Standards & Quality

Practices

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 1. BASICS CONCEPTS OF QUALITY
KEY CONCEPTS RELATED TO QUALITY  A good quality of design must ensure consistent
performance over its stipulated life span stated in
 Quality depends on the degree of fitness for use terms of rated output, efficiency, overload capacity,
by the customer. Hence, a product will have good continued or intermittent operation for specified
quality if it is suitable for the purpose for which it application or service.
is meant. However, the term, fitness for purpose,
is a highly subjective term, the interpretation of Quality of Conformance
which may vary from individual to individual. The
criterion of fitness for purpose is perfectly suitable  The quality of conformance is concerned with how
at only one stage of production of a product or well the manufactured product conforms to the
service. This is the stage of designing the product. quality of design.
 Quality of a product means the conformance to  Higher quality of design usually costs more, higher
specification. The customer’s needs have to be quality of conformance usually costs less, by
assessed and translated into specifications. reducing the number of defective products
produced.
 The product or service must meet the customer’s
expectations or needs. The needs can be both
Quality of Performance
stated as well as implied.
 Reliability is an important indicator of quality over  The quality of performance is concerned with how
a period of time. It means that the product must well the manufactured product gives its
perform its intended function over a period of time performance. It depends upon.
without failing under given operating conditions. (a) Quality of Design
 Quality is a relative term. It is not absolute. It (b) Quality of conformance.
varies with time, space and from person to person.
Quality

Quality Characteristics Fitness for use

e.g., length, diameter

Technological
frequency, viscosity etc
Quality of design Quality of conformance
(sensory) taste,
Psychological
odour, beauty etc. Product features Freedom from deficiencies
Reliability, maintaina-
Time oriented bility, life etc.

Contractual Gurantee, safety etc. Quality of performance

Profit
Ethical Honesty, integrity etc. Quality leads to profit

TYPES OF QUALITY COST OF QUALITY (COQ)

 Cost of quality measures the impact of quality on
Quality of Design any business. It is defined as the cost of those
activities which an organisation has incurred over
 The quality of design of a product is concerned and above the minimum cost required to do the
with the tightness of the specifications to
job well.
manufacture the product. For example, a part
which has a drawing tolerance of ± 0.001 mm  COQ is the amount of money a business loses
would be considered to have a better quality of because its products or services failed to secure
design than another with a tolerance of ± 0.01 the customer satisfaction. Thus, any cost associated
mm. with correcting failure or waste and any assurance

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 or appraisal activities built in to protect customers VALUE OF QUALITY
from the effects of such failures comes under
quality costs. Cost of quality is therefore, sum of  Value of quality can be defined as the return directly
all costs a company invests into the release of or indirectly gained by the manufacturer due to
quality product or service. mission of quality.
 The value of quality is to be assessed considering
Cost of Quality various factors, a few of which are as under :
 The saving due to increased production.
 Reduction in scrap and re-work cost.
Cost of Cost of Non-  Increased sales of good quality product.
Conformance Conformance
 Reputation of the manufacturer and goodwill
of the customer.
 Psychological stability in the enterprise due to
Prevention Appraisal Internal External increased sales and security of jobs to workers.
Failure Failure

 Prevention Cost : These are the costs associated QUALITY POLICY

with trying to prevent failure. Prevention activities
lead to reduction of failure and appraisal costs.  Quality policy is a document developed by
management to express the directive of the top
Thus, empahsis should be given on the prevention
management with respect to quality. It is the top
rather than appraisal.
management's expression of its intention, direction
 Appraisal Costs : These are cost to determine and aim regarding quality of its products and
conformance with quality standards. These costs processes. ISO 9001:2015 standard requires a
arise from detecting defects. written, well-defined quality policy that is
 Internal failure cost : Internal failure costs arise communicated and understood within an
when results of work fail to reach required quality organization.
standards and are detected before transfer to the
 Quality Policy is important because it expresses
customer takes place.
management’s commitment to ensure customer
 External failure cost : These costs occur when satisfaction through product quality.
the product is offered to the customer and found
to be defective. External failure costs are much QUALITY OBJECTIVES
higher than the internal failure costs.
 The optimum quality cost model shows three curves:  Quality objectives must be defined; they must
 Failure costs : These reduce as the failures reflect the quality policy, be coherent, and align
decrease or lesser products are defective. with the overall business objectives, including
These increase as the level of quality decreases. customer expectations.
 Prevention and appraisal costs : These  The requirement for quality objectives is that it
are low when the level of quality is less and should be measurable and consistent with the
these increase as the level of quality increases. organisation's quality policy.
 Total quality cost : This is sum of the failure
costs and the prevention and appraisal costs. The QUALITY ASSURANCE (QA) AND QUALITY
objective is to minimise the total cost of quality. CONTROL (QC)
Zone of Zone of Zone of high
Costs improvement Quality assurance (QA) is a way of preventing
indifference appraisal costs 
projects Quality of
100% Defective conformance 100% Good Total quality mistakes or defects in manufactured products and
Optimum cost curve avoiding problems when delivering solutions or
Prevention and services to customers. It is part of quality
appraisal costs management focused on providing confidence that
quality requirements will be fulfilled.
Failure costs
 Total Quality of Assurance = Quality of design +
ECL Conformance level
ECL = Economic conformance level Quality of manufacturing according to design

