Production and Operations Management

Module 3
One famous case study in production and operations
management is Toyota's implementation of the Toyota
Production System (TPS). It revolutionized manufacturing by
emphasizing continuous improvement,
waste reduction and
efficiency.
Another interesting case study is McDonald's efficient
operations management, which includes
standardized processes and
assembly-line production to serve millions of customers
worldwide.
 PRODUCTION MANAGEMENT
The goods are produced by the way of conversion of raw materials into work-in-progress and then the work-in-progress
into finished goods. Production management is very essential for the business because whatever is produced will be sold
by the business. Production management aims at ensuring availability of right type of product in the adequate quantity at
the right time by incurring the least cost. The other activities involved in production management are as follows:

 Location and layout of plants and buildings

 Designing of the product
 Purchase and storage of the materials
 Planning and control of production operations
 Repairs and maintenance
 Inventory control
 Quality control
 Research and development activities
 Determination of quantity and quality to be produced
 Work analysis and listing
 Time and motion study
 Determination of method and procedure of production.
Production Management:
•Efficient production processes
•Quality control
•Resource allocation
•Workflow optimization
Operations Management:
•Process design and improvement
•Supply chain management
•Customer service optimization
•Strategic planning
Materials Management:
•Procurement
•Inventory management
•Material handling
•Supplier relationship management In short
Management
Types of
Production
systems
 Production—irregular intervals

• products are produced in groups or products are typically identifiable as separate

• Customer entities, and the production process involves
batches, rather than continuously.
specifications distinct operations for each item. electronic
• Customisation • Instead of making just one cookie at
gadgets, crafting furniture, or manufacturing
• Each job is a time, you decide to make several
individual components like screws. opposite
unique cookies together in a batch. of discrete manufacturing is continuous
• Bakery, Tailor, Preparation, mixing, baking, cooling manufacturing, where products are produced
jewelry and packaging without interruption
shop/goldsmith
Utilization of machines and resources for producing identical products takes
place. It involves the production of large quantities of products, whose demand is
high

In mass production, the focus is on efficiency, Flow production, also known as continuous production or
speed, and standardization to produce large assembly line production, is a manufacturing method where
\quantities of goods at low costsFord, Nike, products are produced continuously without interruption---
Automobile and coca cola—continuous flow, specialization,
Coca Cola, Apple high speed, standardization.
Forecasting as a planning tool
• Accurate
predictions

• Future course of
trends

• Decision making
tool

• Financial and
operational
decisions
 TYPES OF FORECASTS
Organisation use three major types of forecasts in planning future operations.
Demand forecasts:
• Projections of company’s demand for its products
• Called as sales forecasts
• An input to financial marketing and personnel planning
Economic forecasts:
• Predicts inflation rates
• Money suppliers
• Planning indicators
Technological forecasts:
• rates of technological process = birth of existing new products, requiring new
plants and equipments.
 TYPES OF FORECASTS BY TIME
HORIZON
Short range forecasts (Usually <3 months)
Job scheduling, worker assignments

Medium range forecast (3 months to 3 years)

Sales & production planning, budgeting

Long range forecast ( > 3 years)

