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Syllabus:-

Facility Location Factors and Evaluation of Alternate Locations; Types of Plant Layout; Computer

Aided Layout Design Techniques; Assembly Line Balancing (Numerical);

Material Handling: Principles, Types of Material Handling Devices; Stores Management Inventory

Control: Functions, costs, classifications- deterministic and probabilistic inventory models, Concept

of EOQ, purchase model without shortages (Numerical); ABC and VED Analysis.

Introduction

Facilities can be broadly defined as buildings where people, material, and machines come

together for a stated purpose – typically to make a tangible product or provide a service. The facility

must be properly managed to achieve its stated purpose while satisfying several objectives.

Such objectives include producing a product or producing a service

• at lower cost,

• at higher quality,

• or using the least amount of resources.

Importance of Facilities Planning & Design

Manufacturing and Service companies spend a significant amount of time and money to design or

redesign their facilities. This is an extremely important issue and must be addressed before products

are produced or services are rendered.

A poor facility design can be costly and may result in:

• poor quality products,

• low employee morale,

• customer dissatisfaction.

Disciplines involved in Facilities Planning (FP):

Facilities Planning (FP) has been very popular. It is a complex and a broad subject.

Within the engineering profession:

• civil engineers,

• electrical engineers,

• industrial engineers,

• mechanical engineers are involved in FP.

Additionally,

Unit-5 Facility Design

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• architects,

• consultants,

• general contractors,

• managers,

• real estate brokers, and

• urban planners are involved in FP.

Variety of Facility Planning (FP) Tools:

Facility Planning (FP) tools vary from checklists, cookbook type approaches to highly sophisticated

mathematical modeling approaches.

Applications of Facilities Planning (FP):

Facilities Planning (FP) can be applied to planning of:

• a new hospital,

• an assembly department,

• an existing warehouse,

• the baggage department in an airport,

• department building of IE in EMU,

• a production plant,

• a retail store,

• a dormitory,

• a bank,

• an office,

• a cinema,

• a parking lot,

• or any portion of these activities etc…

Facilities Planning (FP) determines how an activities tangible fixed assets best support achieving

the activity’s objectives. i.e. what is the objective of the facility? How the facility achieves that

objective?

Facilities Planning (FP) involves the determination of how the manufacturing facility best supports

production.

Facilities Planning (FP) involves determining how the airport facility is to support the passenger-

airplane interface.

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Facilities Planning (FP) for a hospital determines how the hospital facility supports providing

medical care to patients.

Facilities Planner considers the facility as a dynamic entity. Therefore continuous improvement is an

integral element of FP cycle.

Fig. Continuous improvement facilities planning cycle

Facilities Planning Hierarchy

Facilities Location (Macro Aspect of FP):

Location of the facility refers to its placement with respect to customers, suppliers, and other facilities

with which it interfaces.

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Facilities Design (Micro Aspect of FP):

Design components of a facility consists of the facility systems, the layout and the handling systems.

Facilities Systems: Consists of the structural systems, the atmospheric systems, the

lighting/electricity/communication systems, the life safety systems and the sanitation systems.

Layout: Consists of all equipment, machinery and furnishings within the building.

Handling Systems: Consists of the mechanism need to satisfy the required facility interactions.

For a manufacturing system FP :

• Facility Systems – the structure (of building), power, light, gas, heat, ventilation, air-conditioning,

water and sewage needs.

• Layout – the production areas, related support areas, personnel areas.

• Handling Systems – the materials- personnel, information, and equipment to support manufacturing.

* Objectives of Facilities Planning

Objectives of FP is to plan a facility that achieves both facilities location and design objectives.

* Objectives of Industrial Facility Location:

Objective of Industrial Facility Location is to determine the location which, in consideration of all

factors affecting deliver-to-customers cost of the products to be manufactured, will be minimized.

* Some Typical Facilities Design Objectives are to:

1. Support the organization’s vision through improved material handling, material control, and good

housekeeping.

2. Effectively utilize people, equipment, space and energy.

Facilities Planning

Facilities Location

Facilities Design

Facilities Systems Design

Layout Design

Handling Systems Design

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3. Minimize capital investment.

4. Be adaptable and promote ease of maintenance.

5. Provide for employee safety and job satisfaction.

Facility Location Factors

Q. Define plant layout and plant location. What are various factors involved in

selection of site for good plant.

Plant layout :

It is a technique of locating different machines and plant services within the factory so that the greatest

possible output of high quality at the lowest possible total cost be available.

According to Moore “Plant layout is the plan of or the act of planning, an optimum arrangement of

facilities, including personnel, operating equipment, storage space, material handling equipment and

all other supporting services along with the design of the best structure to contain these facilities”.

Plant layout may also be defined as placing of right equipment coupled with right method in the right

place to permit the processing of product in the most effective way through; the shortest possible distance

and through the shortest possible time.

Plant location :

1. Plant location means the establishment of an industry at a particular place.

2. A plant location means deciding a suitable location, area or place where the plant will start functioning.

It refers to the area where the plant will operate to produce goods or services.

Various factors involved in selection of site for good plant.

There are several factors that affect the location of the industry. Some factors are crucial in deciding the

location of the factory while some other factors are less important. In taking the decision of location of

industry, due regard should be given to minimization of cost of production and. distribution and

maximization of profit.

The following are some of the important factors which an entrepreneur must carefully bear in mind in

selecting an optimum site for the plant:

1. Availability of raw materials :

• The ideal location with reference to raw materials is one where at least the main raw materials

are available in required quantity and that of required quality so that a regular flow of production can be

maintained and the production cost can be minimized. In this regard, nature of raw materials and the

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sources of their deposits must be given due weightage. Ubiquities, generally, have very little influence

on location because such materials are available almost at every place.

• On the other hand, localised raw materials, which are, weighted low; influence the location of

the industry to a great extent. Industries using such raw materials such as sugar industry, iron and steel

industry etc. have a tendency to localise near the sources of supply of raw materials because, there will

be greater savings in transportation costs. The localisation of cotton textile industry in Mumbai and

Ahmedabad, jute in Calcutta, iron and steel in Jamshedpur are influenced only by this factor. Where a

company uses a number of raw materials and their sources are at different location, the ideal site for the

plant shall be a place where the transportation costs of various raw materials is the minimum.

2. Proximity to the market:

• Market is another important factor affecting the location. Industrial units using pure raw materials

(non-weight losing raw materials) try to locate near the markets because customers can be served better

and cost of services will also be the minimum.

• The transportation cost will also be at the minimum.

3. Availability of Labour supply:

• Availability of working force or labour is another influencing factor for the location of industries.

An industrial unit can be started at a place where the right type of labour is abundantly available at

reasonable wages.

• It is possible that an industrial unit will move away, from the point of minimum transportation

cost to the cheaper labour centre if the additional cost of transportation is more than compensated by the

savings in labour cost.

4. Availability of Transport and communication facilities :

• Transportation services are required for assembling of raw materials and distribution of the

finished products to the consumer centers.