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 (Quality of conformance) + Quality of  The purpose is to provide the purchasing
performance. organisation with a level of confidence in the
 Generally quality of design combined with quality supplier’s ability to provide goods and services to
of performance is termed as Reliability whereas agreed quality requirements.
the field covering quality of manufacture according  Third party audit is conducted by those who are
to design is termed as Quality Control (QC). not party to either the supplier or purchaser and
 Quality control is part of quality management is normally performed by a certification agency or
focused on fulfilling quality requirements. statutory body.
 While quality assurance relates to how a process  Internal audit confirms that the quality management
is performed or how a product is made, quality system is working effectively. It provides control
control is more concerned with the inspection mechanisms for the management and helps to
aspect of quality management. QA is process institute corrective action for non-conformities.
oriented and QC is product oriented. Testing, is
product oriented and thus is in the QC domain. QUALITY MANAGEMENT
Testing for quality isn't assuring quality, it's
 Quality management is a method for ensuring that
controlling it.
all the activities necessary for the design,
Quality Assurance Quality Control development and implementation of a product or
Process based — product based service are effective and efficient with respect to
the system and its performance. Quality
Preventive — corrective
management starts with the establishment of a
Quality audit — inspection
strategic quality management sytem in the
Proactive — reactive
organisation. It has four main components: quality
planning, quality assurance, quality control and
QUALITY AUDIT quality improvement. Quality management is
focused not only on product and service quality,
 Quality audit is periodic, independent and a but also on the means to achieve it. Quality
documented examination and verification of management, therefore, uses quality assurance and
activities, records, processes and other elements control of processes as well as products to achieve
of a quality system to determine their conformance more consistent quality.
with the requirements of a quality standard such
as ISO 9000. Any failure in their proper QUALITY IMPROVEMENT
implementation may lead to a revocation of quality
certification.  Quality improvement relates to the detection and
elimination of common causes. Common causes
Types of Quality Audit are inherent to the system and are always present.
Special causes are controllable mainly by the
 An organization is subjected to quality audits both operator, but common causes need the attention
internally and externally. Accordingly, there are of management. Quality improvement can take
two types of audits - internal and external audits. place only through the joint effort of the operator
The internal audit is an examination of the quality and management, with the emphasis primarily on
system within the organization and is called first the latter.
party audit.
Q. Which of the following terms correctly describes
 The external audit is classified as second party the examination of process with the standard
or third party audit. Second party audits are procedure?
those that are performed by suppliers on their
(a) Quality control (b) Quality assurance
sub-contractors or by the purchaser on their
supplier. (c) Quality audit (d) Quality management

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 2. QUALITY THINKERS AND APPROACHES
KAIZEN APPROACH — Communication will develop under hierarchy
(i) Continuous improvement — Increase in problem solving ability
(ii) Process based — Knowledge transfer
(iii) Small change in daily operations — Increase in morale and motivation, also sense
of belongingness.
(iv) Involvement of everyone
(v) Recognize the crucial role of top management Juran
(vi) Employee’s sense of belongingness (i) Top down approach
(vii) Moral of employees (more) (ii) Technical approach
(viii) It involves identifying bench marks of (iii) Quality trilogy:
excellence practices and thereby comparing
— Quality planning
own performance with the benchmark to
continuously improve. — Quality control
(ix) It is also based on the realizations that mass — Quality improvement
inspection of the output does not add value to
the product. Feigenbaum
He devised the concept of Total Quality Control
Poka Yoke – “Mistake proofing” which inspired Total Quality Management (TQM)
— In built quality control — Pioneer of total quality management
— It means mistake proofing — Quality is everyone’s job
— It’s purpose is to eliminate deflects by
preventing human error from taking place. Taguchi
Thus it has 100º inbuilt quality control — Rubust design
mechanism and the company has to spend less
— Target based approach not goal post
time and resources on training of its employees.
mentality
Bench Marking: It is a quality improvement tool
— Taguchi loss function.
to improve the performance of an organization by
comparing with the best practices and learning from L  y – y 0 
2
them to improve own performance by setting the
best performances as benchmark. y0 = target value
Various quality thinker’s approach:
(1) Ishikawa
(2) Juran Loss (L)
(3) Feigenbaum
(4) Taguchi
(5) Crosby
(6) Deming y0
Quality Characteristic (y)
Ishikawa: — Taguchi loss function is used to measure the
— Quality control tools—(next chapter) financial loss to the society due to poor quality.
— Quality circle — He suggested that each product has a target
— Problem solving purpose value and as the product moves away from
the target value, there is a loss incurred by the
— People from different levels
society.

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 — Taguchi calls common cause variations as noise Do stage: Implement the solution
factor and the aim should be to reduce the Check stage: Monitor the results and compare
effect of noise on the product quality. Thus them with the previous data
Taguchi Robust design is a concept used to
Act stage: Documents the results and make
make the system less sensitive to variations.
recommendations for the problem to be addressed
Q. Assuming the following Taguchi loss function and in the next PDCA cycle.
specifications, determine the estimated loss if the
Deming said:
quality characteristics under study takes a value
6.3 cm. (i) Avoid too much emphasis on short term profit.
Taguchi loss function = 8500 (x – T)2 (ii) Avoid excessive medical cost, warrantee cost,
etc.
Specification in (cm) = 6.00 + 0.25
(iii) Consider total cost, not just initial cost
(a) 765 (b) 2500
Deming’s system of proformed knowledge:
(c) 21 (d) 1350
 An appreciation for a system.
Crosby  Knowledge about variation.
— Crosby’s response to quality crisis was the  Theory of knowledge.
principle of “doing it right the first time.” It is  The psychology.
less expensive to do it right the first time than
to pay for rework and repairs. Also, it will Quality control tools
leads to increase in value and profit of the Total Quality Management (TQM)
company.
Principles of TQM:
— The definition of quality is conformance to
requirements. — Customer focus.
— The system of quality is prevention. — Leadership top management commitment and
involvement.
— The performance standard is zero defect.
— Engagement of people of all levels in
— The measurement of quality is the price of organisation.
non-conformance.
— Process approach.
Deming — Opportunity to improve.
(i) 14 principles for transformation of management — Evidence based decision making.
(ii) 7 deadly diseases — Adoption of TQM requires cultural and
behavioural change of employees at all levels
(iii) Deming’s PDCA cycle in the organisation from traditional approach
Demings PDCA Cycle: Continuous improvement of management.
P — Plan
D — Do — implement QUALITY FUNCTION DEPLOYMENT
C — Check — monitor of process result  Quality Function Deployment (QFD) is a planning
A — Act — tool that focus on designing quality into a product
or service by incorporating the customer’s needs.
QFD is customer driven and translates customer’s
needs into appropriate technical requirements in
Act Plan
products and services. It is proactive in nature.

