Topic 5 Production Management and Resource Planning

 Concept and Objectives of Production Management

Production management is the process, which combines and transforms various resources used in
the production/operations subsystem of the organization into value added goods/services in a
controlled manner as per the policies of the organization. Therefore, it is that part of an
organization, which is concerned with the transformation of a range of inputs into the required
(products/services) having the requisite quality level. The set of interrelated management
activities, which are involved in manufacturing certain products, is called as production
management. If the same concept is extended to services management, then the corresponding
set of management activities is called as operations management.
Production function is that part of an organization, which is concerned with the transformation of
a range of inputs into the required outputs (products) having the requisite quality level.
Production is defined as “the step-by-step conversion of one form of material into another form
through chemical or mechanical process to create or enhance the utility of the product to the
user.” Thus production is a value addition process. At each stage of processing, there will be
value addition.
Edwood Buffa defines production as ‘a process by which goods and services are created’. Some
examples of production are: manufacturing custom-made products like, boilers with a specific
capacity, constructing flats, some structural fabrication works for selected customers, etc., and
manufacturing standardized products like, car, bus, motor cycle, radio, television, etc.

The production system of an organization is that part, which produces products of an

organization. It is that activity whereby resources, flowing within a defined system, are
combined and transformed in a controlled manner to add value in accordance with the policies
communicated by management. A simplified production system is shown above.
 The production system has the following characteristics:
1. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve
system performance.

The objective of the production management is ‘to produce goods services of right quality and
quantity at the right time and right manufacturing cost’.
1. Right Quality
The quality of product is established based upon the customers needs. The right quality is not
necessarily best quality. It is determined by the cost of the product and the technical
characteristics as suited to the specific requirements.
2. Right Quantity
The manufacturing organization should produce the products in right number. If they are
produced in excess of demand the capital will block up in the form of inventory and if the
quantity is produced in short of demand, leads to shortage of products.
3. Right Time
Timeliness of delivery is one of the important parameter to judge the effectiveness of production
department. So, the production department has to make the optimal utilization of input resources
to achieve its objective.
4. Right Manufacturing Cost
Manufacturing costs are established before the product is actually manufactured. Hence, all
attempts should be made to produce the products at pre-established cost, so as to reduce the
variation between actual and the standard (pre-established) cost.

 Classification of Production System

Production systems can be classified as Job Shop, Batch, Mass and Continuous Production
systems.
Job Shop Production
Job shop production are characterised by manufacturing of one or few quantity of products
designed and produced as per the specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of products. A job shop comprises
of general purpose machines arranged into different departments. Each job demands unique
technological requirements, demands processing on machines in a certain sequence.

Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product,
capacitiesfor each work centre and order priorities.

Advantages

Following are the advantages of job shop production:

1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them
learningopportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.

Limitations

Following are the limitations of job shop production:

1. Higher cost due to frequent set up changes.
 2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.

Batch Production
Batch production is defined by American Production and Inventory Control Society (APICS) “as
a form of manufacturing in which the job passes through the functional departments in lots or
batches and each lot may have a different routing.” It is characterised by the manufacture of
limited number of products produced at regular intervals and stocked awaiting sales.

Characteristics

Batch production system is used under the following circumstances:

1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch andchange
of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.

Advantages

Following are the advantages of batch production:

1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.

Limitations

Following are the limitations of batch production:

1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.

3. Work in process inventory is higher compared to continuous production.

4. Higher set up costs due to frequent changes in set up.

Mass Production
Manufacture of discrete parts or assemblies using a continuous process are called mass
production. This production system is justified by very large volume of production. The
machines are arranged in a line or product layout. Product and process standardisation exists and
all outputs follow the same path.
Characteristics

Mass production is used under the following circumstances:

1. Standardisation of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.

Advantages

Following are the advantages of mass production:

1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.

Limitations

Following are the limitations of mass production:

1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.

Continuous Production
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. The items are made to flow through the sequence of
operations through material handling devices such as conveyors, transfer devices, etc.

Characteristics

Continuous production is used under the following circumstances:

1. Dedicated plant and equipment with zero flexibility.

2. Material handling is fully automated.

3. Process follows a predetermined sequence of operations.
 4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.

Advantages

Following are the advantages of continuous production:

1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.

Limitations

Following are the limitations of continuous production:

1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
Product differentiation is limited

 Objectives and Functions of Production Planning and Control

Production planning and control is a tool available to the management to achieve the stated
objectives. Thus, a production system is encompassed by the four factors. i.e., quantity, quality,
cost and time. Production planning starts with the analysis of the given data, i.e., demand for
products, delivery schedule etc., and on the basis of the information available, a scheme of
utilisation of firms resources like machines, materials and men are worked out to obtain the
target in the most economical way.
Once the plan is prepared, then execution of plan is performed in line with the details given in
the plan. Production control comes into action if there is any deviation between the actual and
planned. The corrective action is taken so as to achieve the targets set as per plan by using
control techniques.
Thus production planning and control can be defined as the “direction and coordination of firms’
resources towards attaining the prefixed goals.” Production planning and control helps to achieve
uninterrupted flow of materials through production line by making available the materials at
right time and required quantity.
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 Need For Production Planning and Control

The present techno-economic scenario of India emphasize on competitiveness in manufacturing.
Indian industries have to streamline the production activities and attain the maximum utilisation
of firms’ resources to enhance the productivity. Production planning and control serves as a
useful tool to coordinate the activities of the production system by proper planning and control
system. Production system can be compared to the nervous system with PPC as a brain.
Production planning and control is needed to achieve:
1. Effective utilisation of firms’ resources.
2. To achieve the production objectives with respect to quality, quantity, cost and
timelinessof delivery.
3. To obtain the uninterrupted production flow in order to meet customers varied
demandwith respect to quality and committed delivery schedule.
4. To help the company to supply good quality products to the customer on the
continuousbasis at competitive rates.
Production planning is a pre-production activity. It is the pre-determination of
manufacturing requirements such as manpower, materials, machines and manufacturing process.
Ray wild defines “Production planning is the determination, acquisition and arrangement of
all facilities necessary for future production of products.” It represents the design of production
system. Apart from planning the resources, it is going to organize the production.
Based on the estimated demand for company’s products, it is going to establish the
production programme to meet the targets set using the various resources.
Production Control
Inspite of planning to the minute details, most of the time it is not possible to achieve production
100 per cent as per the plan. There may be innumerable factors which affect the production
system and because of which there is a deviation from the actual plan. Some of the factors that
affect are:
1. Non-availability of materials (due to shortage, etc.);
2. Plant, equipment and machine breakdown;
3. Changes in demand and rush orders;
4. Absenteeism of workers; and
5. Lack of coordination and communication between various functional areas of business.
Thus, if there is a deviation between actual production and planned production, the control
function comes into action. Production control through control mechanism tries to take corrective
action to match the planned and actual production. Thus, production control reviews the progress
of the work, and takes corrective steps in order to ensure that programmed production takes
place. The essential steps in control activity are:
1. Initiating the production,
2. Progressing, and
3. Corrective action based upon the feedback and reporting back to the production planning.
  Objectives of Production Planning and Control
Following are the objectives of production planning and control:
1. Systematic planning of production activities to achieve the highest efficiency in
productionof goods/services.
2. To organize the production facilities like machines, men, etc., to achieve stated
productionobjectives with respect to quantity and quality time and cost.
3. Optimum scheduling of resources.
4. Coordinate with other departments relating to production to achieve regular balanced
anduninterrupted production flow.
5. To conform to delivery commitments.
6. Materials planning and control.
7. To be able to make adjustments due to changes in demand and rush orders.