• While selecting the location, it should be seen that adequate transportation facilities like road,

rail, water, air etc are available at reasonable rates. It is the only reason why the industrial units are

located at the junction points of water, rail or road transport.

• One point must be kept in mind that the cost of transportation should remain fairly small in

proportion to the total cost.

5. Availability of Fuel and Power supply :

• An uninterrupted and adequate supply of fuel and power is a major factor determining the

location of an industrial unit. Industries that use coal as a major source of fuel and power are attracted

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towards coal deposits because coal has a weight losing character and adds nothing to the weight of

finished product.

• So, steel industries in India are located near the coal deposits rather than iron-ore deposits. But

with the introduction of other sources of power such as oil, gas and electricity etc.. the power factor

became more mobile. This has helped in dispersal of industries.

• It is of course essential that electric power should remain available continuously , in proper

quantity and at reasonable rates .

6. Climatic considerations :

• Climate conditions also influence the location decision. Some industries need special type of

climate to run the unit effectively. For example, cotton industry requires a humid climate and therefore

it is ; mainly localised at Mumbai, Ahmadabad, etc. ;

• But the scientific development and new inventions have lowered, down the importance of the

factor. So due to the development of artificial humidification, cotton textile industry can now be started

in any region of the country.

7. Momentum of an early start:

• Another factor of some importance has been the momentum of an early start. Some places got

localized only because one or two units of that industry started production there.

• With the passage of time, these places gained importance and attracted other units of the industry.

As a place gains importance, certain facilities usually begin to develop.

8. Government policy:

• In planned economy, Government also plays an important role in the location of industry. In

India, Government follows the policy of balanced regional growth, Which is very important from the

point of view of defense and social problems like slum, disparity of income, wealth and optimum use of

resources.

• In order to implement this policy, Government offers several incentives to locate industrial units.

9. Availability of water

● Water is used for processing, as in paper and chemical industries ,and is also required for drinking and

sanitary purposes.

● Depending upon the nature of plant ,water should be available in adequate and should be of proper

quality (clean & pure).

10. Suitability of Land

Location should be selected by considering the soil structure of the land. The soil structure must be

capable of bearing loads of foundations.

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11.Other considerations:

There are certain other considerations that influence the location decisions,' Which are Rates of local

taxes and Supply of capital, Political considerations, Future considerations, Industrial atmosphere of a

particular place as that of Mumbai or Calcutta etc.

Some other factors are financial and other aids , presence of related industries , housing facilities , future

consideration , historical factors, personal factors , security etc…..

Classification of Facility Location Problems

Facility Location problems can be classified as:

• Single-Facility Location Problems

Single-Facility location problems deal with the optimal determination of the location of a single facility.

• Multi facility Location Problems

Multi facility location problems deal with the simultaneous location determination for more than one

facility.

Generally, single-facility location problems are location problems, but multi facility location problems

can be location as well as location- allocation problems.

Location Problems:

Location Problems involve determining the location of one or more new facilities in one or more of

several potential sites. The number of sites must at least equal the number of new facilities being located.

The cost of locating each new facility at each of the potential sites is assumed to be unknown.

It is the fixed cost of locating a new facility at a particular site plus the operating and transportation cost

of serving customers from this facility-site combination.

Another classification of location problems is based on whether the set of possible locations for a facility

is finite or infinite

• Continuous Space Location Problem

If a facility can be located anywhere within the confines of a geographic area, then the number of

possible locations is infinite, and such a problem is called a Continuous Space Location Problem .

• Discrete Space Location Problem

Discrete Space Location Problems have a finite feasible set of sites in which to locate a facility.

Because facilities can be located anywhere in a two-dimensional space, sometimes the optimal

location provided by the continuous space model may be infeasible. For example, a continuous space

model may locate a manufacturing facility on a lake!

● Alternatives to New Location

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• The increase of existing capacity by additional shifts or overtime, especially for capital-intensive

systems. • The use of seasonal inventories to reduce the need for maintaining capacity for peak demand.

• The use of subcontractors. • The purchase of new equipment for the present location.

Plant Layout

Plant layout :

● It is a technique of locating different machines and plant services within the factory so that the greatest

possible output of high quality at the lowest possible total cost be available.

● According to Moore “Plant layout is the plan of or the act of planning, an optimum arrangement of

facilities, including personnel, operating equipment, storage space, material handling equipment and

all other supporting services along with the design of the best structure to contain these facilities”.

● Plant layout may also be defined as placing of right equipment coupled with right method in the right

place to permit the processing of product in the most effective way through; the shortest possible distance

and through the shortest possible time.

Objectives of good plant layout

A good plant layout is designed to achieve the following objectives :

• Economic handling of materials and finished goods.

• Better supervision for faster and good quality production.

• Better utilisation of available space.

• Flexibility in change jof plant design and workspace expansion.

• Unidirectional flow of production operation.

• Effective utilization of men, Machine and available space.

• Minimization of material handling and manufacturing cycle time.

• Flexibility for changes: in manufacturing operations and for future expansion.

• Provide workmen safety, convenience and comfort.

• Better working conditions like light, ventilation, noise control, smoke control etc.

Types of Plant layout:-

There are four types of layouts :

1. Product or line layout

2. Process or functional layout

3. Combination layout

4. Project or fixed position layout

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Q. Explain product layout with schematic diagram and state its advantages and

disadvantages.

1. Product or line layout

• The layout is also called line layout. In this layout, the machines, equipment and work centers

are arranged in a straight or curved line, in the order in which they have to be use, or according to the

sequence of operations needed to manufacture a product.

• The layout in which the equipment’s are placed in the order in which they are used for producing

the product is called the product layout.

• The product layout is also called the line layout, as the materials and machineries required are

placed in sequence. This type of layout is useful in automobile industries or industries where mainly

assembling of materials and parts takes place. In such industries, it may need to start the process by

feeding in the raw materials and the process ends with the production of the final product.

• In the product layout, workers (workmen) are required in less number that automatically reduces

the cost and leads to higher productivity, as the whole process is automatic.

• This system is best suited for mass production. The raw material enters at one end of the line and

moves from one machine to anther in the line without backtracking or cross movements and finally the

end product leaves from the other end of the line.

• Examples are automobile assembly line, bottling plant, sugar plant, petroleum, etc.

The Product Layout is shown in Fig

Fig. Product Layout.

Fig. Example of product layout

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Advantages:

1. Lower material handling cost due to minimum handling and transportation.

2. Less floor area per unit of production is needed.

3. Work in process reduces, as the manufacturing cycle is small.

4. Minimises the material handling, as the process is automatic.

5. Labour cost decreases, as the work is simple and broken into parts.

6. Easy and accurate scheduling of materials.

7. Production control is simple due to less product variety.

8. Delivery dates can be achieved within time.

9. Easy supervision, easy inspection and easier coordination.

10. Better utilization of machines and workers.

Disadvantages

1. Lack of flexibility i.e. change in product may require facility modification.

2. Changes in the layout is required if the nature of work is changed.

3. The machines may not be used to its full capacity.

4. Expansion of work area or insertion of any machine in between other machines is not possible.

5. Breakdown of any one machine in the sequence may result in stoppage of production.

6. High capital investment.

Q. Explain process layout with schematic diagram and state its advantages and

disadvantages.