New product planning, facility location
 TYPES OF FORECASTING
METHODS/ TECHNIQUES
1. Qualitative Techniques –subjective in nature
• judgements
• opinions
• intuition
• emotions, or personal experiences
2. Quantitative Techniques –objective in nature
• Mathematical
• Quantitative models
 TYPES OF QUALITATIVE
TECHNIQUES
Jury of executive person
Opinions of the sales person
Consumer’s expectations
The Delphi method
Bayesian decision theory
Scenario writing method
Subjective approach method
Opinions of executive person
• JURY OF EXECUTIVE OPINION: group of managers meet and collectively
develop a forecast
• OPINIONS OF THE SALES PERSON/SALES FORCE MEMBERS: Approach in
which each salesperson estimates future sales in his or her region
• CONSUMER’S EXPECTATIONS: Involves a survey of the customers (via
questionnaires, researches and other tools) as to their future needs .The surveys
are used to judge preferences of customer and to assess demand.
• BAYESIAN DECISION THEORY: is a statistical framework used to make decisions
based on probabilities. Example: Inventory Management
• Decision Space: Whether to reorder a certain product or not.
• States of Nature: Whether customer demand for the product will be high or low.
• Utility: Utility could be defined as maximizing profit (high utility) or minimizing
inventory costs (low utility).
• Bayesian Updating: As historical sales data and market trends are analyzed,
update the probability of high or low demand for the product. Based on this
probability, decide whether to reorder more inventory or not.
• THE DELPHI METHOD: Approach in which consensus agreement is reached among a group
of experts. For example, experts predict market demand for a new product through multiple
rounds of feedback.
• SCENARIO WRITING METHOD: The forecaster generates several different future scenarios
(corresponding to different sets of assumptions). For example: During a hiking trip, a group of
friends encounters unexpected bad weather and gets lost in the wilderness. They must
navigate back to safety while facing limited supplies and communication.
• SUBJECTIVE APPROACH METHOD: Allows individuals participating in the forecasting
decision to arrive at a forecast based on their feelings, ideas, and personal experiences For
example: A small business owner decides to hire a candidate for a key position based on
their gut feeling about the candidate's personality and potential cultural fit within the
company, rather than solely relying on their qualifications and experience listed on their
resume.
• EXECUTIVE OPINIONS: Usually involve a small group of upper- level managers (marketing,
operations and finance). Often used as a part of long-range planning and new product
development. Example: Market Forecasting Approach: The CEO of a tech company gathers
opinions from top executives regarding the potential impact of a new competitor's product
launch on their market share. These opinions inform strategic decisions about marketing
campaigns and product development initiatives.
 TYPES OF QUANTITATIVE FORECASTING METHODS

1. Time Series Method - Time series methods analyze data

points collected over time to identify patterns, trends, and
make predictions. For example, analyzing monthly sales
data over several years to predict future sales trends
would involve using time series methods.
2. Causal Method / Associative Models - relies on the use of
several variables and their “cause-and-effect”
relationships. Linear regression is considered causal
forecasting because of it includes the relationship between
variables. Linear regression considers the relationship
between one variable that causes an effect in another
variable.
 Time series method
Naïve forecast
Simple moving average
Weighted moving average
Exponential smoothing
Inventory (EOQ)
Trend line forecast
Simple linear regression
Seasonal indexes
Naïve Forecast
The naïve approach considers .
what happened in the
previous period and predicts
the same thing will happen
again. Example: Last month
you sold 250 computers, so
you predict that this month
you'll sell 250 computers
again
Example: If the demand last
week was 200 units, the naïve
forecast for the upcoming
week is 200 units
 Simple moving Average
A simple moving average (SMA) is a technique used to smooth
out fluctuations in data by averaging a specified number of past
data points. For example, a 3-month SMA for monthly sales
would involve averaging the sales figures of the current month
and the two preceding months. This helps in identifying trends
and reducing noise in the data.

Formula: Moving Average = ∑Demand in previous n

periods/n

*Where: n – is the number of periods in the moving

average
 WEIGHTED MOVING AVERAGE
Uses an average of a specified number of the most recent
observations, with each observation receiving a different
emphasis (weight) when there is a trend or pattern
 EXPONENTIAL SMOOTHING
Exponential smoothing is generally used to make short term
forecasts, but longer-term forecasts using this technique can be
quite unreliable. More recent observations given larger weights
by exponential smoothing methods, and the weights decrease
exponentially as the observations become more distant.