 Phases of Production planning and control

Production planning and control has three phases namely:
A. Planning Phase

Phases of production planning and control

Planning Phase
Planning is an exercise of intelligent anticipation in order to establish how an objective can be
achieved or a need fulfilled in circumstances, which are invariably restrictive. Production
planning determines the optimal schedule and sequence of operations economic batch quantity,
machine assignment and dispatching priorities for sequencing. It has two categories of planning
namely
1. Prior planning
2. Active planning.

Prior Planning
Prior planning means pre-production planning. This includes all the planning efforts, which are
taking place prior to the active planning.

Modules of pre-planning

The modules of prior planning are as follows:

1. Product development and design is the process of developing a new product with all
the features, which are essential for effective use in the field, and designing it
accordingly. At the design stage, one has to take several aspects of design like, design for
selling, design for manufacturing and design for usage.
2. Forecasting is an estimate of demand, which will happen in future. Since, it is only an
estimate based on the past demand, proper care must be taken while estimating it. Given
the sales forecast, the factory capacity, the aggregate inventory levels and size of the
work force, the manager must decide at what rate of production to operate the plant over
an intermediate planning horizon.
3. Aggregate planning aims to find out a product wise planning over the intermediate
planning horizon.
4. Material requirement planning is a technique for determining the quantity and timing
for the acquisition of dependent items needed to satisfy the master production schedule.
Active Planning
The modules of active planning are: Process planning and routing, Materials planning. Tools
planning, Loading, Scheduling etc.
1. Process planning and routing is a complete determination of the specific technological
process steps and their sequence to produce products at the desired quality, quantity and
cost. It determines the method of manufacturing a product selects the tools and
equipments, analyses how the manufacturing of the product will fit into the facilities.
Routing in particular prescribes the flow of work in the plant and it is related to the
considerations of layout, temporary locations for raw materials and components and
materials handling systems.
2. A material planning is a process which determines the requirements of various raw
materials/subassemblies by considering the trade-off between various cost components
like, carrying cost, ordering cost, shortage cost, and so forth.
 3. Tools’ planning determines the requirements of various tools by taking process
specification (surface finish, length of the job, overall depth of cut etc.), material
specifications (type of material used, hardness of the material, shape and size of the
material etc.) and equipment specifications (speed range, feed range, depth of cut range
etc.).
4. Loading is the process of assigning jobs to several machines such that there is a load
balance among the machines. This is relatively a complex task, which can be managed
with the help of efficient heuristic procedures.
5. Scheduling is the time phase of loading and determines when and in what sequence the
work will be carried out. This fixes the starting as well as the finishing time for each job.
Action Phase
This Phase has the major step of dispatching. Dispatching is the transition from planning phase
to action phase. In this phase, the worker is ordered to start manufacturing the product. The tasks
which are included in dispatching are job order, store issue order, tool order, time ticket,
inspection order, move order etc.
The job order number is the key item which is to be mentioned in all other reports/orders.
Stores issue order gives instruction to stores to issue materials for manufacturing the product as
per product specifications. As per tooling requirements for manufacturing the product, the tool
order instruct the tool room to issue necessary tools. Time ticket is nothing but a card which is
designed to note down the actual time taken at various processes. This information is used for
deciding the costs for future jobs of similar nature and also for performing variance analysis,
which helps to exercise control.
Job order is the official authorization to the shop floor to start manufacturing the product.
Generally, the process sequence will contain some testing and inspection. So, these are to be
instructed to inspection wing in the form of inspection order for timely testing and inspection so
that the amount of rework is minimized. The manufacture of product involves moving raw
materials/subassemblies to the main line. This is done by a well-designed materials handling
system. So, proper instruction is given to the materials handling facilities for major movements
of materials/subassemblies in the form of a move order. Movements which involve less distance
and fewer loads are managed at the shop floor level based on requests from operators.

The control phase

This phase has the following two major modules:
1. Progress reporting, and
2. Corrective action.

1. Progress Reporting
In progress reporting, the data regarding what is happening with the job is collected. Also, it
helps to make comparison with the present level of performance. The various data pertaining to
materials rejection, process variations, equipment failures, operator efficiency, operator
absenteeism, tool life, etc., are collected and analyzed for the purpose of progress reporting.
These data are
used for performing variance analysis, which would help us to identify critical areas that deserve
immediate attention for corrective actions.
2. Corrective Action
The tasks under corrective action primarily make provisions for an unexpected event. Some
examples of corrective actions are creating schedule flexibility, schedule modifications, capacity
modifications, make or buy decisions, expediting the work, pre-planning, and so on. Due to
unforeseen reasons such as, machine breakdown, labour absenteeism, too much rejection due to
poor material quality etc., it may not be possible to realize the schedule as per the plan. Under
such condition, it is better to reschedule the whole product mix so that we get a clear picture of
the situation to progress further. Under such situation, it is to be re-examined for selecting
appropriate course of action. Expediting means taking action if the progress reporting indicates
deviations from the originally set targets. Pre-planning of the whole affair becomes essential in
case the expediting fails to bring the deviated plan to its right path.
 Functions of Production Planning and Controlling
The functions of production planning and controlling is classified into:
1. Pre-planning fuction
2. Planning function
3. Control function
The functions of production planning and controlling are depicted in the figure below.