Check Do VALUE ENGINEERING

 Value engineering is an organised creative technique
directed at analyzing the functions of a product,
Plan stage: Define the problem, find the causes, service or a system with the purpose of achieving
constraints and solutions: the required functions at the lowest overall cost

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 consistent with all the requirements, which  Scrap value : It is the money, which can be
comprise its value, such as performance, reliability, recovered when the item is not needed.
maintainability, appearance etc.  Exchange value : It is the property and
 Value is the required performance at minimum cost. qualities, which enable to exchange a product
It can be defined as the ratio of function to cost. for something else, which is needed by the
Function
exchanger.
Value =
Cost  Value analysis is different from value engineering in
the sense that value analysis is generally the review
Types of Value of existing established product, processes, systems,
facilities or service to improve function or reduce
 Value is categorized into following types : cost.
 Use value : It is defined as the qualities and On the other hand, value engineering is review of

properties needed to accomplish a service or products, processes, facilities or services during
product. the early design phase prior to being built or
 Esteem value : It provides properties, features established to minimise cost and other resources.
and attractiveness to a service or product.

3. STATISTICAL TOOLS AND CONTROL CHARTS

CONTROL CHARTS X chart:
Let n = sample size
N = number of samples
n
 xi
x1 + x 2 +...+ x n i=1
X = =
n n
(Assignable)
x1 + x 2 +...+ x n
— Control charts are used to differentiate b/w X = N
common causes and special causes. The
variations due to common causes are always X =CL
present and they can’t be avoided. There take
place due to inherent nature of the process. 3
There are not considered as defects and the UCL = X +
n
variations are small in magnitude.
— On the other hand the variations due to special 3
causes are due to the presence of some LCL = X +
n
assignable factors.
These are of larger magnitudes and hence steps
should be taken to remove thus. There are
considered as defects.

Types of control charts

–3  +3
Variable Attribute  = 3 to  +3 99.73%
(Measureable) Count type or
Conformity/non-unformition  = 2 to  +2  95.5%
X chart P— chart  =  to  +  68%
R chart R—chart

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 R-Chart: R — Range UCL = D4 R = 0.2 2.28 = 0.456
R = Xmas – Xmin and n = total
no. of sample LCL = D3 R = 0
p-chart:
R +R 2 +...+R N (Fraction Defective or proportion defective)
X= 1 =CL
N
Sample [Link] Fraction
UCL=D4R  defective defective
UCL =  D & D4
UCL=D3R  
3  
Constants n1 d1 d1
p1 =
n1
Will be given
n2 d2 d2
— Variables are characteristics that are p2 =
measureable where as attributes are n2
characteristics which are expressed in terms 1 1 1
of conformity/Non-conformity, defective/Non- 1 1 1
defective. 1 1 1
— Defects are quality characteristics that don’t nN dN d2
meet the desired specifications while a pN =
n2
defective unit may have one or more no of
defects such that unit is unable to meet the
N
standard.
 pi p1 + p2 +...+pN
— X chart shows the centering of the process CL = p = L=1 =
N N
or the trend whereas R chart shows the
dispersion in the sample. It is a measure of the
spread of the sample. p 1– p  n1 + n2 +...+nN
UCL = p +3 = n=
Q. For a control chart of variables the sample size is n N
4 and the total no of the samples are 20.

X = 400, R = 4 p 1– p 
LCL = p – 3 =
n
What will be the 3 control limits for X and R
charts. Assume the population std deviation = 0.08. np-chart:
D4 = 2.28 CL = np
D3 = 0
UCL = p +3 np 1– p 
Given, n = 4, n = 20, =0.08
x - chart : LCL = p – 3 np 1– p 
P chart follows binomial distribution, while cchart
 X = 400 =20 follows Poisson’s distribution.
X =
N 20
C-chart:
3 3×0.08 It is used to control the number of defects in a
UCL = X + =20 +
n 4 sample.
= 20 + 3 × 0.04 C-chart is different from p-chart in the sense that
C-chart differentiates between two defective,
UCL = 20.12 whereas p-chart treats defectives equally whether
LCL = 20 – 3 × 0.04 = 19.88 they contain one defect or more.
R-chart: np chart is used to control the no of defectives
whereas p-chart is used for fraction defectives.
R 4
R = = =0.2
N 20 CL = C