2. Process or functional layout :

• This layout is also known as “functional layout”. Here machines of similar category are grouped

together and one not arranged according to any particular sequence of operations.

• The layout in which all the equipment’s performing similar tasks are grouped together is called

the process layout.

• The process layout is also called the functional layout, as the materials and machineries required

are grouped depending on their functions.

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Fig .Process Layout

Fig shows process layout

1. Store room

2. Inspection department

3. Broaching section

4. Milling section

5. Lathe

6. Shaper

7. Painting

8. Packing

Advantages:

1. Lots of flexibility in equipment and in manpower.

2. Lower investment on account of comparatively less number of machines.

3. Breakdown of one machine will not shutdown the production, as the work of that machine can be

transferred to another machine.

4. Maximum utilization of available space.

5. Flexibility in allocation of equipments to workmen.

6. Better and faster production as breakdown of equipment, absenteeism of workmen does not affect

the manufacturing activities.

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1

2

3

4

5 6

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7. Helps workmen to expertise in a particular machine as each workman is assigned a particular

machine.

8. Problems in one section do not affect the other sections.

9. Increase in the interest of workmen for work, as there are varieties of job.

10. Better and more efficient supervision.

Disadvantages:

1. More floor space is required.

2. More handling cost because of backtracking and long movements of work.

3. More labour cost since the workers have to be skilled to work on general purpose machine.

4. Space requirement increases if the work volume increases.

5. Mechanisation of material handling is not possible as it adds extra cost.

6. High work in progress inventory as jobs have to queue up for each operation.

7. Difficulty in scheduling work as different jobs has different operation sequences.

Q. Compare between product and process layout

Sr.

No.

Product Layout

Process Layout

1. All the facilities are arranged in a sequence

in which the operations are performed on the

product.

All the similar facilities are grouped

together to make a section, like lathe

section, milling section etc.

2. Steady and continuous flow of material on

the line.

Discontinuous flow of material.

3. Applicable in mass production or in high

volume production.

Useful in job and or batch production

with high volume and high variety.

4. It requires higher initial investment. Less initial investment.

5. It requires less floor space. It requires more floor space.

6. A systematic and automised material

handling system.

Cannot be automated as the flow

depends upon the product type.

7. Less labour force with ordinary skill can

serve the purpose.

Higher labour force with higher skill is

expected to operate number of General

Purpose Machines.

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3. Project or fixed position layout :

• The Fixed position layout is shown in Fig. below

• Here the product is not movable i.e. it has fixed position. The resources are brought to the site of

work. This type of layout is used for products which are very massive.

• The layout in which the raw materials are placed in a fixed position is called the project layout.

• The project layout is also called the fixed position layout, as the production operation is

performed at one fixed position. This type of layout is useful when number of equipments is less.

• For example, aero plane and ship manufacturing industries use this type of layouts. In this type

of layout, the machineries are heavy and therefore, they are fixed at one position.

• While making an aero plane, the workmen, machines and tools are moved to the raw material

and the construction takes place in one place. The materials and parts required for construction are

so heavy that they cannot be moved from place to place.

Fig . Fixed position layout

Advantages:

The major advantages of this type of layout are :

• Capital investment is minimum.

• Greater flexibility with respect to job design and operation sequence.

• Reduces movement of machineries and equipments.

Plant

site

Standard part and tools

Machines

Raw material

Workers

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• Minimises damage or cost of moving.

• Reduction in time and cost related to the movement of work from one station to other.

• It is easy to measure the progress of work.

• The workers identify themselves with a product in which they take interest and pride in doing

the job.

Disadvantages:

• Since the same workers are involved in more operations, skilled and versatile workers are

required. The necessary combination of skills may be difficult to find and high pay level may be

necessary.

• Movement of people and material to and from the place may be expensive.

• All equipments are not used simultaneously; some of them are idle intermittently.

• Heavy capital investment and large storage space required.

Computer Aided Layout Design Techniquies

……………………..From Tech-max Book …………………….

Assembly Line Balancing (ALB)

● Line Balancing is the process of assigning tasks to workstations in such a way that the workstations

have approximately equal time requirements.

● Line Balancing is an analysis process that tries to equally divide the work to be done among

workstations so that the number of worker or workstations requires on a production line is minimized.

● Line balancing is an effective tool to improve the throughput of assembly lines and work

cells while reducing manpower requirements and costs.

● Assembly Line Balancing is the procedure to assign tasks to workstations so that:

• Precedence relationship is complied with

• No workstation takes more than the cycle time to complete

• Operational idle time is minimized

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● Assembly line balancing can be loosely defined as the process of optimizing an assembly line with

regard to certain factors.

● Line balancing technique was used normally in assembly line of the automotive industry which is

called ALB. Most of the Small and Medium Industries do not use line balancing method in the production

line.

There are two types of line balancing that include Static Balance and Dynamic Balance. Static

Balance denotes long-term differences in capacity over a period of several hours or longer. Static

imbalance results in underutilization of workstations, machines and people. Dynamic Balance refers to

short-term differences in capacity such as over a period of minutes, hours at most. Dynamic imbalance

occurs from product mix changes and difference in work time dissimilar to product mix.

Line Balancing Procedure

1. Determine the tasks involved in completing1 unit

2. Determine the order in which tasks must bedone

3. Draw a precedence diagram

4. Estimate task times

5. Calculate the cycle time

6. Calculate the minimum number of workstations

7. Use a heuristic (intuitive) to assign tasks to workstations

Objective of Line Balancing:

Following are major objectives of Line balancing procedure.

It is used to:

i. Manage the workloads among assemblers.

ii. Recognize the location of bottleneck.

iii. Decide number of workstation.

iv. Decrease production cost.

v. Assigning task to each work station in such a way that there is little idle time.

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Terms in Line Balancing Technique

There is range of terms used in assembly line balancing system. Each of them has their meaning and

purposes.

● Cycle Time: Maximum amount of time allowed at each station. This can be found by dividing required

units to production time available per day. This is the time expressed in minutes between two

simultaneous products coming of the end of production line. It is a precise indicator to signify how the

line is currently set up to run. The calculation of cycle time takes into consideration of the entire

production quantities. If multiple lines are producing the same product, then the composite cycle time is

less than the actual lapse time of any individual line.

● Lead Time: Summation of production times along the assembly line.

Bottleneck: Delay in transmission that slow down the production rate. This can be overcome by

balancing the line.

● Task Precedence: It is the sequence by which tasks are carried out. It can be represented by nodes

or graph. In assembly line the products have to obey this rule. The product cannot be moved to the next

station if it doesn’t complete at the previous station.