Functions of Production Planning and Control

1. Pre-Planning Function
Pre-planning is a macro level planning and deals with analysis of data and is an outline of the
planning policy based upon the forecasted demand, market analysis and product design and
development. This stage is concerned with process design (new processes and developments,
equipment policy and replacement and work flow (Plant layout). The pre-planning function of
PPC is concerned with decision-making with respect to methods, machines and work flow with
respect to availability, scope and capacity.
2. Planning Function
The planning function starts once the task to be accomplished is specified, with the analysis of
four M’s, i.e., Machines, Methods, Materials and Manpower. This is followed by process
planning (routing). Both short-term (near future) and long-term planning are considered.
Standardisation, simplification of products and processes are given due consideration.
3. Control Function
Control phase is effected by dispatching, inspection and expediting materials control, analysis of
work-in-process. Finally, evaluation makes the PPC cycle complete and corrective actions are
taken through a feedback from analysis. A good communication, and feedback system is
essential to enhance and ensure effectiveness of PPC.

 Parameters for PPC

The functions of PPC can be explained with the following parameters:
1. Materials: Raw materials, finished parts and bought out components should be made
available in required quantities and at required time to ensure the correct start and end for each
operation resulting in uninterrupted production. The function includes the specification of
materials (quality and quantity) delivery dates, variety reduction (standardisation) procurement
and make or buy decisions.
2. Machines and equipment: This function is related with the detailed analysis of available
production facilities, equipment down time, maintenance policy procedure and schedules.
Concerned with economy of jigs and fixtures, equipment availability. Thus, the duties include
the analysis of facilities and making their availability with minimum down time because of
breakdowns.
3. Methods: This function is concerned with the analysis of alternatives and selection of the
best method with due consideration to constraints imposed. Developing specifications for
processes is an important aspect of PPC and determination of sequence of operations.
4. Process planning (Routing): It is concerned with selection of path or route which the
raw material should follow to get transformed into finished product. The duties include:
(a) Fixation of path of travel giving due consideration to layout.
(b) Breaking down of operations to define each operation in detail.
(c) Deciding the set up time and process time for each operation.
5. Estimating: Once the overall method and sequence of operations is fixed and process
sheet for each operation is available, then the operations times are estimated. This function is
carried out using extensive analysis of operations along with methods and routing and a standard
time for operation are established using work measurement techniques.
 6. Loading and scheduling: Scheduling is concerned with preparation of machine loads
and fixation of starting and completion dates for each of the operations. Machines have to be

loaded according to their capability of performing the given task and according to their capacity.
Thus the duties include:
(a) Loading, the machines as per their capability and capacity.
(b) Determining the start and completion times for each operation.
(c) To coordinate with sales department regarding delivery schedules.
7. Dispatching: This is the execution phase of planning. It is the process of setting
production activities in motion through release of orders and instructions. It authorises the start
of production activities by releasing materials, components, tools, fixtures and instruction sheets
to the operator. The activities involved are:
(a) To assign definite work to definite machines, work centres and men.
(b) To issue required materials from stores.
(c) To issue jigs, fixtures and make them available at correct point of use.
(d) Release necessary work orders, time tickets, etc., to authorise timely start of operations.
(e) To record start and finish time of each job on each machine or by each man.
8. Expediting: This is the control tool that keeps a close observation on the progress of the
work. It is logical step after dispatching which is called ‘follow-up’. It coordinates extensively to
execute the production plan. Progressing function can be divided into three parts, i.e., follow up
of materials, follow up of work-in-process and follow up of assembly. The duties include:
(a) Identification of bottlenecks and delays and interruptions because of which the
production schedule may be disrupted.
(b) To devise action plans (remedies) for correcting the errors.
(c) To see that production rate is in line with schedule.
9. Inspection: It is a major control tool. Though the aspects of quality control are the
separate function, this is of very much important to PPC both for the execution of the current
plans and its scope for future planning. This forms the basis for knowing the limitations with
respects to methods, processes, etc., which is very much useful for evaluation phase.
10. Evaluation: This stage though neglected is a crucial to the improvement of productive
efficiency. A thorough analysis of all the factors influencing the production planning and control
helps to identify the weak spots and the corrective action with respect to pre-planning and
planning will be effected by a feedback. The success of this step depends on the communication,
data and information gathering and analysis.

 Operations Planning and Scheduling Systems

Operations planning and scheduling systems concern with the volume and timing of outputs, the
utilisation of operations capacity at desired levels for competitive effectiveness. These systems
must fit together activities at various levels, form top to bottom, in support of one another, as
shown in the figure below. Note that the time orientation ranges from long to short as we
progress from top to bottom in the hierarchy. Also, the level of detail in the planning process
ranges from broad at the top to detail at the bottom.