Formula:
Exponential smoothing =Ft+1= ∝At+(1- ∝) Ft
At—Actual demand or sales
Ft—New forecast or forecast for the period
∝--- smoothing constant—ranges from 0.0 to 1.0
Trend line forecasting is a method used to predict future values based on past data trends. It involves fitting a trend line to historical data points and extending that line into the future to estimate future values. This technique is commonly used in various fields such
as finance, economics, sales forecasting, and weather prediction.
Here's a simplified explanation of how trend line forecasting works:
Data Collection: First, historical data related to the variable of interest (e.g., sales, stock prices, temperature) is collected over a specific period.
Data Analysis: The collected data is then analyzed to identify any underlying trends or patterns. This can be done visually by plotting the data points on a graph.
Trend Line Fitting: A trend line is then fitted to the data points. The choice of the type of trend line (e.g., linear, exponential, polynomial) depends on the nature of the data and the expected trend. This is typically done using regression analysis or other statistical
techniques.
Forecasting: Once the trend line is fitted, it can be extended into the future to forecast future values of the variable. This involves extrapolating the trend line beyond the last observed data point.
Evaluation: The accuracy of the forecasted values is evaluated using various metrics such as Mean Absolute Error (MAE), Mean Squared Error (MSE), or Root Mean Squared Error (RMSE). This helps in assessing the reliability of the forecast and making any
necessary adjustments to the forecasting model.
Decision Making: Finally, based on the forecasted values, decisions can be made regarding future actions or plans. For example, in business, forecasted sales figures can influence production planning, marketing strategies, and financial projections.
Inventory /EOQ—Economic Order Quantity
In day today business, managers and retailers often face difficulty in
determining the exact number of items they should order to refill their
stock of a particular item.
EOQ helsps to avoid these misstocking situations. It calculates the ideal
number of units you should order, such that the cost involved is minimal
and number os units is optimal.
EOQ = SQUARE ROUTE OF 2DCo
-------
Ch
D-Total demand
C- Cost per unit
Ch- Holding cost/ carrying cost
Co-ordering cost
Q- Quantity ordered@EOQ
Trend line forecasting is a method used to predict future values based on past data trends. It involves fitting a trend
line to historical data points and extending that line into the future to estimate future values. This technique is
commonly used in various fields such as finance, economics, sales forecasting, and weather prediction.
Here's a simplified explanation of how trend line forecasting works:
[Link] Collection: First, historical data related to the variable of interest (e.g., sales, stock prices, temperature) is
collected over a specific period.
[Link] Analysis: The collected data is then analyzed to identify any underlying trends or patterns. This can be done
visually by plotting the data points on a graph.
[Link] Line Fitting: A trend line is then fitted to the data points. The choice of the type of trend line (e.g., linear,
exponential, polynomial) depends on the nature of the data and the expected trend. This is typically done using
regression analysis or other statistical techniques.
[Link]: Once the trend line is fitted, it can be extended into the future to forecast future values of the variable.
This involves extrapolating the trend line beyond the last observed data point.
[Link]: The accuracy of the forecasted values is evaluated using various metrics such as Mean Absolute Error
(MAE), Mean Squared Error (MSE), or Root Mean Squared Error (RMSE). This helps in assessing the reliability of
the forecast and making any necessary adjustments to the forecasting model.
[Link] Making: Finally, based on the forecasted values, decisions can be made regarding future actions or plans.
For example, in business, forecasted sales figures can influence production planning, marketing strategies, and
financial projections.
Simple linear regression is a statistical method used to model the relationship between two
variables: one independent variable (predictor) and one dependent variable (outcome). In project
and operations management, it's often used to analyze how changes in one factor impact another.
Example in project management: Let's say you're managing a construction project, and you
want to predict the completion time based on the number of workers on site. Here, the number of
workers would be the independent variable, and the completion time would be the dependent
variable. By using simple linear regression, you can determine if there's a significant relationship
between d number of workers and the completion time, and how much of the variation in
completion time can b explained by d number of workers.
Example in operations management: In a manufacturing setting, u might want to understand
how d temperature affects the production output. The temperature would be the independent
variable, & the production output would be the dependent variable. By applying simple linear
regression, u can quantify the impact of temperature on production output & make informed
decisions about controlling temperature to optimize production efficiency. In both examples,
simple linear regression helps identify patterns & trends in the data, allowing managers to make
more informed decisions and improve processes.
Simple linear regression steps:
Step 1: Calculate the means of X and Y.
Step 2: Calculate the deviations from the mean.
Step 3: Calculate the products of the deviations.
Step 4: Sum the products of the deviations and the
squared deviations of X.
Step 5: Calculate the slope (β₁).
Step 6: Calculate the intercept (β₀).
These steps provide a manual way to solve simple linear
regression problems without relying on computational
tools.
Seasonal Indexes: Seasonal variations in time series data represent upward or downward
movement occurring repeatedly at regular intervals. For instance, sales of winter clothes
increases during winter months and decreases during summer months. Same cycle gets
repeated after same time period. Two essential characteristics of seasonal variation is that:
•Every cycle of upward and downward movement repeats itself after similar time period.
•Secondly, regular cycles can be used to infer the time for which there would be an increase and
time for which there would be decrease in demand.
For example, rush hours happen twice a day. For illustration purposes suppose there is increase
in traffic during two hours in morning and for two hours in evening every day. So, in this cycle
there would be increase during morning and then traffic would start decreasing which would
again increase during evening and then again would drop. This cycle repeats itself every day
regularly making it a seasonal variation where each season is of one day. So, if naïve forecast is
used then demand for Tuesday can be estimated as demand for Monday during peak hours.
Similarly, in case of barber shop there is increase in demand of hair cuts during Sundays and
then drops. This cycle gets repeated every week. In this case each season is of one week.
Demand of hair cuts for one Saturday can be estimated as demand for previous Saturday.
 TYPES OF QUANTITATIVE FORECASTING METHODS