● Idle time: A period when system is not in used but is available.

● Productivity: Defined as ratio of output over input. Productivity depends on several factors such as

workers skills, jobs method and machine used.

● Takt times: The time needed by competent worker or unattended machine to perform a task. This is

usually expressed in minutes. Takt time is the swiftness of production that aligns production with client

demand. It shows how fast the need to manufacture product in order to fill the customer orders.

Takt Time = Available Work Time

Customer Demand

● Work station: A physical area where a worker with tools / one or more machines or unattended

machines such as robot perform specific task in a production line.

● Downtime: Downtime explained as the time that is non value added. It is often associated with the

seven wastes as under: Defects, Overproduction, Waiting, Transportation, Unnecessary inventory,

Unnecessary motion , Inappropriate processing.

Steps in Solving Line Balancing

There are four steps in solving line balancing as follows :

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1. Drawing Precedence Diagram: Precedence diagram needs to be drawn to demonstrate a

relationship between workstations. Certain process begins when previous process was done.

2. Determining Cycle Time: Cycle time is longest time allowed at each station. This can be expressed

by this formula:

This means the products needs to leave the workstations before it reaches its cycle time.

3. Calculating an Efficiency Line: This is done to find effectiveness of the line. The formula is given

by:

Classification of ALB problems

Classification of ALB problem is primarily based on objective functions and problem structure.

Objective Function Dependent Problems:

Type F: Objective dependent problem, it is associated with the feasibility of line balance for a

given combination of number of stations and cycle time (time elapsed between two consecutive

products at the end of the AL).

Type 1: This type of problem deals with minimizing number of stations, where cycle time is

known.

Type 2: Reverse problem of type 1.

Type E: This type of problem is considered as the most general version of ALBP. It is associated

with maximizing line efficiency by minimizing both cycle time and number of stations.

Type 3, 4 and 5: These corresponds to maximization of workload smoothness, maximization of

work relatedness and multiple objectives with type 3 and 4 respectively.

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Problem Structure Dependent Problems:

SMALB: This refers to single model ALB problems, where only one product is produced.

MuMALBP: Multi model ALB problems, where more than one product is produced on the line

in batches.

MMALBP: Mixed model ALB problems, various models of a generic product are produced on

the line in an intermixed situation.

SALBP: Simple ALB balancing problems, simplest version of balancing problems, where the

objective is to minimize the cycle time for a fixed number of workstation and vice versa.

GALBP: A general ALB problem includes those problems which are not included in SALBP.

Those are for instance, mixed model line balancing, parallel stations, U-shaped and two sided

lines with stochastic task times.

Methods of Line Balancing.

Example

1. The table shows the tasks performed in a production line. Our goal is to combine them into

workstations. The assembly line operates 8 hours per day and the expected customer demand is

1000 units per day. Balance the line and calculate the efficiency and theoretical minimum

number of workstations

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Task Task Time

(sec) Preceding Task

A 13 -

B 11 A

C 15 A

D 20 B

E 12 B

F 13 C

G 13 C

H 18 D, E

I 17 F, G

J 15 H, I

K 9 J

Total Time: 156

SOLUTION

• Step 1: Draw a precedence diagram according to the given sequential relationship

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• Step 2: Determine Takt time or Workstation Cycle Time

C=Production time per day / Customer demand (or output per day)

C= 28800 sec (8 hours) / 1000 units = 28.8

• Step 3: Determine the theoretical number of workstations required

N= Total Task Time / Takt time

N= 156 / 28.8 = 5.42 (~6 workstations)

• Step 4: Define your assignment rules. For this example our primary rule will be “number of

following tasks” and the secondary rule will be “longest operation time”

• Step 5: Assign tasks to workstations following the assignment rules and meeting precedence

and cycle time requirements

• To form Workstation 1:

• Forming Workstation 2:

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• Following the same criteria we achieve our balancing with 7 workstations

• Step 6: Calculate Efficiency

– Efficiency= Total Task Time / (Actual number of workstations * Takt

Time)

– Efficiency= 156 / (7*28.8) = 77%

Example.2 (KWM Method ) From Techmax.

Given: The previous precedence diagram and the standard times. Annual demand=100,000 units/year.

The line will operate 50 wk/yr, 5 shifts/wk, 7.5 hr/shift. Uptime efficiency=96%.

Repositioning time lost=0.08 min.

Workstation Task Task Time

Remaining

Unassigned

Time

Feasible

Remaining

Tasks

Task with

most

followers

Task with

LOT

A 13 15.8 B, C B, C C

C 15 0.8 -

B 11 17.8 E, F, G E, F, G F, G

F 13 4.8 -

3 D 20 8.8 -

G 13 15.8 E

E 12 3.8 -

5 H 18 10.8 -

6 I 17 11.8 -

J 15 13.8 K

K 9 4.8 -

1

2

4

7

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Determine (a) total work content time, (b) required hourly production rate to achieve the annual demand, (c)

cycle time, (d) theoretical minimum number of workers required on the line, (e) service time to which the line

must be balanced.

Solution

Fig. precedence diagram

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Example 3.(LCR Method) Techmax

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•Physical layout of workstations and assignment of elements to stations using the largest candidate rule

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Example 4.(RPW Method) Techmax

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Example 5.

Solution

1. What is the bottleneck?

= 4.1 minutes

2. What is maximum production per hour?

= 60/4.1 =14.63 units

3. What is efficiency and balance delay?

What is efficiency and balance delay?

Efficiency ,

= (2.2+3.4+4.1+2.7+1.7+3.3+2.6) / 4.1x7

= 20 / 28.7

= 69.7%

Balance Delay

= 1 - 69.7%

= 30.3%

4. How to minimize work stations?

Number of Work Stations=Takt time / Cycle time(bottelneck)

=20 / 4.1

= 4.8

5. How should they be grouped?

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Example 6.

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Material Handling

Q. Define material handling. Explain the material handling principles in improving the productivity

of a firm.

Materials handling :

● Expressed in simple language, materials handling is loading, moving and unloading of materials. To

do it safely and economically, different types of tackles, gadgets and equipment are used, when the

materials handling is referred to as mechanical handling of materials.

● Definition of material Handling:

According to the American Material Handling Society (AMHS), “Material handling is an art and

science involving the movement, packing and storing of goods in any form".

● It can also be defined as “Movement and storage of materials at the lowest possible cost through the

use of proper methods and equipments.”

Some of the other definitions are :

● It is a technique used to deliver the right goods safely, to the right place and time and at the right cost.

● Materials handling is the moving of materials or product by any means, including storage, and all

movements except processing operations and inspection.

● Materials handling is the art and science of conveying, elevating, positioning, transporting, packaging

and storing of materials.

Following areas during which the material handling occurs in the organization.

• Uploading of goods for inward movement.

• Loading on to an internal transport.

• Transferring to the stores for the purpose of storage.