 Components of Operations Planning and Scheduling System

Operations Planning and Scheduling System

1. The Business Plan

The business plan is a statement of the organization’s overall level of business activity for the
coming six to eighteen months, usually expressed in terms of outputs (in volume of sales) for its
various product groups, a set of individual products that share or consume common blocks of
capacity in the manufacturing process. It also specifies the overall inventory and backlog levels
that will be maintained during the planning period. The business plan is an agreement between
all functional areas—finance, production, marketing, engineering, R & D—about the level of
activity and the products they are committed to support. The business plan is not concerned with
all the details and specific timing of the actions for executing the plan. Instead, it determines a
feasible general posture for competing to achieve its major goals. The resulting plan guides the
lower-level, more details decisions.
2. Aggregate Production (Output) Planning
The process of determining output levels of product groups over the coming six to eighteen
months on a weekly or monthly basis. It identifies the overall level of outputs in support of the
business plan. The plan recognizes the division’s existing fixed capacity and the company’s
overall policies for maintaining inventories and backlogs, employment stability and
subcontracting.
3. Aggregate Capacity Planning
It is the process of testing the feasibility of aggregate output plans and evaluating overall
capacity utilisation. A statement of desired output is useful only if it is feasible. Thus, it
addresses the supply side of the firm’s ability to meet the demand. As for aggregate output plans,
each plant, facility, or division requires its own aggregate capacity plan. Capacity and output
must be in balance, as indicated by the arrow between them in the figure below. A capacity plan
translates an output plan into input terms, approximating how much of the division’s capacity
will be consumed. Although these basic capacities are fixed, management can manipulate the
short-term capacities by the ways they deploy their work force, by subcontracting, or by using
multiple work shifts to adjust the timing of overall outputs. As a result, the aggregate planning
process balances output levels, capacity constraints, and temporary capacity adjustments to meet
demand and utilise capacity at desired levels during the coming months. The resulting plan sets
limits on the master production schedule.
4. Master Production Scheduling (MPS)
MPS is a schedule showing week by week how many of each product must be produced
according to customer orders and demand forecasts. Its purpose is to meet the demand for
individual products in the product group. This more detailed level of planning disaggregates the
product groups into individual products and indicates when they will be produced. The MPS is
an important link between marketing and production. It shows when incoming sales orders can
be scheduled into production, and when each shipment can be scheduled for delivery. It also
takes into account current backlogs so that production and delivery schedules are realistic.
5. Resource Requirement Planning
Resource requirement planning (rough-cut capacity planning) is the process of testing the
feasibility of master production schedule in terms of capacity. This step ensures that a proposed
MPS does not inadvertently overload any key department, work centre, or machine, making the
MPS unworkable.
6. Material Requirement Planning
Material requirement planning (MRP) is a system of planning and scheduling the time phased
material requirements for releasing materials and receiving materials that enable the master
production schedule to be implemented. Thus, the master production schedule is the driving
force
for material requirements planning. MRP provides information such as due dates for components
that are subsequently used for shop floor control. Once this information is available, it enables
managers to estimate the detailed requirements for each work centres.
7. Capacity Requirement Planning
Capacity requirement planning (CRP) is an iterative process of modifying the MPS or planned
resources to make capacity consistent with the production schedule. CRP is a companion process
used with MRP to identify in detail the capacity required to execute the material requirement
planning. At this level, more accurate comparisons of available and needed capacity for
scheduled workloads are possible.
8. Shop Floor Control
Shop floor control involves the activities that execute and control shop operations namely
loading, sequencing, detailed scheduling and expediting jobs in production. It coordinates the
weekly and daily activities that get jobs done. Individual jobs are assigned to machines and work
centres (loading), the sequence of processing the jobs for priority control is determined, start
times and job assignments for each stage of processing are decided (detailed scheduling ) and
materials and work flows from station to station are monitored and adjusted (expediting).
9. Loading
Each job (customer order) may have its unique product specification and, hence, it is unique
through various work centres in the facility. As new job orders are released, they are assigned or
allocated among the work centres, thus establishing how much of a load each work centre must
carry during the coming planning period. This assignment is known as loading (sometimes called
shop loading as machine loading).
10. Sequencing
This stage establishes the priorities for jobs in the queues (waiting lines) at the work centres.
Priority sequencing specifies the order in which the waiting jobs are processed; it requires the
adoption of a priority sequencing rule.
11. Detailed Scheduling
Detailed scheduling determines start times, finish times and work assignments for all jobs at each
work centre. Calendar times are specified when job orders, employees, and materials (inputs), as
well as job completion (outputs), should occur at each work centre. By estimating how long each
job will take to complete and when it is due, schedulers can establish start and finish dates and
develop the detailed schedule.
12. Expediting
Expediting is a process of tracking a job’s progress and taking special actions to move it through
the facility. In tracking a job’s progress, special action may be needed to keep the job moving
through the facility on time. Manufacturing or service operations disruptions-equipments
breakdowns, unavailable materials, last-minute priority changes, require managers to deviate
from plans and schedules and expedite an important job on a special handling basis.
13. Input/Output Control
Input/output control related to the activities to monitor actual versus planned utilisation of a work
centre’s capacity. Output plans and schedules call for certain levels of capacity at a work centre,
but actual utilisation may differ from what was planned. Actual versus planned utilisation of the
work centre’s capacity can be monitored by using input-output reports and, when discrepancies
exist, adjustments can be made. The important components of operations planning and
scheduling system has been explained in detail in the following paragraphs.

 Aggregate planning
Aggregate Planning is an intermediate term planning decision. It is the process of planning the
quantity and timing of output over the intermediate time horizon (3 months to one year). Within
this range, the physical facilities are assumed to –10 be fixed for the planning period. Therefore,
fluctuations in demand must be met by varying labour and inventory schedule. Aggregate
planning seeks the best combination to minimise costs.
Aggregate Planning Strategies
The variables of the production system are labour, materials and capital. More labour effort is
required to generate higher volume of output. Hence, the employment and use of overtime (OT)
are the two relevant variables. Materials help to regulate output. The alternatives available to the
company are inventories, back ordering or subcontracting of items.
These controllable variables constitute pure strategies by which fluctuations in demand and
uncertainties in production activities can be accommodated by using the following steps:
1. Vary the size or the workforce: Output is controlled by hiring or laying off workers in
proportion to changes in demand.
2. Vary the hours worked: Maintain the stable workforce, but permit idle time when there is
a slack and permit overtime (OT) when demand is peak.
3. Vary inventory levels: Demand fluctuations can be met by large amount of inventory.
4. Subcontract: Upward shift in demand from low level. Constant production rates can be
met by using subcontractors to provide extra capacity.

Aggregate Planning Guidelines

The following are the guidelines for aggregate planning:
1. Determine corporate policy regarding controllable variables.
2. Use a good forecast as a basis for planning.
3. Plan in proper units of capacity.
4. Maintain the stable workforce.
5. Maintain needed control over inventories.
6. Maintain flexibility to change.
7. Respond to demand in a controlled manner.
8. Evaluate planning on a regular base.

 Master Scheduling (MPS)

Master Production Schedule follows aggregate planning. It expresses the overall plans in terms
of specific end items or models that can be assigned priorities. It is useful to plan for the material
and capacity requirements. Flowchart of aggregate plan and master production schedule is shown
in the figure below.

Flowchart of aggregate plan and master schedule

The time interval used in master scheduling depends upon the type, volume, and component lead
times of the products being produced. Normally weekly time intervals are used. The time horizon
covered by the master schedule also depends upon product characteristics and lead times. Some
master schedules cover a period as short as few weeks and for some products it is more than a
year.

Functions of MPS
Master Production Schedule (MPS) gives a formal details of the production plan and converts
this plan into specific material and capacity requirements. The requirements with respect to
labour, material and equipment is then assessed. The main functions of MPS are:
1. To translate aggregate plans into specific end items: Aggregate plan determines level of
operations that tentatively balances the market demands with the material, labour and
equipment capabilities of the company. A master schedule translates this plan into
specific number of end items to be produced in specific time period.

2. Evaluate alternative schedules: Master schedule is prepared by trial and error. Many
computer simulation models are available to evaluate the alternate schedules.
3. Generate material requirement: It forms the basic input for material requirement planning
(MRP).
 4. Generate capacity requirements: Capacity requirements are directly derived from MPS.
Master scheduling is thus a prerequisite for capacity planning.
5. Facilitate information processing: By controlling the load on the plant. Master schedule
determines when the delivery should be made. It coordinates with other management
information systems such as, marketing, finance and personnel.
6. Effective utilization of capacity: By specifying end item requirements schedule
establishes the load and utilization requirements for machines and equipment.

 Material Requirement Planning

MRP refers to the basic calculations used to determine components required from end item
requirements. It also refers to a broader information system that uses the dependence relationship
to plan and control manufacturing operations.
“Materials Requirement Planning (MRP) is a technique for determining the quantity and
timing for the acquisition of dependent demand items needed to satisfy master production
schedule requirements.”