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 — In the present case it means that the proportion
UCL = C +3 C of defectives are same in the sample and the
LCL = C – 3 C lot.
— Acceptance sampling is a technique in which
C = average of number of defect. based on the inspection of a small sample the
Q. During an experiment it is found that on an avg 1 decision regarding accepting or rejecting a lot
out of 10 items produced by a machine is defective. is taken. It is assumed that the sample
While inspecting the quality inspector selects a represents the whole of lot. It means that the
sample of 100 items and finds that 15 of them are characteristics of the lot are same as that of
defective. What will be the decision of the inspector the sample.
about, whether the process is within control or — It is further assumed that the sample is chosen
not? in a random or unbiased manner.
p = 0.1 — 100% inspection of the lot is not preferred
because
p 1– p  0.1×0.9 (i) It consumes time & resources
UCL= p +3 =0.1+3
n 100 (ii) It may decrease the productivity of the
organization
UCL = 0.19
(iii) There may be an element of human error
UCL = 0.1– 0.09 – 0.01 (iv) Items may get damage due to handling
15 Single sampling:
But process = =0.15  OK Decision regarding the accepting or rejecting a lot
100
is taken on the basis of inspection of only one
(Within control limits)
sample no of samples = d
Q. A control chart is established with limits of + 2
If d C – accept the lot
standard errors. For use in monitoring samples of
size n = 20. d > C – reject the lot
Assume the process to be in control. What is the Double sampling:
likelihood of a sample mean falling outside the n1 = 1st sample, n2 = 2nd sample
control limit? c1 = Lower acceptance number
(a) 97.7% and c2 = Upper acceptance
(b) 95.5% number
(c) 4.5% If number of defective = d
(d) 2.3% If d  c1 ¡X accept the lot
Note: +2 standard error = 2 d > c2 – reject the lot
Acceptance Sampling If c1 < d < c2 — take 2nd sample
Sample=representative, randomly selected If (n1 + n2) –
(unbiased) d’ > c2 – reject
Lot = Good & sample ¡V bad = producer’s risk d’ > c2 – accept
Lot = Bad & sample ¡V good = consumer’s risk

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 4. ACCEPTANCE SAMPLING
Comparison between Single, Double and Multiple (c) take a 2nd sample
Sampling Plan
(d) None of these
Single Double Producer’s Risk (  ): It is the probability that a
Multiple
Criteria Sampling Sampling lot which has acceptable quality level will be
Sampling Plan
Plan Plan rejected i.e. it is the probability of a good lot being
Average Largest In between Lowest rejected.
number of single and
Consumer Risk (  ): It is the probability that a
pieces multiple
inspected per plans lot containing defectives more than LTPD will be
lot acceptance i.e. it is the probability of a bad lot
being accepted.
Cost of Lowest In between Largest
administration single and LTPD: Lot tolerance percent defective.
multiple LTPD: It is the %age of defective items above
plans which the consumers will not accept the lot.
Information Largest In between Least AQL: It is the %age of defective at which the
available single and consumers will accept the lot.
regarding multiple Operating characteristics curve: It is a curve
prevailing plans between probability of accepteance and the lot
quality level quality in terms of fraction defectives. As the
Acceptability Less (gives Most Indecision is praction defective in the lot increases the
to producers only one acceptable continued for a probability of acceptance will decrease.
chance of long term
passing the

lot)

 Compared with regards to all the four aspects

double sampling plan is best. Where the cost of
inspection is high, we choose multiple sampling Probability
plans. of
acceptance
 If the decision is taken on single sampling plan the
lot has not to wait, but in multiple sampling plan
indecision is continued for a long period and lot
 AQL
has to wait, therefore, more storage space is
necessary to store the items until the decision is % fraction defective LTPD
taken.
Q. In a single sampling plan ‘N’ = 200, n = 10, c = AVERAGE TOTAL INSPECTION (ATI)
2} the actual defectives found by inspection is 3,  The ATI represents the average number of items
then the decision will be inspected per lot. If a lot has no nonconforming
(a) accept the lot items, it will obviously be accepted by the chosen
(b) reject the lot sampling plan, and only n items (the sample size)
will be inspected for a lot.
(c) take 2nd sample
(d) None of these  At the other extreme, if the lot has 100%
nonconforming items, the number inspected per
Q. In a double sampling plan n = 500, n1 = 10, n2 = lot will be N (the lot size) assuming that rejected
8 c1 = 1 and c2 = 4. If the no of defectives in the lots are 100% inspected.
1st sample are 3, then the decision will be
 For a lot quality between these extremes, the
(a) accept the lot average number inspected per lot will vary between
(b) reject the lot these two values. For single sampling plans, the

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 average total inspection per lot for lots with an of accepting the lot using the given sampling plan,
incoming quality level p is given by the average, outgoing quality is given by
ATI = n + (1 – Pa) (N – n) Pa p N - n 
AOQ =
Here Pa represents the probability of accepting a N
lot that has an incoming quality level of p.  When the incoming quality is very good, the
For a double sampling plan, average outgoing quality is also very good. When
ATI = n1+(1–Pa1) n2+(1–Pa1–Pa2) (N–n1-n2) the incoming quality is very poor, the average
where Pa1 represents the probability of accepting outgoing quality is good because most of the lots
are rejected by the sampling plan and go through
the lot on the first sample, and Pa2 represents the
100% inspection and defectives are replaced by
probability of lot acceptance on the second sample.
non-defectives.
AVERAGE OUTGOING QUALITY (AOQ)
AVERAGE OUTGOING QUALITY LIMIT (AOQL)
 It represents the average percentage defective in
the outgoing product after inspection including all  The average outgoing quality limit (AOQL) is the
accepted and rejected lots which have been 100% maximum value, of the AOQ. It represents the
inspected and defectives replaced by non- worst average quality that would leave the
defectives. inspection station, assuming rectification, regardless
of the incoming lot quality.
Taking N as the lot size, n as the sample size, p as
the incoming lot quality, and Pa as the probability