• Relocating from stores to the place of use (first workstation). |

• Shifting to and from the workstations.

• Transferring to and from the inspection bays.

• Moving to and from the assembly benches.

• Shifting to and from the finished goods stores.

• Moving to and from the dispatch departments.

• Positioning during packing.

• Loading of packed materials on to an external transport.

Materials handling uses different equipment and mechanisms called Materials Handling Equipment.

33

# Objectives / Importance of Material Handling

(i) Improve efficiency of a production system by ensuring the right quantity of materials delivered at the

right place at the right time most economically.

(ii) Cut down indirect labour cost.

(iii) Reduce damage of materials during storage and movement.

(iv) Maximize space utilization by proper storage of materials and thereby reduce storage and handling

cost.

(v) Minimise accident during materials handling.

(vi) Reduce overall cost by improving materials handling.

(vii) Improve customer services by supplying materials in a manner convenient for handlings.

(viii) Increase efficiency and sale ability of plant and equipment with integral materials handling features.

Apart from these, for certain industries, like process industries, heavy manufacturing industries,

construction industries, mining industries, shipbuilding or aircraft industries etc., the materials are so large

and heavy that these industries just can not run without appropriate materials handling system.

Principles of Materials Handling

Although there are no definite rules that can be followed while designing an effective material

handling system. The important principles of material handling system are as follows :

1. PLANNING PRINCIPLE

All handling activities should be planned. This is the most basic principle which is in line with the

Materials Handling Equation

Fig. Materials Handling Equation

A good material handling system should be the result of systematic planning where the needs, objectives,

function, specification of the proposed system are completely defined.

Here the handling system should be planned as an integral part of production activities with system

approach.

34

2. SYSTEMS PRINCIPLE

Integrate as many handling activities as possible encompassing full scope of operations like receiving,

storage, production, inspection, packaging, warehousing, shipping/transportation.

3. MATERIAL FLOW PRINCIPLE

Plan operations sequence and equipment arrangement to optimize material flow.

4. SIMPLIFICATION PRINCIPLE

Reduce, combine or eliminate unnecessary movement and/or equipment. It increases effi- ciency of

materials handling.

5. GRAVITY PRINCIPLE

Utilize gravity to move material whenever practicable.

6. SPACE UTILIZATION PRINCIPLE

There should be effective and efficient use of available cubic space.It reduces the overall cost. Make

optimum use of building volume.

7. UNIT SIZE PRINCIPLE

Increase quantity, size, weight of loads handled.

8. SAFETY PRINCIPLE

Handling methods and handling equipment use must be safe.

9. PRINCIPLE OF AUTOMATION

The material handling process should be mechanized and/or automated to improve operational efficiency,

decrease operating cost and to eliminate unsafe manual labour.

10. EQUIPMENT SELECTION PRINCIPLE

Before selecting materials handling equipment, consider all aspects of materials handling, e.g., materials

to be handled, moves to be made, methods to be utilized.

11. STANDARDIZATION PRINCIPLE

Materials handling methods and equipment should be standardized to the extent possible.

12. FLEXIBILITY PRINCIPLE

Use methods and equipment, which can perform different tasks and applications.

13. DEAD-WEIGHT PRINCIPLE

Reduce the dead-weight movement.

14. MOTION PRINCIPLE

Stoppage of mobile equipment should be minimum.

15. IDLE TIME PRINCIPLE

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Reduce idle or unproductive time of both materials handling equipment and manpower.

16. MAINTENANCE PRINCIPLE

Do schedule maintenance and repair work of all materials handling equipment to minimize outage..

17. OBSOLESCENCE PRINCIPLE

Replace obsolete handling methods and equipment by more efficient methods or equipment to improve

operations.

18. CONTROL PRINCIPLE

Use materials handling equipment to improve production & inventory control and order handling.

19. CAPACITY PRINCIPLE

Use Materials Handling so that full production capacity can be achieved.

20. PERFORMANCE PRINCIPLE

Select materials handling systems with higher efficiency, measured in terms of expenses per unit load

handled.

Types of Material Handling Devices./ Equipments

Material handling devices are classified as follows :

1. Manually operated equipments (Non-powered)

2. Conveyors

3. Industrial trucks, tractors and trailers

4. Cranes and hoists

5. Automated Guided Vehicles(AGV)

1. Manually operated equipments (Non-powered) :-

a) Hand wheel barrow :

These are used for movement of material within stores or

shop. It is used by two or more workers for carrying load.

Fig. Hand wheel barrow

b) Two wheel truck:

It consists of steel frame mounted on two wheels. It is useful

for carrying goods packed in sacks. It can be designed for

carrying specific goods.

Fig. Two wheel truck

36

c) Hand trolleys:

Hand trolleys consists of metal structure supported on three or four

wheels.

They may either open type or close type.

Fig. Hand trolley

d) Sliding wheel trucks :

These trucks are used to carry loose parts.

They are made up of wooden or steel structure.

Fig.

2. Conveyors:

It is a fixed type of material handling system used for movement of material continuously or

intermittently between two fixed points. The movement can be in horizontal or vertical direction.

Conveyors have relatively fixed path. They are used in continuous production systems. Conveyors can

avoid cross traffic.

Different types of conveyors are as follows :

(a) Belt conveyor:

• Belt conveyors are flexible and can be designed to handle

anything. Belt conveyors are used to carry objects over short as well

as long distance. The flow may be upward or downward. Generally

rubber lather, steel, fabric or woven wires nylon materials are used

for belts. Belt conveyors have capacity up to thousands of tons per

hour depending upon type of material to be moved.

(b). Roller conveyor :

Roller conveyors are flat, circular or spiral. They are driven through gravity. Materials having flat

bottom or boxes or pallets art moved on these conveyors. In the horizontal position roller conveyors can

be powered type.

37

Usually aluminum roller conveyors are used in places where they are moved manually and a high degree

of portability is required. The carrying capacity is related to the diameter of roller which usually varies

from 30 to 100 mm diameter.

(C) Screw conveyor.

These conveyors are composed of screw or

worm, in the form of helix rotating in a trough

or tube. The material being moved by the

action of the screw. Screw conveyors can

operate in the horizontal, on a slope or even

vertically.

A great variety of materials form fine powder,

metal parts to slurries can be handled in screw conveyors. Stringy material is not suitable for handling

by screw conveyors. The speed of screw conveyors varies from 40 to 160 rpm.

(d) Bucket conveyorsy:

These conveyors are arranged to operate either vertically or

inclined with the buckets set at regular intervals or pitch. These

are used for the movement of granular, powdered or liquid

materials. The movement may be vertical or flat. Material is fed

in or near the bottom or foot of the conveyor. Discharge is

either by gravity or by centrifugal action as the buckets invert

after passing over the head of the elevator.