 Objectives of MRP

1. Inventory reduction: MRP determines how many components are required when they
are required in order to meet the master schedule. It helps to procure the materials/ components
as and when needed and thus avoid excessive build up of inventory.
2. Reduction in the manufacturing and delivery lead times: MRP identifies materials
and component quantities, timings when they are needed, availabilities and procurements and
actions required to meet delivery deadlines. MRP helps to avoid delays in production and
priorities production activities by putting due dates on customer job order.
3. Realistic delivery commitments: By using MRP, production can give marketing timely
information about likely delivery times to prospective customers.
4. Increased efficiency: MRP provides a close coordination among various work centres
and hence help to achieve uninterrupted flow of materials through the production line. This
increases the efficiency of production system.

 The MRP System

The inputs to the MRP system are: (1) A master production schedule, (2) An inventory status file
and (3) Bill of materials (BOM). Using these three information sources, the MRP processing
logic (computer programme) provides three kinds of information (output) for each product
component: order release requirements, order rescheduling and planned orders.
1. Master Production Schedule (MPS)
MPS is a series of time phased quantities for each item that a company produces, indicating how
many are to be produced and when. MPS is initially developed from firm customer orders or
from forecasts of demand before MRP system begins to operate. The MRP system whatever the
master schedule demands and translates MPS end items into specific component requirements.
Many systems make a simulated trial run to determine whether the proposed master can be
satisfied.
2. Inventory Status File
Every inventory item being planned must have an inventory status file which gives complete and
up to date information on the on-hand quantities, gross requirements, scheduled receipts and
planned order releases for an item. It also includes planning information such as lot sizes, lead
times, safety stock levels and scrap allowances.
3. Bill Of Materials (BOM)
BOM identifies how each end product is manufactured, specifying all subcomponents items,
their sequence of build up, their quantity in each finished unit and the work centres performing
the build up sequence. This information is obtained from product design documents, workflow
analysis and other standard manufacturing information.
 Capacity Planning
Design of the production system involves planning for the inputs, conversion process and outputs
of production operation. The effective management of capacity is the most important
responsibility of production management. The objective of capacity management (i.e., planning
and control of capacity) is to match the level of operations to the level of demand.
Capacity planning is to be carried out keeping in mind future growth and expansion plans,
market trends, sales forecasting, etc. It is a simple task to plan the capacity in case of stable
demand. But in practice the demand will be seldom stable. The fluctuation of demand creates
problems regarding the procurement of resources to meet the customer demand. Capacity
decisions
are strategic in nature. Capacity is the rate of productive capability of a facility. Capacity is
usually expressed as volume of output per period of time.
Production managers are more concerned about the capacity for the following reasons:
 Sufficient capacity is required to meet the customers demand in time.
 Capacity affects the cost efficiency of operations.
 Capacity affects the scheduling system.
 Capacity creation requires an investment.
Capacity planning is the first step when an organization decides to produce more or new
products.
 Measurement of Capacity Planning
The capacity of the manufacturing unit can be expressed in number of units of output per period.
In some situations measuring capacity is more complicated when they manufacture multiple
products. In such situations, the capacity is expressed as man-hours or machine hours. The
relationship between capacity and output is shown in the figure.

Capacity and Output Relationship

1. Design capacity: Designed capacity of a facility is the planned or engineered rate of
output of goods or services under normal or full scale operating conditions.
For example, the designed capacity of the cement plant is 100 TPD (Tonnes per day).
Capacity of the sugar factory is 150 tonnes of sugarcane crushing per day.
2. System capacity: System capacity is the maximum output of the specific product or
product mix the system of workers and machines is capable of producing as an integrated whole.
System capacity is less than design capacity or at the most equal, because of the limitation of
product mix, quality specification, breakdowns. The actual is even less because of many factors
affecting the output such as actual demand, downtime due to machine/equipment failure,
unauthorised absenteeism.
 The system capacity is less than design capacity because of long range uncontrollable
factors. The actual output is still reduced because of short-term effects such as, breakdown of
equipment, inefficiency of labour. The system efficiency is expressed as ratio of actual measured
output to the system capacity.
Actual output
System Efficiency (SE) =
System capacity
3. Licensed capacity: Capacity licensed by the various regulatory agencies or government
authorities. This is the limitation on the output exercised by the government.
4. Installed capacity: The capacity provided at the time of installation of the plant is called
installed capacity.
5. Rated capacity: Capacity based on the highest production rate established by actual
trials is referred to as rated capacity.

 Process of Capacity Planning

Capacity planning is concerned with defining the long-term and the short-term capacity needs of
an organization and determining how those needs will be satisfied. Capacity planning decisions
are taken based upon the consumer demand and this is merged with the human, material and
financial resources of the organization. Capacity requirements can be evaluated from two
perspectives—long-term capacity strategies and short-term capacity strategies.
1. Long-Term Capacity Strategies
Long-term capacity requirements are more difficult to determine because the future demand and
technology are uncertain. Forecasting for five or ten years into the future is more risky and
difficult. Even sometimes company’s today’s products may not be existing in the future. Long
range capacity requirements are dependent on marketing plans, product development and
lifecycle of the product. Long-term capacity planning is concerned with accommodating major
changes that affect overall level of the output in long-term. Marketing environmental assessment
and implementing the long-term capacity plans in a systematic manner are the major
responsibilities of management. Following parameters will affect long range capacity decisions.
i. Multiple products: Company’s produce more than one product using the same facilities
in order to increase the profit. The manufacturing of multiple products will reduce the risk of
failure. Having more than one product helps the capacity planners to do a better job. Because
products are in different stages of their life-cycles, it is easy to schedule them to get maximum
capacity utilisation.
ii. Phasing in capacity: In high technology industries, and in industries where technology
developments are very fast, the rate of obsolescence is high. The products should be brought into
the market quickly. The time to construct the facilities will be long and there is no much time as
the products should be introduced into the market quickly. Here the solution is phase in capacity
on modular basis. Some commitment is made for building funds and men towards facilities over
a period of 3–5 years. This is an effective way of capitalising on technological breakthrough.
iii. Phasing out capacity: The outdated manufacturing facilities cause excessive plant