5. SIX SIGMA
STATISTICAL CONCEPTS RELATED TO SIX PROCESS CAPABILITY
SIGMA  Process capability is the ability of a process to
 Six sigma is a set of techniques and tools for process produce output within specification limits. The
improvement. It was introduced by engineer Bill concept of process capability only holds meaning
Smith while working at Motorola in 1986. for processes that are in a state of statistical control.
Process capability indices measure how much
 A six sigma process is one in which 99.99966% of "natural variation" a process experiences relative
all opportunities to produce some feature of a
to its specification limits. The various process
part are statistically free of defects i.e. six sigma
capability indices are:
process will give 3.4 defects per million
opportunities (DPMO). It relies on use of Normal Cp = (USL-LSL)/ 6 
Distribution to predict defective rates. It estimates what the process is capable of
producing if the process mean were to be centered
 The philosophy of Six Sigma is the same as that of
TQM which is reducing defects. However, Six between the specification limits.
Sigma has a direct link with profitability by reducing If the process mean is not centered, Cp over
the cost of poor quality which the firm has to estimates process capability then another index
incur through rework, rejects and lost customers. Cpk may be used.
 For six sigma projects, there is a clear focus on Cpk = Min [(USL- mean)/3  ; (Mean- LSL)/3  ]
achieving measurable and quantifiable financial  It estimates what the process is capable of
returns. Also, there is an increased emphasis on producing, considering that the process mean may
strong and passionate management leadership and not be centered between the specification limits.
support.
 Cp = 2 and Cpk = 1.5 assuming a 1.5 mean
 Lean management differs from six sigma in the shift. The higher the value of Cpk the lower will
sense that lean management emphasises on be the amount of product which is outside
eliminating waste and ensuring efficiency while six specification limits. In certifying suppliers, some
sigma focuses on eliminating defects and reducing organisations use Cpk as one element of
variability. certification criteria.

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 Comments concerning Cp and Cpk are as follows: 5. A Cpk value less than 1.00 indicates that the
1. The Cp value does not change as the process process does not conform to specifications.
center changes. 6. A Cp value less than 1.00 indicates that the
2. Cp = Cpk when the process is centered. process is not capable.
3. Cpk is always equal to or less than Cp. 7. A Cpk value of zero indicates the average is
equal to one of the specification limits.
4. A Cpk value greater than 1.00 indicates the
process conforms to specifications. 8. A negative Cpk value indicates that the average
is outside the specifications.

6. INVENTORY MANAGEMENT
INTRODUCTION D
OC = C0 ×
Inventory means stock. The goods may be stored Q

in order to meet future demand. Inventory is where C0 = ordering cost per order
considered as necessary evil. It is because too little D = demand (or, annual demand)
of it may cause costly interruptions and too much Q = order size
of it results in idle capital.
Inventory Carrying Cost/Holding Cost
COST ASSOCIATED WITH INVENTORY  Inventory carrying cost broadly includes.
 Cost of the capital tied up in inventories
Purchasing Cost (PC)  Cost of storage space
 It is the price per unit for purchasing or  Obsolescence cost
manufacturing an item. If the purchasing cost is  Taxes and insurance
constant, it does not affect the inventory control
 Material handling cost
decision, but it has to be definitely considered when
it varies as in quantity discount for bulk orders.  Damage and deterioration cost
PC = p × D  Pilferage cost
where p = purchasing price per unit Holding cost = Inventory carrying cost per
unit per year × Average inventory
D = demand
Holding cost = CC × Iavg
Ordering Cost or Set up Cost (OC) where CC = carrying cost per unit per year
 When the items are to be purchased, then ordering Iavg = average inventory level
cost will be used, otherwise when the items are
to be manufactured in house then set-up cost will SHORTAGE/STOCK-OUT COST (SC)
be used.
 These costs are associated with either a delay in
 The ordering cost generally includes : meeting the demand or unfulifilled demand. In case
 Cost associated with the purchase requisition, of delay, loss of goodwill or cost of idle equipment
tendering, administrative and clerical costs may be included in shortage cost.
accounting etc.
 Hence, there may also be associated lost profit in
 Cost of rent for the space used by purchasing future sales.
department associated with mailing, telephone Shortage cost = (Cost of being short one unit)
calls, transportation etc. × (Average no. of units short)
 Cost associated with inspection of incoming Total variable inventory cost = Carrying cost
materials, receiving the items. + Ordering cost + Shortage cost
Ordering cost = Ordering cost per order × No. Total inventory cost = Purchase cost + Carrying
of orders cost + Ordering cost + Shortage cost.

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Lead time and Reorder level d2  TIC  2DC0
= >0
 Lead time is the time interval between placing an dQ 2
Q3
order and its receipt in stock.
Hence, EOQ represents minima for TIC.
 The stock level at which the order should be placed
At EOQ, holding cost = carrying cost.
so that the demand can be met during the lead
time is called Reorder level (ROL). In other words, Total variable inventory cost
ROL is the stock level at which an order is placed TVIC = 2DC0 Cc
to that we receive the items against the order
before the beginning of the next cycle. D
Optimum no. of orders =
Q*
EOQ Model (Harris - Wilson Model)
Q*
Assumptions Optimum time interval between orders =
D
 Demand rate is constant and is known with
certainty. TVIC

 No shortages take place. ost

in gc
 No quantity discounts i.e. purchase price per unit Minimum TVIC H old
is fixed. Cost
 Replenishment rate is infinite.
Quality Ordering cost

