favor of free trade is its ability to
improve economic efficiency. ...
 Con: Job Losses. ...
 Pro: Less Corruption. ...
 Con: Free Trade Isn't Fair. ...
 Pro: Reduced Likelihood of War. ...
 Con: Labor and Environmental Abuses.
 They can open new markets, increase gross domestic product (GDP), and invite new
investments. FTAs can open up a country to degradation of natural resources, loss of
traditional livelihoods, and local employment issues. Countries must balance the
domestic benefits of free trade agreements with their consequences.
Q.2. Write short notes on the following topics -
A. Just In Time (JIT)
B. Flexible Manufacturing System (FMS)
C. Computer Aided Design (CAD)
D. Enterprise Resource Planning (ERP)
E. Material Resource Planning (MRP)
Answer:
A. Just In Time (JIT)
Just-in-time, or JIT, is an inventory management method in which goods are received from
suppliers only as they are needed. The main objective of this method is to reduce
inventory holding costs and increase inventory turnover.
Importance of just-in-time
Just in time requires carefully planning the entire supply chain and usage of superior
software in order to carry out the entire process till delivery, which increases efficiency
and eliminates the scope for error as each process is monitored. Here are some of the
important effects of a just-in-time inventory management system:
Reduces inventory waste
A just-in-time strategy eliminates overproduction, which happens when the supply of an
item in the market exceeds the demand and leads to an accumulation of unsalable
inventories. These unsalable products turn into inventory dead stock, which increases
waste and consumes inventory space. In a just-in-time system you order only what you
need, so there’s no risk of accumulating unusable inventory.
Decreases warehouse holding cost
Warehousing is expensive, and excess inventory can double your holding costs. In a just-
in-time system, the warehouse holding costs are kept to a minimum. Because you order
only when your customer places an order, your item is already sold before it reaches you,
so there is no need to store your items for long. Companies that follow the just-in-time
inventory model will be able to reduce the number of items in their warehouses or
eliminate warehouses altogether.
Gives the manufacturer more control
In a JIT model, the manufacturer has complete control over the manufacturing process,
which works on a demand-pull basis. They can respond to customers’ needs by quickly
increasing the production for an in-demand product and reducing the production for
slow-moving items. This makes the JIT model flexible and able to cater to ever-changing
market needs. For example, Toyota doesn’t purchase raw materials until an order is
received. This has allowed the company to keep minimal inventory, thereby reducing its
costs and enabling it to quickly adapt to changes in demand without having to worry
existing inventory.
Local sourcing
Since just-in-time requires you to start manufacturing only when an order is placed, you
need to source your raw materials locally as it will be delivered to your unit much earlier.
Also, local sourcing reduces the transportation time and cost which is involved. This in
turn provides the need for many complementary businesses to run in parallel thereby
improving the employment rates in that particular demographic.
Smaller investments
In a JIT model, only essential stocks are obtained and therefore less working capital is
needed for finance procurement. Therefore, because of the less amount of stock held in
the inventory, the organization’s return on investment would be high. The Just-in-time
models uses the “right first time” concept whose meaning is to carry out the activities
right the first time when it’s done, thereby reducing inspection and rework costs. This
requires less amount of investment for the company, less money reinvested for rectifying
errors and more profit generated out of selling an item.

B. Flexible Manufacturing System (FMS)

 A flexible manufacturing system (FMS) is a manufacturing system in which there is
some amount of flexibility that allows the system to react in case of changes,
whether predicted or unpredicted.
 This flexibility is generally considered to fall into two categories, which both contain
numerous subcategories.
 The first category is called as Routing Flexibility which covers the system's ability to
be changed to produce new product types, and ability to change the order of
operations executed on a part.
 The second category is called Machine Flexibility which consists of the ability to use
multiple machines to perform the same operation on a part, as well as the system's
ability to absorb large-scale changes, such as in volume, capacity, or capability.
Most FMS consist of three main systems:
1) The "Work Machines" which are often automated "CNC machines" are connected by
2) By a "Material handling" system to optimize parts flow and
3) The "Central Control Computer" which controls material movements and machine flow.
The main advantages of an FMS is its high flexibility in managing manufacturing resources
like time and effort in order to manufacture a new product.
The best application of an FMS is found in the production of small sets of products like
those from a mass production.
Advantages
 Reduced manufacturing cost
 Lower cost per unit produced,
  Greater labor productivity,
 Greater machine efficiency,
 Improved quality,
 Increased system reliability,
 Reduced parts inventories,
 Adaptability to CAD/CAM operations.
 Shorter lead times
 Improved efficiency
 Increase production rate
Disadvantages
 Initial set-up cost is high,
 Substantial pre-planning
 Requirement of skilled labor
 Complicated system
 Maintenance is complicated
Flexibility
Flexibility in manufacturing means the ability to deal with slightly or greatly mixed parts,
to allow variation in parts assembly and variations in process sequence, change the
production volume and change the design of certain product being manufactured.