iv. closures and down time. The impact of closures is not limited to only fixed costs of plant
and machinery. Thus, the phasing out here is done with humanistic way without affecting the
community. The phasing out options makes alternative arrangements for men like shifting them
to other jobs or to other locations, compensating the employees, etc.
2. Short-Term Capacity Strategies
Managers often use forecasts of product demand to estimate the short-term workload the facility
must handle. Managers looking ahead up to 12 months, anticipate output requirements for
different products, and services. Managers then compare requirements with existing capacity and
then take decisions as to when the capacity adjustments are needed.
For short-term periods of up to one year, fundamental capacity is fixed. Major facilities will
not be changed. Many short-term adjustments for increasing or decreasing capacity are possible.
The adjustments to be required depend upon the conversion process like whether it is capital
intensive or labour intensive or whether product can be stored as inventory.
Capital intensive processes depend on physical facilities, plant and equipment. Short-term
capacity can be modified by operating these facilities more or less intensively than normal. In
labour intensive processes short-term capacity can be changed by laying off or hiring people or
by giving overtime to workers. The strategies for changing capacity also depend upon how long
the product can be stored as inventory.
The short-term capacity strategies are:
1. Inventories: Stock of finished goods during slack periods to meet the demand during
peak period.
2. Backlog: During peak periods, the willing customers are requested to wait and their
orders are fulfilled after a peak demand period.
3. Employment level (hiring or firing): Hire additional employees during peak demand
period and layoff employees as demand decreases.
4. Employee training: Develop multi-skilled employees through training so that they can
be rotated among different jobs. The multi-skilling helps as an alternative to hiring employees.
5. Subcontracting: During peak periods, hire the capacity of other firms temporarily to
make the component parts or products.
6. Process design: Change job contents by redesigning the job.

 Routing
Routing may be defined as the selection of path which each part of the product will follow while
being transformed from raw materials to finished products. Path of the product will also give
sequence of operation to be adopted while being manufactured.
 In other way, routing means determination of most advantageous path to be followed from
department to department and machine to machine till raw material gets its final shape, which
involves the following steps:
(a) Type of work to be done on product or its parts.
(b) Operation required to do the work.
(c) Sequence of operation required.
(d) Where the work will be done.
(e) A proper classification about the personnel required and the machine for doing the
work.
For effective production control of a well-managed industry with standard conditions, the
routing plays an important role, i.e., to have the best results obtained from available plant
capacity. Thus routing provides the basis for scheduling, dispatching and follow-up.

 Techniques of Routing
While converting raw material into required goods different operations are to be performed and
the selection of a particular path of operations for each piece is termed as ‘Routing’. This
selection of a particular path, i.e. sequence of operations must be the best and cheapest to have
the lowest cost of the final product. The various routing techniques are:
1. Route card: This card always accompanies with the job throughout all operations. This
indicates the material used during manufacturing and their progress from one operation to
another. In addition to this the details of scrap and good work produced are also recorded.
2. Work sheet: It contains
(a) Specifications to be followed while manufacturing.
(b) Instructions regarding routing of every part with identification number of machines and
work place of operation.
This sheet is made for manufacturing as well as for maintenance.
3. Route sheet: It deals with specific production order. Generally made from operation sheets.
One sheet is required for each part or component of the order. These includes the following:
(a) Number and other identification of order.
(b) Symbol and identification of part.
(c) Number of pieces to be made.
(d) Number of pieces in each lot—if put through in lots.
(e) Operation data which includes:
(i) List of operation on the part.
(ii) Department in which operations are to be performed.
(iii) Machine to be used for each operation.
(iv) Fixed sequence of operation, if any.
(f) Rate at which job must be completed, determined from the operation sheet.
4. Move order: Though this is document needed for production control, it is never used for
routing system. Move order is prepared for each operation as per operation sheet. On this the
quantity passed forward, scrapped and to be rectified are recorded. It is returned to
planning office when the operation is completed.
 Scheduling
Scheduling can be defined as “prescribing of when and where each operation necessary to
manufacture the product is to be performed.”
It is also defined as “establishing of times at which to begin and complete each event or
operation comprising a procedure”. The principle aim of scheduling is to plan the sequence
of work so that production can be systematically arranged towards the end of completion of
all products by due date.
 Principles of Scheduling
1. The principle of optimum task size: Scheduling tends to achieve maximum efficiency
when the task sizes are small, and all tasks of same order of magnitude.
2. Principle of optimum production plan: The planning should be such that it imposes an
equal load on all plants.
3. Principle of optimum
4. sequence: Scheduling tends to achieve the maximum efficiency when the work is
planned so that work hours are normally used in the same sequence.

 Inputs to Scheduling

1. Performance standards: The information regarding the performance standards (standard

times for operations) helps to know the capacity in order to assign required machine
hours to the facility.
2. Units in which loading and scheduling is to be expressed.
3. Effective capacity of the work centre.
4. Demand pattern and extent of flexibility to be provided for rush orders.
5. Overlapping of operations.
6. Individual job schedules.
 Scheduling Strategies

Scheduling strategies vary widely among firms and range from ‘no scheduling’ to very
sophisticated approaches.
These strategies are grouped into four classes:
1. Detailed scheduling: Detailed scheduling for specific jobs that are arrived from
customers is impracticable in actual manufacturing situation. Changes in orders, equipment
breakdown, and unforeseen events deviate the plans.
2. Cumulative scheduling: Cumulative scheduling of total work load is useful especially
for long range planning of capacity needs. This may load the current period excessively and
under load future periods. It has some means to control the jobs.
 3. Cumulative detailed: Cumulative detailed combination is both feasible and practical
approach. If master schedule has fixed and flexible portions.
4. Priority decision rules: Priority decision rules are scheduling guides that are used
independently and in conjunction with one of the above strategies, i.e., first come first serve.
These are useful in reducing Work-In-Process (WIP) inventory.

 Types of scheduling
Scheduling can be categorized as forward scheduling and backward scheduling.
1. Forward scheduling is commonly used in job shops where customers place their orders
on “needed as soon as possible” basis. Forward scheduling determines start and finish times of
next priority job by assigning it the earliest available time slot and from that time, determines
when the job will be finished in that work centre. Since the job and its components start as early
as possible, they will typically be completed before they are due at the subsequent work centres
in the routing. The forward method generates in the process inventory that are needed at
subsequent work centres and higher inventory cost. Forward scheduling is simple to use and it
gets jobs done in shorter lead times, compared to backward scheduling.
2. Backward scheduling is often used in assembly type industries and commit in advance
to specific delivery dates. Backward scheduling determines the start and finish times for waiting
jobs by assigning them to the latest available time slot that will enable each job to be completed
just when it is due, but done before. By assigning jobs as late as possible, backward scheduling
minimizes inventories since a job is not completed until it must go directly to the next work
centre on its routing. Forward and backward scheduling methods are shown in the the figure
belowure below.

 Scheduling Methodology
 The scheduling methodology depends upon the type of industry, organization, product, and
level of sophistication required. They are:
1. Charts and boards,
2. Priority decision rules, and
3. Mathematical programming methods.