(e) Vibrating conveyors:

These types of conveyors can be fitted with a metal or plastic through, which may have a top cover or

may be in the form of a tube. The action of vibrating conveyors is gentle, only the trough being in contact

38

with the material. It is generally made up of sections of 2 to 3 meter lengths which can be fastened

together to form on conveyor. Speed is of about 1000 times in a minute.

3. Industrial trucks, tractors and trailers :

These are generally powered vehicles capable of transporting material and worker in a horizontal

direction.

Trucks are of two, three or four wheelers used to carry and more heavy loads. They can move anywhere

in the factory on the traveling surfaces.

Forklift truck is widely used by industry. It has a fork attached to column of the truck. Fork attached to

column of the truck.

Fork carries the boxes of pallets. The fork can be adjusted vertically 1-2 meters high. They can be used

for loading unloading, and transporting the material, suitable for short distance of 50 to 75 meters.

Tractors perform the same role as trucks. Trailers are attached to the tractor. Trailers containing material

has more carrying capacity and are detachable.

4. Cranes and hoists :

Cranes are just somewhat like powered conveyors once installed they are somewhat inflexible can not

be moved or relocated easily. Cranes are verhead device. capable of moving materials vertically and

laterally in the limited are. Cranes are used in heavy engineering works like steel plant, forging, casting

industry.

They are of following types.

(a) Bridge crane:

Used for lifting, for lowering and for transporting material in rectangular area. They have capacity to

carry loads from 5 tons to more than 50 tones.

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(b). Gantry cranes:

This type of crane is used both indoors and outdoors with a wide

variety of applications including manufacturing service and dockside

use. They are on wheels and can be moved to the place of use.

(c). Hoist:

When very large quantities of material have to be elevated or

when the material is composed of large lumps then skip hoists

wheeled car or skip running up and down rails. They have buckets

capacity up to 150 cubic feet and can lift material 200 or more

feet. A common application is in foundries and steel mills, where

they hoist raw materials into cupolas and furnaces.

(d) Pipe:

A pipeline is a system of interconnected pipes for the transportation of liquid, gases and slurries. Slurries

are semi liquids in which fine solid particles are suspended in it. Gases are generally handled in tight and

pressure resisting containers. A large volume of gas is handled through pipes with the help of

compressor, blower etc. Whereas most of the liquids and semi liquids are conveyed through pipes using

suitable pumps. Valves and other control devices are used to control the flow. Pipeline may be used for

short as well as long distances. These are made from steel, cast iron, aluminum, concrete or plastics.

These are most suitable for oil and gas industries, chemical industries, petrol refineries etc.

(e) Jib crane: These cranes are extremely useful for the workstation arrangement and in small

workshops.

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Selection of' Material Handling Systems and Devices:

Factors for selection of material handling system

Product related factors :

1. Product type(barstack, package, pallet, load , unit)

2. Product weight

3. Product size (cubic volume)

4. Product nature (sturdy.fragile)

5. Product volume

Movement related

1. Speed requirements.

2. Accumulation requirements(yes or no).

3. Distance for transfer.

4. Frequency of movement

5. Flexibility of process route

6. Loading and unloading requirements

For selection of material handling systems and devices following factors are considered :

1. Type and nature of material to be handled.

2. Nature and type of plant and or factory building.

3. Type of plant layout.

4. Material flow pattern.

5. Type of production methods.

6. Installation and operating cost of material handling system.

7. Safety and reliability of handling system.

8. Distance to be traveled by the material / parts.

Unit Load Concept

The concept of a unit load is derived from the unit size principle; a unit load can be defined simply as

the unit to be moved or handled at one time. In some cases the unit load is one item of production; in

other situations the unit load is several cartons, each containing numerous items of production.

A unit load is either a single unit of an item, or multiple units so arranged or restricted that they can be

handled as a single unit and maintain their integrity.

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The unit load includes the container, carrier, or support that will be used to move materials. Unit loads

consists of material in, on, or grouped together by something.

Advantages of unit loads:

1. More items can be handled at the same time, thereby reducing the number of trips required and,

potentially, reducing handling costs, loading and unloading times, and product damage.

2. Enables the use of standardized material handling equipment.

Disadvantages of unit loads:

1. Time spent forming and breaking down the unit load.

2. Cost of containers/pallets and other load restraining materials used in the unit load

3. Empty containers/pallets may need to be returned to their point of origin.

Basic ways of restraining a unit load:

• Self-restraining—one or more units that can maintain their integrity when handled as a single item

(e.g., a single part or interlocking parts)

• Platforms—pallets (paper, wood, plastic, metal), skids (metal, plastic)

• Sheets—slipsheets (plastic, cardboard, plywood)

• Reusable containers—tote pans, pallet boxes, skid boxes, bins, baskets, bulk containers (e.g., barrels),

intermodal containers

• Disposable containers—cartons, bags, crates

• Racks—racks

• Load stabilization—strapping, shrink-wrapping, stretch-wrapping, glue, tape, wire, rubber bands.

Basic ways of moving a unit load:

• Use of a lifting device under the mass of the load (e.g., a pallet and fork truck)

• Inserting a lifting element into the body of the load (e.g., a coil of steel)

• Squeezing the load between two lifting surfaces (e.g., lifting a light carton between your hands, or the

use of carton clamps on a lift truck)

• Suspending the load (e.g., hoist and crane)

Unit loads can be used both for in-process handling and for distribution (receiving, storing, and

shipping).

Unit load design involves determining the:

1. Type, size, weight, and configuration of the load

2. Equipment and method used to handle the load

3. Methods of forming (or building) and breaking down the load.

1

INVENTORY CONTROL

INVENTORY

Inventory is a detailed list of movable goods such as raw materials, work-in-progress,

finished goods, spares tools, consumables, general supplies which are necessary to manufacture product

and to maintain the plant and machinery in good working condition. The list includes the quantity and

value of each and every item, Inventory is defined as an idle resource of any kind having an economic

value since these resources are idle when kept in the stores.

Inventory is actually ‘Money’ kept in the store room in the shape of a high speed steel bit , a mild steel

rod, milling cutters or welding electrodes.

TYPES OF INVENTORIES :

The inventories most firms hold can be classified into one of the following types:

(i) Raw materials and purchased parts: These include, the raw materials directly used for production

and the semi finished products – which are produced and supplied by another firm and sold as a raw

materials by the firm under considerations.

(ii) In – process inventories (or) partially completed goods (or) goods in transit are the semi finished

goods at various stages of the manufacturing cycle.

(iii) Finished goods inventories (manufacturing firms) or merchandise (retail stores) are the finished

goods lying in the storage yards after the final inspection clearance and waiting dispatch.

(iv) Indirect inventories include lubricants, spares, tools, Consumables, component parts and general

supplies needed for proper operation, repair and maintenance during the manufacturing cycle.

INVENTORY CONTROL :

It is concerned with achieving an optimum balance between two competing objectives. The objectives

are :

1. To minimize investment in inventory ,

2. To maximize the service levels to the firm’s customers and its own operating departments .

Definition : It may be defined as the scientific method of finding out how much stack should be

maintained in order to meet the production demands and be able to provide right type of material at right

time in the right quantities and competitive prices.