C. Computer Aided Design (CAD)

"CAD" and "CADD" redirect here. For the currency, see Canadian dollar. For other uses, see
Cad (disambiguation) and CADD (disambiguation).
 Computer-aided design (CAD) is the use of computers (or workstations) to aid in
the creation, modification, analysis, or optimization of a design. This software is
used to increase the productivity of the designer, improve the quality of design,
improve communications through documentation, and to create a database for
manufacturing. Designs made through CAD software are helpful in protecting
products and inventions when used in patent applications. CAD output is often in
the form of electronic files for print, machining, or other manufacturing operations.
The terms computer-aided drafting (CAD) and computer aided design and drafting
(CADD) are also used.
 Its use in designing electronic systems is known as electronic design automation
(EDA). In mechanical design it is known as mechanical design automation (MDA),
which includes the process of creating a technical drawing with the use of computer
software.
 CAD software for mechanical design uses either vector-based graphics to depict the
objects of traditional drafting, or may also produce raster graphics showing the
 overall appearance of designed objects. However, it involves more than just shapes.
As in the manual drafting of technical and engineering drawings, the output of CAD
must convey information, such as materials, processes, dimensions, and tolerances,
according to application-specific conventions.
 CAD may be used to design curves and figures in two-dimensional (2D) space; or
curves, surfaces, and solids in three-dimensional (3D) space.
 CAD is an important industrial art extensively used in many applications, including
automotive, shipbuilding, and aerospace industries, industrial and architectural
design (building information modeling), prosthetics, and many more. CAD is also
widely used to produce computer animation for special effects in movies,
advertising and technical manuals, often called DCC digital content creation. The
modern ubiquity and power of computers means that even perfume bottles and
shampoo dispensers are designed using techniques unheard of by engineers of the
1960s. Because of its enormous economic importance, CAD has been a major driving
force for research in computational geometry, computer graphics (both hardware
and software), and discrete differential geometry.
 The design of geometric models for object shapes, in particular, is occasionally
called computer-aided geometric design (CAGD).
 This section does not cite any sources. Please help improve this section by adding
citations to reliable sources. Unsourced material may be challenged and removed.
 Computer-aided design is one of the many tools used by engineers and designers
and is used in many ways depending on the profession of the user and the type of
software in question.
 CAD is one part of the whole digital product development (DPD) activity within the
product lifecycle management (PLM) processes, and as such is used together with
other tools, which are either integrated modules or stand-alone products, such as:
 Computer-aided engineering (CAE) and finite element analysis (FEA, FEM)
 Computer-aided manufacturing (CAM) including instructions to computer
numerical control (CNC) machines
 Photorealistic rendering and motion simulation.
 Document management and revision control using product data management
(PDM)
 CAD is also used for the accurate creation of photo simulations that are often
required in the preparation of environmental impact reports, in which computer-
aided designs of intended buildings are superimposed into photographs of existing
environments to represent what that locale will be like, where the proposed
facilities are allowed to be built. Potential blockage of view corridors and shadow
studies are also frequently analyzed through the use of CAD.
  CAD has been proven to be useful to engineers as well. Using four properties which
are history, features, parameterization, and high-level constraints. The construction
history can be used to look back into the model's personal features and work on the
single area rather than the whole model. Parameters and constraints can be used to
determine the size, shape, and other properties of the different modeling elements.
The features in the CAD system can be used for the variety of tools for measurement
such as tensile strength, yield strength, electrical, or electromagnetic properties.
Also its stress, strain, timing, or how the element gets affected in certain
temperatures, etc.

D. Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is the integrated management of main business
processes, often in real time and mediated by software and technology. ERP is usually
referred to as a category of business management software—typically a suite of integrated
applications—that an organization can use to collect, store, manage and interpret data
from many business activities. ERP systems can be local based or cloud-based. Cloud-
based applications have grown in recent years due to information being readily available
from any location with Internet access. Traditional on-premise ERP systems are now
considered legacy technology
ERP provides an integrated and continuously updated view of core business processes
using common databases maintained by a database management system. ERP systems
track business resources—cash, raw materials, production capacity—and the status of
business commitments: orders, purchase orders, and payroll. The applications that make
up the system share data across various departments (manufacturing, purchasing, sales,
accounting, etc.) that provide the data. ERP facilitates information flow between all
business functions and manages connections to outside stakeholders.
According to Gartner, the global ERP market size is estimated at $35 billion in 2021.
Though early ERP systems focused on large enterprises, smaller enterprises increasingly
use ERP systems.
The ERP system integrates varied organizational systems and facilitates error-free
transactions and production, thereby enhancing the organization's efficiency. However,
developing an ERP system differs from traditional system development. ERP systems run
on a variety of computer hardware and network configurations, typically using a database
as an information repository.
ERP systems typically include the following characteristics:
 An integrated system
 Operates in (or near) real time
 A common database that supports all the applications
 A consistent look and feel across modules
  Installation of the system with elaborate application/data integration by the
Information Technology (IT) department, provided the implementation is not done
in small steps[29]
 Deployment options include: on-premises, cloud hosted, or SaaS

E. Material Resource Planning (MRP)

Material requirements planning (MRP) is a production planning, scheduling, and
inventory control system used to manage manufacturing processes. Most MRP systems
are software-based, but it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:
 Ensure raw materials are available for production and products are available for
delivery to customers.
 Maintain the lowest possible material and product levels in store
 Plan manufacturing activities, delivery schedules and purchasing activities.
 The scope of MRP in manufacturing
 Dependent demand vs independent demand
 Independent demand is demand originating outside the plant or production system,
while dependent demand is demand for components. The bill of materials (BOM)
specifies the relationship between the end product (independent demand) and the
components (dependent demand). MRP takes as input the information contained in
the BOM.
 The basic functions of an MRP system include: inventory control, bill of material
processing, and elementary scheduling. MRP helps organizations to maintain low
inventory levels. It is used to plan manufacturing, purchasing and delivering
activities.
 "Manufacturing organizations, whatever their products, face the same daily practical
problem - that customers want products to be available in a shorter time than it
takes to make them. This means that some level of planning is required."
Companies need to control the types and quantities of materials they purchase, plan which
products are to be produced and in what quantities and ensure that they are able to meet
current and future customer demand, all at the lowest possible cost. Making a bad
decision in any of these areas will make the company lose money. A few examples are
given below:
 If a company purchases insufficient quantities of an item used in manufacturing (or
the wrong item) it may be unable to meet contract obligations to supply products on
time.
 If a company purchases excessive quantities of an item, money is wasted - the excess
quantity ties up cash while it remains as stock that might never be used at all.
  Beginning production of an order at the wrong time can cause customer deadlines
to be missed.

Solutions to data integrity issues

Bill of material – The best practice is to physically verify the bill of material either at the
production site or by disassembling the product.
Cycle count – The best practice is to determine why a cycle count that increases or
decreases inventory has occurred. Find the root cause and correct the problem from
occurring again.
Scrap reporting – This can be the most difficult area to maintain with any integrity. Start
with isolating the scrap by providing scrap bins at the production site and then record the
scrap from the bins on a daily basis. One benefit of reviewing the scrap on site is that
preventive action can be taken by the engineering group.
Receiving errors – Manual systems of recording what has been received are error prone.
The best practice is to implement the system of receiving by ASN from the supplier. The
supplier sends an ASN (advanced shipping notification). When the components are
received into the facility, the ASN is processed and then company labels are created for
each line item. The labels are affixed to each container and then scanned into the MRP
system. Extra labels reveal a shortage from the shipment and too few labels reveal an over
shipment. Some companies pay for ASN by reducing the time in processing accounts
payable.
Shipping errors – The container labels are printed from the shipper. The labels are
affixed to the containers in a staging area or when they are loaded on the transport.
Production reporting – The best practice is to use bar code scanning to enter production
into inventory. A product that is rejected should be moved to an MRB (material review
board) location. Containers that require sorting need to be received in reverse.
Replenishment – The best replenishment practice is replacement using bar code
scanning, or via pull system. Depending upon the complexity of the product, planners can
actually order materials using scanning with a min-max system.
Strategic inventory positioning –The most fundamental question to ask in today's
manufacturing environments is, "given our system and environment, where should we
place inventory to have the best protection?" Inventory is like a break wall to protect
boats in a marina from the roughness of incoming waves. Out on the open ocean the break
walls have to be 50–100 feet tall, but in a small lake the break walls are only a couple feet
tall. In a glassy smooth pond no break wall is necessary.