1. Time Series Method - Time series methods analyze data

points collected over time to identify patterns, trends, and
make predictions. For example, analyzing monthly sales
data over several years to predict future sales trends
would involve using time series methods.
2. Causal Method / Associative Models - relies on the use of
several variables and their “cause-and-effect”
relationships. Linear regression is considered causal
forecasting because of it includes the relationship between
variables. Linear regression considers the relationship
between one variable that causes an effect in another
variable.
 FOUR COMPONENTS OF TIME SERIES MODELS
1. Trend component – refers to the pattern of the demand (past,
present and future)
2. Cyclical Component – any recurring sequence of points lying
above or below the trend line that last for more than a year
3. Seasonal Component – it captures the variability in the data
due to seasonal fluctuations
4. Irregular Component – random variations in time series
(caused by short –term, unanticipated and nonrecurring factors
that affect the time series)
 • Forward mindset
• Facility managers can
maximize space,
improve the workplace
Facility planning in project and operations
management involves designing and experience
organizing physical spaces and
resources to optimize efficiency, • keep costs low.
productivity, and cost-effectiveness
within an organization. It encompasses
various aspects such as layout design,
capacity planning, location analysis,
and facility management.
 NEED OF FACILITY LOCATION
• Selection of the location is a long term decision of organisation
• Once selection of the location is done, it is very expensive and
infeasible to alter the location afterwards
• Selection of wrong facility results in
Low profit margin
High cost of production
Poor production efficiency
High distribution cost
Labour trouble
Closure of organisation
Factors Influencing Facility Location or what are the
key factors to be considered in facility location
decisions
Right location for the manufacturing facility = will have
sufficient access to the customers, workers, transportation, etc.
• Customer proximity
• Business area
• Availability of skilled labour
• Free trade zone / agreement
• Suppliers
• Environmental policy
 2. SELECTION OF THE REGION
STEPS IN LOCATION SELECTION
Availability of raw material
[Link] the country or outside Nearness to market
[Link] of the region Availability of power
Transportation facilities
3. Selection of the locality or community
Suitability of climate
4. Selection of the exact site Government policy
1. WITHIN THE COUNTRY OR OUTSIDE 3. SELECTION OF LOCALITY