EOQ Quality

Q  The total cost curve is quite flat near the EOQ

zone. If the value of Q changes slightly near the
EOQ, the change in total cost in insignificant.
time
T D Q
TVIC C0 + Cc
 Total inventory cost per year = Purchasing cost + Q 2
ordering cost per year + holding cost per year + Sensitivity =  TVIC  * =
2D C0 Cc
shortage cost per year
D 1  1 2DC0 Cc 
 TIC = p×D + ×C0 +Iavg ×Cc +0 =  +Q 
Q 2  Q Cc 2DC0 

Q +0 Q 1 Q * Q 
But Iavg = = +
2 2 = 
2 Q Q * 
D Q  If we increase or decrease the EOQ by twice, the
 TIC = p×D + C0 + Cc
Q 2 increase in TVIC is 25%. Thus, TVIC is not very
For minimum total inventory cost, sensitive in the vicinity of EOQ.
 The physical significance of this observation is quite
d  TIC  D CC
= 0  - C0 + =0 important. If there is a slight error in deciding the
dQ Q2 2 EOQ. the total inventory cost is not significantly
affected.
2DC0
 Q* = Cc
SELECTIVE INVENTORY CONTROL
2DC0 TECHNIQUES
 EOQ = Cc
 The inventory of an enterprise/firm generally
= Economic order quantity comprises of large number of items. All items are

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 not of equal importance to the firm in such terms a reorder point is fixed and as inventory level
as sales, profits, availability, etc. The firm, therefore, reaches that point a fresh order for a fixed quantity
should pay more attention and care to those items is placed at that time. In this, size of order is fixed
whose usage value is high and less attention to while period of order is not fixed.
those whose usage and consumption value is low. P-system or periodic review system or fixed

One way of exercising proper degree of control period system: In this system, inventory is
over all and various types of items held in inventory reviewed after a fixed period of time and fresh
is to classify them into groups (or classes) on the orders are placed at that time. In this, period of
basis of the degree of control. order is fixed while size of order is not fixed.
 By selectively applying inventory control policies
to different groups, inventory objectives can be Inventory Turnover
achieved with lower inventory levels than with a
single policy applied to all the items. Here, we  Inventory turnover is a measure of the number of
times inventory is sold or used in a given time
shall consider the following techniques of selective
period (generally annually)
control.
ABC, VED, SDE, HML, FNSD and XYZ Cost of good sold
Inventory turnover = Cost of average inventory
Selective Basis of Chief
control classification Uses Beginning inventory +
technique Average inventory = Ending inventory
ABC Consumption Controlling raw 2
value material components Average days to sell the inventory
and work - in - progress
365 days
inventories = Inventory Turnover Ratio
VED Criticality of Determining the inventory
the item levels of spare parts  A high inventory turnover ratio indicates fast
moving inventories and a low inventory turnover
XYZ Value of item Reviewing the
ratio indicates slow moving or obsolete inventories.
in storage inventories andother A low ratio may also be the result of maintaining
uses excessive inventories needlessly. Maintaining
FNSD Consumption rate Controlling obsolescence excessive inventories unnecessaily indicates poor
 movement  in the inventory management because it ties up funds that
could have been used in other business operations.
item
Further, a high inventory turnover ratio may
SOS Nature of Procurement and holding indicate inadequate inventory levels which may lead
 Season  suppliers strategies for seasonal to shortages and thus a loss in business.
 
 and off -  items like agricultural  In case of just in time, inventory management, the
 season  products inventory turnover ratio is very high as minimum
 
inventory is kept. However, the purpose of
Inventory Review System increasing inventory turnover is to reduce the
holding cost.
 Q-system or fixed order system or reorder
point system or two bin system: In this system,

7. MANUFACTURING
LINE BALANCING/ASSEMBLY LINE which the operations pertain to assembly of
different parts at few stations.
Assembly line is a sequence of progressive assembly
stations linked by some material handling devices. Objective in Line Balancing Problem:
Assembly line is a special case of product layout in In an assembly line, the problem is to design the

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 work station. Each work station is designed to N
complete few processing and assembly tasks. The nTc –  TiN
objective in the design is to assign process and nTc – Twc i=1
Balance Delay(d)= =
tasks to individual stations so nTc nTc
Constraints in Line Balancing: 8. Line Efficiency (LE): It is expressed as the
The operations in any line follow same precedence ratio of the total station time to the cycle time,
relation. For example, operation of super-finishing multiplied by the number of station(n):
cannot start unless earlier operations of turning, n
etc., are over.  Tsi
Another constraint in the balancing problem is LE = i=1
×100%
 n   Tc 
zoning constraint. It may be either positive zoning
constraint or negative zoning constraints. Positive where, Tsi = Station time at station i,
zoning constraint compels the designer to n = Total number of stations, and
accommodate specified work-elements to be
Tc = Total cycle time.
grouped together at one station.
9. Smoothness Index (SI) : Smoothness index is
In a negative zoning constraint few operations are
a measure of relative smoothness of a line.
separated from each other.
n
Definition and Terminology in Assembly Line 2
SI =   Tsi max – Tsi 
1. Work Element (i): The job is divided into its i=1
component tasks so that the work may be spread where, (Tsi)max = Maximum station time.
along the line.
Thus the work element number (i) is 1  i  N. PLANT LAYOUT
2. Work Stations (w): It is location on the
assembly line where a combination of few work Types of Plant Layout
elements are performed.
 Product or line layout
w  1
 Process or functional layout
3. Total Work Content: This is the algebraic sum
of time of all the work elements on the line.  Fixed position layout
 Cellular or group technology layout
N
Twc =  Ti PRODUCT LAYOUT
i=1