Inventory management

Inventory management can be defined as an attempt to balance inventory needs and requirements with

the need to minimize costs resulting from obtaining and holding inventory.

Inventory is a quantity or store of goods that is held for some purpose.

2

Inventory can be in-house (internal) or may be a warehouse or distribution center for future use.

In short inventory means a stored quantity of goods that exceeds what is needed for the firm to

function at the current time.

Objectives of inventory management / inventory control

The objectives are :

• To meet demand of raw material.

• To supply the finished products to customers.

• Keep production operations running.

• Minimize the Lead time. (Lead time is time between order and receiving the material)

• Purchasing right material in right time and cost.

• To get the quantity discounts.

• Smoothing internal material requirements.

• To minimize carrying cost of inventory.

• To keep investment in inventory at optimum level.

• To minimize the losses because of theft, obsolescence and wastage of material.

• Make proper arrangements of slow moving items.

• To minimize inventory ordering costs.

• To reduce the production cost by analyzing inventories.

• Up-to-date and accurate record keeping.

Functions of Inventory

1. Maintain smooth and efficient production flow.

2. Purchase in desired quantities and thus nullify the effects of changes in prices or supply.

3. Keep a process continually operating

4. Create motivational effect

Importance of Inventory Control

Inventory control serves several important functions and adds a great deal of flexibility to the

operation of a firm. Five main uses of inventory are as follows:

1. The decoupling function

2. Storing resources

3. Irregular supply and demand

4. Quantity discounts

5. Avoiding stock outs and shortages

3

Q. What is inventory? Explain various cost involved with inventory.

Inventory.

Inventory is a detailed list of movable goods such as raw materials, work-in-progress, finished goods,

spares tools, consumables, general supplies which are necessary to manufacture product and to maintain

the plant and machinery in good working condition. The list includes the quantity and value of each and

every item, Inventory is defined as an idle resource of any kind having an economic value since these

resources are idle when kept in the stores.

Inventory is actually ‘Money’ kept in the store room in the shape of a high speed steel bit , a mild steel

rod, milling cutters or welding electrodes.

The basic purpose of inventory analysis, whether in manufacturing, distribution, retail, or services, is to

specify (1) when items should be ordered and (2) how large the order should be. Many fi rms are tending

to enter into longer-term relationships with vendors to supply their needs for perhaps the entire year.

This changes the “when” and “how many to order” to “when” and “how many to deliver.”

Inventory Cost

In making any decision that affects inventory size, the following costs must be considered:

1. Holding (or carrying) costs. (Cc) :

This broad category includes the costs for storage facilities, handling, insurance, pilferage, breakage,

obsolescence, depreciation, taxes, and the opportunity cost of capital. Obviously, high holding costs tend

to favor low inventory levels and frequent replenishment.

It is expressed as cost per unit time.

Cc = Cu*I

Where, Cu-Unit cost

I- Decimal fraction.

2. Set-up (or production change) costs.(Cs) :-

To make each different product involves obtaining the necessary materials, arranging specific equipment

setups, filling out the required papers, appropriately charging time and materials, and moving out the

previous stock of material. If there were no costs or loss of time in changing from one product to another,

many small lots would be produced. This would reduce inventory levels, with a resulting savings in cost.

One challenge today is to try to reduce these setup costs to permit smaller lot sizes.It is cost in Rs./order.

3. Ordering costs. (Co)

These costs refer to the managerial and clerical costs to prepare the purchase or production order.

Ordering costs include all the details, such as counting items and calculating order quantities. The costs

4

associated with maintaining the system needed to track orders are also included in ordering costs. This

cost in Rs./order.

4. Shortage costs.

When the stock of an item is depleted, an order for that item must either wait until the stock is replenished

or be canceled. When the demand is not met and the order is canceled, this is referred to as a stock out. A

backorder is when the order is held and filled at a later date when the inventory for the item is replenished.

There is a trade-off between carrying stock to satisfy demand and the costs resulting from stock outs and

backorders. This balance is sometimes difficult to obtain be- cause it may not be possible to estimate lost

profi ts, the effects of lost customers, or lateness penalties. Frequently, the assumed shortage cost is little

more than a guess, although it is usually possible to specify a range of such costs.

Economic Order Quantity (EOQ):-{ Determining How Much to Order }

The economic order quantity (EOQ) model is one of the oldest and most commonly known

inventory control techniques. This model is still used by a large number of organizations today. This

5

technique is relatively easy to use, but it makes a number of assumptions. Some of the more important

assumptions follow:

1. Demand is known and constant.

2. The lead time—that is, the time between the placement of the order and the receipt of the order—

is known and constant.

3. The receipt of inventory is instantaneous. In other words, the inventory from an order arrives in

one batch, at one point in time.

4. Quantity discounts are not possible.

5. The only variable costs are the cost of placing an order, ordering cost, and the cost of holding or

storing inventory over time, carrying, or holding, cost.

6. If orders are placed at the right time, stockouts and shortages can be avoided completely.

With these assumptions, inventory usage has a sawtooth shape, as in Figure. Here, Q represents the

amount that is ordered. If this amount is 500 units, all 500 units arrive at one time when an order is

received. Thus, the inventory level jumps from 0 to 500 units. In general, the inventory level increases

from 0 to Q units when an order arrives.

Because demand is constant over time, inventory drops at a uniform rate over time. Another order is

placed such that when the inventory level reaches 0, the new order is received and the inventory level

again jumps to Q units, represented by the vertical lines. This process continues indefinitely over time.

Finding the Economic Order Quantity

Let us now define the following parameters:

Q* = Optimal order quantity i.e., the EOQ

D = Annual demand rate , in units, for the inventory item

Co = Ordering cost per order

6

Ch or Cc = Carrying or holding cost per unit per year

P = Purchase cost per unit of the inventory item

The unit carrying cost, Ch, is usually expressed in one of two ways, as follows:

1. As a fixed cost. For example, Ch is $0.50 per unit per year.

2. As a percentage (typically denoted by I) of the item’s unit purchase cost or price. For example,

Ch is 20% of the item’s unit cost. In general,

Ch = I * P

For a given order quantity Q, the ordering, holding, and total costs can be computed using the following

formulas:

Total ordering cost = (D/Q) * Co

Total carrying cost = (Q/2) * Ch

Total cost = Total ordering cost + Total carrying cost + Total purchase cost

Total cost = (D/Q) * Co + (Q/2) * Ch + P * D

Observe that the total purchase cost (i.e., P * D) does not depend on the value of Q. This is so because

regardless of how many orders we place each year, or how many units we order each time, we will still

incur the same annual total purchase cost.

Now

Total ordering cost = Total carrying cost

(D/Q) * Co = (Q/2) * Ch

Q2=2DC / Ch

∴ EOQ is given as

Re-order point (ROP) :{ Determining When to Order }

Now that we have decided how much to order, we look at the second inventory question: when to order.