1. Gantt Charts and Boards

Gantt charts and associated scheduling boards have been extensively used scheduling devices in
the past, although many of the charts are now drawn by computer. Gantt charts are extremely
easy to understand and can quickly reveal the current or planned situation to all concerned. They
are used in several forms, namely,
(a) Scheduling or progress charts, which depicts the sequential schedule;
(b) Load charts, which show the work assigned to a group of workers or machines; and
(c) Record a chart, which are used to record the actual operating times and delays of workers
and machines.

2. Priority Decision Rules

Priority decision rules are simplified guidelines for determining the sequence in which jobs will
be done. In some firms these rules take the place of priority planning systems such as MRP
systems. Following are some of the priority rules followed.

Symbol Priority rule

FCFS First come, first served
EDO Earliest due date
LS Least slack (i.e, time due less processing time)
SPT Shortest processing time
LPT Longest processing time
PCO Preferred customer order
RS Random selection

3. Mathematical Programming Methods

Scheduling is a complex resource allocation problem. Firms process capacity, labour skills,
materials and they seek to allocate their use so as to maximize a profit or service objective, or
perhaps meet a demand while minimizing costs.
The following are some of the models used in scheduling and production control.
(a) Linear programming model: Here all the constraints and objective functions are
formulated as a linear equation and then problem is solved for optimality. Simplex method,
transportation methods and assignment method are major methods used here.
 (b) PERT/CPM network model: PERT/CPM network is the network showing the sequence
of operations for a project and the precedence relation between the activities to be completed.

 Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is a process used by companies to manage and integrate the
important parts of their businesses. Many ERP software applications are important to companies
because they help them implement resource planning by integrating all of the processes needed
to run their companies with a single system. An ERP software system can also integrate
planning, purchasing inventory, sales, marketing, finance, human resources, and more.
Key Takeaways
 ERP software can integrate all of the processes needed to run a company.
 ERP solutions have evolved over the years, and many are now typically web-based
applications that users can access remotely.
 An ERP system can be ineffective if a company doesn't implement it carefully.
An enterprise resource planning system can be thought of as the glue that binds together the
different computer systems for a large organization. Without an ERP application, each
department would have its system optimized for its specific tasks. With ERP software, each
department still has its system, but all of the systems can be accessed through one application
with one interface.
ERP applications also allow the different departments to communicate and share information
more easily with the rest of the company. It collects information about the activity and state of
different divisions, making this information available to other parts, where it can be used
productively.
ERP applications can help a corporation become more self-aware by linking information about
the production, finance, distribution, and human resources together. Because it connects different
technologies used by each part of a business, an ERP application can eliminate costly duplicate
and incompatible technology. The process often integrates accounts payable, stock control
systems, order-monitoring systems, and customer databases into one system.
ERP offerings have evolved over the years from traditional software models that make use of
physical client servers to cloud-based software that offers remote, web-based access. A company
could experience cost overruns if its ERP system is not implemented carefully.
Special Considerations
An ERP system doesn't always eliminate inefficiencies within the business. The company needs
to rethink the way it's organized, or else it will end up with incompatible technology.
ERP systems usually fail to achieve the objectives that influenced their installation because of a
company's reluctance to abandon old working processes that are incompatible with the software.
Some companies are also reluctant to let go of old software that worked well in the past. The key
is to prevent ERP projects from being split into many smaller projects, which can result in cost
overruns.
  Lean production management

Lean production is an approach to management that focuses on cutting out waste, whilst
ensuring quality. This approach can be applied to all aspects of a business – from design,
through production to distribution.

Lean production aims to cut costs by making the business more efficient and responsive to
market needs.

This approach sets out to cut out or minimise activities that do not add value to the production
process, such as holding of stock, repairing faulty product and unnecessary movement of people
and product around the business.

Lean production originated in the manufacturing plants of Japan, but has now been adopted well
beyond large and sophisticated manufacturing activities.

The lean approach to managing operations is really about:

 Doing the simple things well

 Doing things better
 Involving employees in the continuous process of improvement
 …and as a result, avoiding waste

The concept of lean production is an incredibly powerful one for any business that wants to
become and/or remain competitive. Why? Because waste = cost. Less waste therefore means
lower costs, which is an essential part of any business being competitive.

Over-production: making more than is needed – leads to excess stocks

Waiting time: equipment and people standing idle waiting for a production process to be
completed or resources to arrive

Transport: moving resources (people, materials) around unnecessarily

Stocks: often held as an acceptable buffer, but should not be excessive

Motion: a worker who appears busy but is not actually adding any value

Defects: output that does not reach the required quality standard – often a significant cost to an
uncompetitive business

The pioneering work of Toyota (a leader in lean production) identified different kinds of waste
which can be applied to any business operation. There are key aspects of lean production that
one should be aware of, including:
  Time based management
 Simultaneous engineering
 Just in time production (JIT)
 Cell production
 Kaizen (Continuous improvement)
 Quality improvement and management

 JIT
The "just-in-time method" is an inventory strategy where materials are only ordered and received
as they are needed in the production process. The goal of this method is to reduce costs by saving
money on overhead inventory expenses. The company must be able to accurately forecast
demand for goods and services for the just-in-time method to be effective. The just-in-time
inventory method is considered a "pull" approach in manufacturing. When sales activities
warrant more production, inventory is "pulled" and more manufacturing supplies are ordered.
The result is a smooth flow of production and reduced inventory costs. This method relies on
signals given at different points in the production process that tell the manufacturer when to
make the next part. Stock depletion signals the ordering of new parts. The just-in-time method is
used by major auto manufacturers, such as Toyota, who take advantage of synchronized
assembly line systems.
Advantages
One major advantage of the just-in-time inventory management system is that funds that were
tied up in inventory costs can be used elsewhere. Likewise, areas devoted to storing inventory
are now free to be used in production or for other needs within the company. Less waste and
lower inventory costs result in increased profits for the organization.
Disadvantages
The just-in-time method does not work for all companies. Not every supplier or manufacturer
has the luxury of ordering only the materials they need to complete a specific order. A company
must consider potential variables in the manufacturing process -- such as inclement weather
delaying receipt of inventory materials, labor strikes or supply shortages -- before deciding if this
inventory method is right for their organization.
Alternatives
An alternative to the just-in-time inventory management method is the MRP, or "materials
requirements planning" system. In contrast to just-in-time, MRP is a "push" system of inventory.
The concept of "push" in inventory involves having goods on hand to "push" to the next level in
the production process based upon forecasts of sales. A company that can accurately forecast
product demand may prefer the MRP system over just-in-time inventory management.