4. Station Time (Tsi): It is the sum of all the  In a product layout, various facilities such as man,
work elements (i) on work station (s). machine and resources are located as per the
n1 sequence of operation on the product. Even if a
Tsi =  Ti facility is needed again after few operations, we
n2 duplicate the facility at every required sequence.
5. Cycle time (Tc): Cycle time is the rate of  Product layout is preferred when production is
production. This is the time between two continuous, part variety is very less, production
successive assemblies coming out of a line. volume is high and part demand is relatively stable.
Tc  max{Tsi} Note : Product layout is suitable for producing
6. Delay or Idle Time at Station (Tds): This is standardised parts. It is used in the case of assembly
the difference between the cycle time of the line line such as automobile factory.
and station time.
Tds = Tc – Tsi PROCESS LAYOUT
7. Balance Delay or Balancing Less (d): This is  Similar machines or similar operations are located
a measure of line-inefficiency. at one place as per functions. This functional

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 grouping of facilities is useful for job production PRODUCTION SYSTEM
and non-repetitive manufacturing.
 Process layout is suitable for the case where Types of Production System
different variety of products in low volume are to
be produced. Thus it may be used for non-  The production system varies from factory to
standardised products and for the cases where factory and from product to product. However,
frequent changes in the product design are one of the most important issues is production
envisaged. It can be used for job-shop volume. The most common type of production
manufacturing. system are:
 Job shop production
FIXED POSITION LAYOUT  Batch production
 Mass production
 In fixed position layout, the main product being
produced is fixed at a particular location. Resources
such as equipment, labour and material are brought JOB SHOP PRODUCTION
to that location. It is useful when the product being  The job shop production system is characterised
manufactured is very big and heavy and hence by the low production volume. It has following
difficult to move. Ex-ship building, aircraft assembly. characteristics :
 Commonly used to meet a particular customer
CELLULAR OR GROUP LAYOUT need.
 It is based on group technology. This layout is  Production lot size is generally small.
suitable for a manufacturing environment in which  Product variety is generally very high.
large variety of products are needed in small
 Production equipments are mostly general-
batches or small volumes.
purpose and flexible to meet specific customer
 Thus, cellular layout is thus a combination of order which varies from time to time.
process and product layout. It has features of both.
 Highly skilled labour is needed to handle the
Cellular manufacturing system thus involves equipments, as variety and product range are
decomposition of manufacturing system into very high.
subsystems of similar parts/machines.
 Project production is a particular type of job
shop production.
FACTORS AFFECTING PLANT LOCATION
 Production planning and control is complex.
 Selection of industrial location is a strategic decision.
It is a onetime decision and not be retracted again BATCH PRODUCTIONS
and again without bearing heavy costs. These are
the following factors affecting the plant location.  Batch production is suited for medium volume lot
of same variety. At regular intervals, the production
 Availability of Raw Materials
order is repeated.
 Proximity to Market Batch production has the following characteristics:
 Infrastructural Facilities  Commonly used to meet repeated customer
 Government Policy orders.
 Availability of Manpower  Production lot size is medium and in batches.
 Local Laws, Regulations and Taxes  Suitable for moderate product variety.
 Ecological and Environmental Factors  Production equipments are general-purpose
but suitable for higher prduction volume.
 Competition
 Specially designed jigs and fixtures may be used
 Incentives, Land Costs, Subsidies for Backward to reduce set-up time and increase the
Areas production rate.
 Climatic Conditions  Skill level of labour in batch production should
 Must meet safety requirements be resonably high but may be less as compared

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 to job-shop. This is due to relatively less variety  Plan manufacturing activities, delivery schedules
and variation. and purchasing activities
 Production planning and control is less difficult Manufacturing Resource Planning (MRP II)
in comparison to job shop production but more
difficult in comparison to mass production.  Manufacturing resource planning (MRP II) is defined
as a method for the effective planning of all
MASS PRODUCTION resources of a manufacturing company. Ideally, it
addresses operational planning in units, financial
 Mass production is suited for the manufacturing of planning, and has a simulation capability to answer
continuous identical parts. Production rate is “what-if” questions and extension of closed-loop
generally very high. It is characterised by the MRP.
followings :  This is not exclusively a software function, but the
 Particularly suited for high demand items. management of people skills, requiring a
 Production lot size is very high and production dedication to database accuracy, and sufficient
rate is continuous. computer resources.
 Product variety is very low, which may be one  It is a total company management concept for
of its kind. using human and company resources more
productively.
 Special purpose tools and, equipments may be
needed. Enterprise Resource Planning (ERP)
 Skill level of workers may be moderately low
as repeated work  Enterprise resource planning (ERP) is the
int egrated m anagement of core business
 Entire plant is designed to cater to few special processes, often in real-time and mediated by
varieties of products. software and technology.
 Higher investment in machine is needed due  ERP systems track business resources—cash, raw
to specialised machine and special purpose materials, production capacity—and the status of
operation. business commitments: orders, purchase orders,
 Production planning and control is simple. and payroll.