In most simple inventory models, it is assumed that we have instantaneous inventory receipt. That is,

we assume that a firm waits until its inventory level for a particular item reaches zero, places an order,

and receives the items in stock immediately.

In many cases, however, the time between the placing and receipt of an order, called the lead time, or

delivery time, is often a few days or even a few weeks.

7

Thus, the when to order decision is usually expressed in terms of a reorder point (ROP), the inventory

level at which an order should be placed. The ROP is given as

ROP =Demand per day * Lead time, in days

= d * L

Figure. shows the reorder point graphically. The slope of the graph is the daily inventory usage. This is

expressed in units demanded per day, d. The lead time, L, is the time that it takes to receive an order.

Thus, if an order is placed when the inventory level reaches the ROP, the new inventory arrives at the

same instant the inventory is reaching zero.

Economic Production Quantity: { Determining How Much to Produce }

The EOQ model is no longer applicable here, and we need a new model to calculate the optimal order

(or production) quantity. Because this model is especially suited to the production environment, it is also

commonly known as the production lot size model or the economic production quantity (EPQ) model.

In determining the annual carrying cost for the EPQ model, it is again convenient to use the average on-

hand inventory.

8

Referring to Figure. we can show that the maximum on-hand inventory is

Q × (1 – d) / p units

Where, d is the daily demand rate and p is the daily production rate.

The minimum on-hand inventory is again zero units, and the inventory decreases at a uniform rate

between the maximum and minimum levels. Thus, the average inventory can be calculated as the average

of the minimum and maximum inventory levels. That is,

Finding the Economic Production Quantity

Let us first define the following additional parameters:

Q* = Optimal order or production quantity (i.e., the EPQ)

Cs = Setup cost per setup

For a given order quantity, Q, the setup, holding, and total costs can now be computed using the following

formulas:

Total cost is given by,

Total cost = Total setup cost + Total carrying cost + Total production cost

=

EPQ is given as

Examples from Tech-max Book

9

Q. Write Short notes on ABC ANALYSIS

1. ABC ANALYSIS

ABC analysis is a inventory technique. ABC analysis plays a vital role in inventor management. This

analysis is used to study total percent of cost and percentage of the quantity of total inventory of items.

The items are categorized as A, B and C.

The top 20 percent of the firm’s most costly items are termed “A” items. This should be approximately

representing 80 percent of total inventory costs. Items that are extremely inexpensive or have low demand

are termed “C” items. C items are generally 50% of all inventories.

“B” items fall in between A and C items. The percentages may vary with each firm, but B items usually

represent about 30 percent of the total inventory items and 15 percent of the costs.

By classifying each inventory item as an A, B or C the firm can determine the resources (time, effort and

money) to dedicate to each item.

Graphical representation of ABC analysis

Where, X-axis indicates percent of total inventory cost.

Y-axis indicates the percent of items.

Necessity of ABC analysis:

There are many advantages of ABC analysis. Because of that it becomes necessary to use.

10

Following is list requirements that make ABC analysis necessary:

• Items need to be classified based on their rate of moving.

• Stock levels need to be maintained to avoid excessive material or material shortage.

• Inventory carrying cost should be less.

• Emergency needs of items should be fulfilled.

• Inventory analysis is must.

• Unnecessary investments in inventory should be avoided.

ABC analysis steps

To conduct ABC analysis, following seven steps are necessary:

Inventory Techniques

1. Prepare the list of items and estimate their annual consumption (units).

2. Determine unit price (or cost) of each item.

3. Multiply each annual consumption by its unit price (or cost) to obtain its annual consumption in rupees

(annual usage).

4. Arrange items in the descending order of their annual usage starting with the highest annual usage

down to the smallest usage.

5. Calculate cumulative annual usages and express the same as cumulative usage percentages. Also

express the number of items into cumulative item percentages.

6. Graph cumulative usage percentages against cumulative item percentages and segregate the items into

A, B and C categories.

7. To separate items into A, B and C categories, first few items which contribute between 70 –75% of

cumulative usage can be considered as A category, next few items which together with A category items

segregated earlier contribute between 80 –90% of cumulative usage can be considered B category, and

left over items can be taken as C – category.

Advantages of ABC analysis.

• The classification of items is done.

• Costly, medium and lowest priced items can be easily identified.

• Stock levels can be maintained properly.

• Emergency needs of items can be fulfilled.

• Moving and non moving items can be easily identified.

• Graph helps to visualize the exact stock levels.

• Record keeping becomes easy.

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• Inventory carrying costs become less.

• Different levels of inventory can be easily maintained.

• Inventory analysis can be done at any time.

Disadvantages of ABC ana'ysis.

• ABC analysis has to be done in a standard way otherwise it does not serve the purpose.

• Costly items get more importance and lowest cost items do not get importance which may cause

problem.

• Codification of items has to be done properly otherwise ABC fails.

• , Periodic review and reports become difficult if

only ABC analysis is focused.

• ABC analysis may not match with market dynamics like availability, cost and other factors related

to A, B and C categories.

Example

A firm has 7 different items in its inventory. The average number of each of these items held, along with

their costs, is listed below. The firm wishes to introduce an ABC inventory systems. Suggests. Suggest a

breakdown of the items of the items into A, B and C classification.

Solution :

The A B C system of classification should, however, be used with caution.For example, an item of

inventory may be very inexpensive. Under the A BC system it should be classified as C category. But it

may be very critical tothe production process and may not be easily available. It deserves thespecial

attention of management. But in terms of the A B C framework, itwould be included in the category,

which requires the least attention. This isa limitation of the A B C analysis.

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2. VED ANALYSIS

VED analysis represents classification of items based on their criticality. The analysis classifies the items

into three groups called Vital, Essential and Desirable.

“Vital” category encompasses those items for want of which production would come to halt.

“Essential” group includes items whose stock-outs cost is very high.

And “Desirable” group comprises of items which do not cause any immediate loss of production or their

stock-out entail nominal expenditure and cause minor disruptions for a short duration.

VED (Vital – Essential – Desirable) analysis is carried out to identify critical items. An item, which

usage-wise belongs to C-category, may be critical from production point of view if its stock-out cause

heavy production loss.

Steps involved in making VED analysis are as under:

Identify the factors to be considered for VED analysis:

Assign points/weightages to the factors according to their importance to the company.

Divide each factor into three degrees and allocate points to each degree.

Prepare categorization plan, which provides the basis of classification of items into vital,

essential and desirable categories.

13

Evaluate items one by one against each factor and assign points to the item depending upon the

extent of presence of the factor in the item.

Place the items into V, E and D categories depending upon the points scored by them and basis

of classification set under step (iv).

Typical VED Analysis Categorization Plan

VED analysis is best suited for spares inventory. In fact, it is advantageous to use more than one

method. E.g. ABC and VED analysis together would be helpful for inventory control of spares.

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