 Flexible Resources
The enemy of JIT is uncertainty. A JIT environment thrives on predictability in customer
demand, production processes, suppliers, and workers. Of course, uncertainty cannot be
completely eliminated in most organizational environments. The defense against uncertainty that
cannot be driven out is to implement flexible resources that can adapt easily to changing
circumstances. General-purpose, moveable equipment that can fulfill a wide variety of
production requirements is one way to improve flexibility. For example, drilling machines with
quick-change bits which can be wheeled into position to form new work cells allows the factory
to maximize efficiency while producing exactly what is needed to satisfy immediate demand.
Another example is Toyota’s use of paint canisters that attach to paint sprayers. Any car can be
painted any color without having to purge hoses in switching from one color to another.
Multifunctional workers are another way to bring flexibility to the work environment. For
example, workers are trained to operate all the machines on their work line. The flexibility that
comes from multifunctional workers changes the nature of how work gets done. Instead of
workers being trained on one machine and working independently of one another,
multifunctional workers have a “big picture” view of the production line, where every worker
understands all aspects of the line and how to work together to meet quality and schedule goals
regardless of the circumstances.

 The Pull System

A pull system is a Lean technique for reducing the waste of any production process. Applying a
pull system allows to start new work only when there is a customer demand for it. This gives the
opportunity to reduce overhead and optimize storage costs. Pull systems are part of the Lean
manufacturing principles, born in the late 1940’s. A lean pull system has the purpose of creating
a workflow where work is pulled only if there is a demand for it.
Essentially, the purpose of implementing a pull system is to build products based on actual
demand and not on forecasts. By doing so, the company can focus on eliminating waste activities
in the production process. As a result, it will be able to optimize the resources and reduce the
possibility of overstocking. Furthermore, applying a pull system will allow to deliver work just
in time.
“Just-in-time” is a production model where deliverables are produced in order to meet actual
demands and avoid overstocking and push strategies. When applying a push strategy, a
company’s production is based on anticipated demand, which can fail to correspond with the
actual demand. Such an imbalance can create unexpected financial gaps.
In knowledge work, the “just-in-time” concept can be applied in the same way as in
manufacturing – a work item has to be in progress only if there is a demand for it. This is the
opposite of “Just in Case”, where companies somehow try to ensure themselves by
overproducing in case of higher demands somewhere in the future.

 Kanbans
Kanban is a visual system for managing work as it moves through a process. Kanban visualizes
both the process (the workflow) and the actual work passing through that process. The goal of
Kanban is to identify potential bottlenecks in your process and fix them so work can flow
through it cost-effectively at an optimal speed or throughput.
A Kanban system ideally controls the entire value chain from the supplier to the end consumer.
In this way, it helps avoid supply disruption and overstocking of goods at various stages of the
manufacturing process. Kanban requires continuous monitoring of the process. Particular
attention needs to be given to avoid bottlenecks that could slow down the production process.
The aim is to achieve higher throughput with lower delivery lead times. Over time, Kanban has
become an efficient way in a variety of production systems.
The Kanban Method is a process to gradually improve whatever you do – whether it is software
development, IT/ Ops, Staffing, Recruitment, Marketing and Sales, Procurement etc. In fact,
almost any business function can benefit from applying the principles of the Kanban
Methodology.
Kanban Principles & Practices
The Kanban Method follows a set of principles and practices for managing and improving the
flow of work. It is an evolutionary, non-disruptive method that promotes gradual improvements
to an organization’s processes. If well followed, these principles and practices, would make
successfull use of Kanban for maximizing the benefits to the business process – improve flow,
reduce cycle time, increase value to the customer, with greater predictability – all of which are
crucial to any business today.
Foundational Principles
The four foundational principles of the Kanban Methodology are
 Start with what you are doing now: The Kanban Method (hereafter referred to as just
Kanban) strongly emphasizes not making any change to your existing setup/ process right
away. Kanban must be applied directly to current workflow. Any changes needed can
occur gradually over a period of time at a pace the team is comfortable with.
 Agree to pursue incremental, evolutionary change: Kanban encourages you to make
small incremental changes rather than making radical changes that might lead to
resistance within the team and organization.
 Initially, respect current roles, responsibilities and job-titles: Unlike other methods,
Kanban does not impose any organizational changes by itself. So, it is not necessary to
make changes to your existing roles and functions which may be performing well. The
team will collaboratively identify and implement any changes needed. These three
principles help the organizations overcome the typical emotional resistance and the fear
of change that usually accompany any change initiatives in an organization.
 Encourage acts of leadership at all levels: Kanban encourages continuous improvement
at all the levels of the organization and it says that leadership acts don’t have to originate
from senior managers only. People at all levels can provide ideas and show leadership to
implement changes to continually improve the way they deliver their products and
services.
  Small Lots
The Lean Manufacturing literature gives little guidance on lot sizing other than general
statements. This series of papers examines the lot sizing problem in Lean Manufacturing. It
offers a rational alternative to the slogans and edicts.
Small lot production (ideally one piece) is an important component of many Lean Manufacturing
strategies. Lot size directly affects inventory and scheduling. Other effects are less obvious but
equally important.
Small lots reduce variability in the system and smooth production. They enhance quality,
simplify scheduling, reduce inventory, enable kanban and encourage continuous improvement.
The effects of small lots differ somewhat between Make To Order (MTO) and Make To Stock
(MTS) environments but they are important in either situation.
 Quick Setups
Setup Reduction is a technique useful for level load balancing, a key strategy for lean
deployment. Setup Time is defined as the time to change from the last item of the previous order
to the first good item of the next order. Setup includes preparation, replacement, location and
adjustment activities (see below). When analyzing setup activities, note whether the activity is
internal or external. Internal setup activities require an inactive (shut down) process, meaning
that no orders can be run while the setup activity is taking place. External setup activities may be
done while the process is operational. They are offline activities.
Incredible reductions is total setup time have been realized simply by making internal activities
external activities. The following four-step approach may be used to reduce setup times:
i. Classify each setup step as either Internal or External. Internal steps are those done
while the process is inactive. External steps are done while the process is operating.

ii. Convert Internal steps to External steps. We want to reduce the time the process is
non-operational, so we need to reduce the time associated with the Internal steps. The
quickest way to do this is to do as many of these steps as we can while the process is
operational. For example, if we can collect the money from the customer as their
burgers are being cooked, then the total cycle time is reduced.

iii. Reduce time for remaining Internal steps. There are some Internal steps that cannot be
done while the process is operational. We now want to concentrate on reducing the
time required to complete those steps that require the process to be delayed. For
example, since the burgers cannot be cooked until we know what the customer wants
to order, we will try to reduce the time it takes to place the customer order.

iv. Eliminate adjustments. Adjustments, as discussed in the Analyze stage, can be

reduced through effective process control. Designed Experiments may be used to
understand the causes of process variation that precede the adjustment.