Political stability Availability of labour

Civic amenities of worker
Export import quotas
Finance and research facilities
Natural and physical conditions Availability of water and fire fighting facilities
Economic peculiarities 4. SELECTION OF EXACT SITE
Soil, size and topography
Exchange rate
Disposal of waste
 Types of Facilities
Heavy manufacturing facilities--use larger quantities of raw
materials and may require significant outdoor storage. Large,
require space, expensive
Light industry facilities -- clothes--Fabric will be cut to the
correct size and shape for clothes, then sewn together,
electronics--Metals and plastics will be molded, shaped, and
assembled to make consumer electronics and furniture--Wood will
be cut, sanded, and joined together with fasteners to make
furniture. Smaller , cleaner plants , less costly.
Retail and service facilities –departmental store, super market /
Grocery etc . Grocery, clothing, and drug stores are examples of
retail. Smallest and least costly
 EVALUATING Facility LOCATIONS
1. LOCATION FACTOR RATING
Decision based on quantitative and qualitative inputs
2. CENTER OF GRAVITY (OR CENTROID) METHOD
Decision based on minimum distribution costs
3. TRANSPORTATION MODEL
Decision based on movement costs of raw materials or finished goods
4. COST-PROFIT-VOLUME ANALYSIS
Decision based on fixed cost, variable cost and the level of output produced at a
particular location
5. ANALYTIC HIERARCHY PROCESS
The analytic hierarchy process, is a structured technique for organizing and
analyzing complex decisions, based on mathematics and psychology.
 (1)FACTOR RATING METHOD
• Merge quantitative and STEPS OF FACTOR RATING METHOD
qualitative factors, 1. List relevant factors.
• Factors are assigned weights 2. Assign importance weight to each
factor.
based on relative importance and 3. Develop scale for each factor (0-1,
weight age score for each site etc.)
using a preference matrix is 4. Score each location using factor
calculated. scale.
• The site with the highest 5. Multiply scores by weights for each
weighted score is selected as the factor & total.
best choice 6. Select location with maximum
total score.
Weight scores are calculated as
(site score) x (Factor Weight)
 • Cost-volume-profit
(CVP) analysis is a way
to find out how
changes in variable and
fixed costs affect a
firm's profit.

• Companies can use CVP to

see how many units they
need to sell to break even
(cover all costs) or reach a
certain minimum profit
margin.
Igmn
Distribution
cost =
transportati
on cost
FORMULA FOR CENTER OF GRAVITY
1. Place the locations to be supported on a coordinate system
(like a graph).
2. Calculate the center of gravity:

X cg  coordinate 
 lx i i
Ycg  coordinate 
 ly
i i

l i l i

Where
xi = x-coordinate of location i.
yi = y-coordinate of location i.
4. Transportation method in facility locations

North West Corner Rule of Transportation Problem

The North West corner rule is a technique for calculating an initial feasible solution for a
transportation problem. In this method, we must select basic variables from the upper left cell,
i.e., the North-west corner cell.
North West Corner Rule Steps
Go through the steps given below to understand how to find a feasible solution for a
transportation problem.
Step 1: Select the upper-left cell, i.e., the north-west corner cell of the transportation matrix and
assign the minimum value of supply or demand, i.e., min(supply, demand).
Step 2: Subtract the above minimum value from Oi and Di of the corresponding row and
column. Here, we may get three possibilities, as given below.
If the supply is equal to 0, strike that row and move down to the next cell.
If the demand equals 0, strike that column and move right to the next cell.
If supply and demand are 0, then strike both row and column and move diagonally to the next
cell.
Step 3: Repeat these steps until all the supply and demand values are 0.
Vogal’s approximation Method (VAM)
Vogel's Approximation Method (VAM) method works on the
concept of Opportunity or Penalty cost.
Step 1: Balance the problem
Balance the problem meaning we need to check that if;
Σ Supply=Σ Demand
​If this holds true, then we will consider the given problem
as a balanced problem.
Now, what if it’s not balanced?
i.e., Σ Supply=Σ Demand
​If such a condition occurs, then we have to add a dummy
source or market; whichever makes the problem balanced.
Step 2: Find out the Row difference and the Column
difference
Now, we will find out the row and the column difference of
the provided matrix

Step 3: Select the row/column with highest difference

Step 4: Remove the row/column whose supply or demand

is fulfilled and prepare new matrix and repeat the same
procedure
Step 5: After all the allocations are done, write all the
allocations in the matrix and find Transportation cost
THANK YOU END OF
MODULE 3