MATERIAL REQUIREMENTS PLANNING LEAN MANUFACTURING

 Material requirements planning (MRP) is a  Lean manufacturing is the systematic elimination
production planning, scheduling, and inventory of waste from all aspects of an organization’s
control system used to manage manufacturing operations, where waste is viewed as any use or
processes. loss of resources that does not lead directly to
 Most MRP systems are software-based. An MRP creating the product or service a customer wants
system is intended to simultaneously meet three when they want it.
objectives:  Companies primarilty choose to engage in lean
 Ensure materials are available for production manufacturing for three reasons :
and products are available for delivery to  To reduce production resource requirements
customers and costs.
 Maintain the lowest possible material and  To increase customer responsiveness
product levels in store
 To improve product quality

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 8. MAINTENANCE AND RELIABILITY
Maintenance & Rolability Q. What will be the probability of a system failure for
Regular
a two component parallel system if the individual
Preventive
component reliabilities are 0.95 & 0.96 respectively.
Maintenance Predictive Condition Monitoring
(i) 0.088 (ii) 0.050
Reactive Alter Breakdown
(iii) 0.002 (iv) 0.010
Maintenance can be defined as the combination of
Ans. Rs=0.95 + ( 1-0.95) × 0.96
all technical & administrative action indended to
retain an item or restore the item to a state in Rs=0.95 + 0.05 × 0.96
which it can function as per the requirement. Rs=0.95 + 0.048  Rs=0.998
(1) Preventive Maintenance: It is done as per a Probability of failure = 1 – 0.998 = 0.002
pre-planned schedule on a regular basis. Q. On the fig show below what will be the reliability
(2) Predictive Maintenance: It is used for critical of the system.
equipments in of a plan based on the resultant
A C RA=0.9
of condition monitoring before any breakdown
or failure takes place. RB =0.8
RC=0.7
(3) Reactive Maintenance: It is done after the
B D RD=0.6
equipment has already failed. These type of
maintenance reduces the productivity of the plan. Rs={0.9 +(1–0.9)×0.8}×{0.7 +(1–0.7)×0.6}
Reliability Rs=0.8624
R1= 0.9, R2= 0.8,R3= 0.7
Bath-tub Curve:
Debugging Chance-failure Wear-out
R1 R2 R3 phase phase phase
Failure are ()

Rs=R1 R2R3= 0.9×0.8×0.7 Rs=0.504

R1=0.9, R2= 0.8, R3= 0.7

R1 R2 R4

t1 Time (t) t2
R3
Typical life-cycle curve

Rs=R1[1–(1–R2)(1–R3)]×R4 The bath-tub curve displayed in figure does not

depic the failure rate of single item, but describes
 Reliability is defined as a probability that a the relative failure rate of an entire population of
product performs as per the specified std over product over life time.
a period of time without failing. Life Cycle cost :
 When the components in a system are It in the total cost of ownership of a product. It
connects in series, then the reliability of the included acquisition cost, installation cost, space
system will be lower than the reliability of the parts cost, operating cost & operating cost &
individual components. maintenance cost.
 It happens because in terms of probability, In some organization it is a proactive to parches
these are mutually dependent events. Thus as equipments on the basis of lowest coated price.
the no. of components in series increases the However the selection of equipment should be
reliability of the system as whole will decrease. based on life cycle cost.
 To increase the reliability of the system, back Maintainability:
up can be given to the critical components. It is the probability that a failed device will be

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 restored to its normal working condition in a given The distinguishing features of the services is that
period after carrying out the necessary maintain the service is created & delivered at the same
ace activities. time. Hence in service inspection is difficult.
Service inherently consists of human elements.
MTTR: Mean time to repair Service is an experienced felt by the customers.
MTTF: Mean time to failure There are 5 dimensions of quality in services.
MTTF
MTBF: Mean time between
fail Service Quality Dimensions
MTTR
1. Tangibles: Appearance of physical
environment, surroundings in which the service
MTBF is provided. E.g. lighting, decorations etc.
Availability:
2. Responsivencess: Willingness to help the
It is the probability that a system is available when customers in a time bound manner.
requested for use.
3 Empathy: Individual attention & earing attitude
MTTR: Avg Time required to repair a failed component. towards to make them feel special.
Total productive Maintenance (TPM) 4. Reliability: The ability to deliver the promised
To increase productivity; predictive & preventive service accurately & dependably.
maintenance should be used and reactive maintenance 5. Assurance: Knowledge & courtesy of the staff
should be avoided. It is an integrated approach and and their ability to convey trust & confidence.
it desires the involvement of various department and
Gap Model
employees. The equipment should be designed in a
way that the need for maintenance is minimized. 1. Gap between customer expectations and the
perception of the management:
Quality in construction
Inadequate market research
Improve procurement system Lack of communication between the various levels
Quality
Assurance Training
of the organization.
Cuidelines/Costs 2. Gap between management perception & service
Quality Control Site inspection quality specification
Cost of failure high better to take preventive steps The perception of infeasibility
otherwise Repair rework Inadequate commitment to the quality
3. Gap between service quality specification & service
Timely delivery
delivery.
Use of recycled products
Cause: Poor training of workers, their in capability or
Aesthetical (Interior decoration, architectural) unwillingness.
Space utilization
4. Gap service quality delivery and external
Total Quality Control (TQC) communication: It may be due to the fact that the
In traditional quality control it is assumed that company is promosing to made to attract the
quality control is within the acceptable limit. Thus customers or there may be difference in the service
allowing a certain amount of defects as acceptable quality of different branches.
but in case of TQC, no defective items are allowed
5. Gap between expected service & experienced
anywhere.
service;
In const sector the goal of zero defects can never
be permanently obtained because of the many no. This is became the customer may misinterrupt the
service quality.
of sub contractor and variability in the workforce.
However TQC as a goal continuously inspires the Q. The advertisement of an automobile claims that
oxganization to reduce the no of defects. the does not need any service or maintenance for
Quality in Services 1st 1 lac km. which of the following quality
characteristics are described by this advertisement?
Service delivered > Service expected
(a) Reliability (b) Tangibles
Customers satisfaction (c) Features (d) Can’t say

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