second edition production and - bijay lal pradhan, ph.d ... · pdf filesystem approach to pom...

Second Edition

Production and

Operations Management

Production and

Operations Management

Krishna Prasad Acharya Lecturer

Shanker Dev Campus Tribhuvan University

Rajendra Prasad Upadhayaya Lecturer

Prithivi Narayan Campus Tribhuvan University

Pokhara

Arun Kumar Yadav Lecturer

Shanker Dev Campus Central Department of Statistics, TU

Kathmandu

Lal Babu Shah Lecturer

Nepal Commerce Campus Tribhuvan University

Kathmandu

Bijaya Lal Pradhan Lecturer

Birendra Multiple Campus Bharatpur

Prajeet K. Timalsina Faculty Member

Shanker Dev Campus Central Department of Management, TU

Kathmandu

KEC Books Publishers & Distributors (P) Ltd. Kathmandu, Nepal

Phone: 01-4241777

S E C O N D E D I T I O N

PRODUCTION AND OPERATIONS MANAGEMENT

First Edition 2069

Second Edition 2070

Copyright by Authors.

Publisher & Distributor by

KEC BOOKS PUBLISHERS & DISTRIBUTORS (P) LTD.

Kathmandu

Ph. 01 4241777, 01 4168215

ISBN 978–9937–2–5617–2

email: [email protected]

Price Rs. 625.00

Printed in Kathmandu.

Preface to the Second Edition

The field of production and operations management is a dynamic and an integral part of many

of the good things that are happening in business organizations. The material in this book is

intended as an introduction to the field of operations management and to show how it has

interesting, realistic, and practical applications to service and manufacturing operations.

This new edition of the book catches the flavor of the theoretical and practical aspects of

manufacturing concerns. The first edition of the book was published about a year ago. We have

now improved it further. First, we have added theory chapters dealing with Introduction,

Product Design including Design for service, production planning, scheduling, controlling,

maintenance, productivity improving techniques and many more. Second, we have made

additions to some of the earlier chapters with a view to orient them with the new concerns. We

have tried to bring in these changes in the orientation. The reader may, therefore, see a lot more

theoretical emphasis in this book. The third modification to this edition has been the

reorganization of the chapters old and new into thematic sections for the convenience of the

reader. Each chapter represents a predominant aspect of production and operations

management and starts with an introduction which describes the theme behind the group of

chapters in that section.

This second edition has enhanced universal appeal of operational activities. The subject matter

represents a blend of concepts from industrial engineering, cost accounting, general

management, management science, quantitative methods, and statistical tools. This book has

primarily focused upon masers level students of management stream but we hope it will meet

the requirements of different levels of students of different faculties and different universities.

While writing this book we have referred to several books, papers and articles. We take this

opportunity to thank the authors and publishers of all the publications that we have referred to

and some of whom we have quoted in this edition. Besides, we are highly acknowledged to all

well wishers who assisted us in introducing this edition. We want to gift word of thanks to

Mr. Badri Singh Adhikari, the proprietor of KEC Publication Pvt. Ltd. who has taken the

responsibility of publishing and distributing this edition again. Similarly, we would like to

thank Mr. Binod Shrestha & Mr. Jeevan Neupane for accomplishing the entire job related to

computer.

We would think successful if this book can occupy a small space in the hearts of related

teachers, students, and other readers. We request our all reader for their creative suggestions

regarding this edition of book. Similarly we believe that the continuity of this book solely

depends upon the readers and the well wishers.

Authors

2070, Magh 21(Shree Panchami)

Preface

The importance of this book is to gain a competitive advantage in the dynamic world of

education. In the day business including manufacturing activities as well as service providers,

through understanding and knowledge of production and operations management and

operations research is required to have any competitive advantage. Commensurate to this need,

universities in Nepal have included it in the curriculum of professional bachelor and master

level programmes in business management and allied sectors.

This book Production and Operations Management is written to meet the requirements of MBS

and MBA, EMBA, BBA, BIM, BE, MTech of Tribhuvan University, Pokhara University,

Purbanchal University and other related universities. The subject matter is exhaustive and

attempt to make to present things in an easy to understand style. In solving the questions care

has been taken to explain each step so that student can follow the subject matter themselves

without even consulting others. A large number of solved examples and self practice problems

have been included in each chapter to make students familiar with the type of questions set in

final examination. The book has been written in a very simple, interesting and lucid style. It is

well illustrated with adequate Nepalese examples and diagrams. This is expected to enable

students to understand the subject easily. The main features of the book include:

Sufficient knowledge of subject matter has been provided without compromising the length

of the book to enable students to have through understanding of the subject matter.

Maximum numbers of examples are included in each chapter to enable students for better

understanding without taking the help of others.

Optimum number of worked out are included in each chapters.

Flow charts are also included to clarify the problem.

Important tools and techniques applicable to many aspects have been illustrated in the

theoretical explanations.

We gratefully acknowledge the inspiration, encouragement and valuable suggestions received

from the well wishers during the preparation of the book. We are extremely thankful to

Mr. Badri Singh Adhikari, Managing Director of KEC Publication, Kathmandu, Mr. Anil Aale

Magar without whose support the book would not have been published. Sincere thanks to the

Mr. Jeevan Neupane for his continuous advice during the preparation of the manuscript and

bringing the book into the shape.

There may be many shortcomings and typographical errors. Suggestion and comments for the

improvement of the book from reader will be thankfully received and duly incorporated in the

subsequent editions.

Authors

Laxmi Puja–Tihar, 2069

Contents

Chapter 1

INTRODUCTION

Concept ----------------------------------------------------------------------------------------------------- 1

Some Definitions of POM ------------------------------------------------------------------------------ 2

Objective --------------------------------------------------------------------------------------------------- 2

Functions of Production and Operations Management ---------------------------------------- 2

Operations functions and interrelationships with other functions of management ---- 4

System Approach to POM ----------------------------------------------------------------------------- 5

Benefits Derived From Efficient POM -------------------------------------------------------------- 7

Functions of Production Management ------------------------------------------------------------- 8

Natures of POM ------------------------------------------------------------------------------------------ 9

Scope of POM ------------------------------------------------------------------------------------------- 10

Production System ------------------------------------------------------------------------------------- 11

Historical Development of Operations Management (Evolution of Operations

Management) ------------------------------------------------------------------------------------- 12

Strategic prospective of POM ----------------------------------------------------------------------- 13

Factors affecting Production System -------------------------------------------------------------- 14

EXERCISE – 1 ------------------------------------------------------------------------------------------- 15

Chapter 2

DESIGNING PRODUCTS, PROCESS AND SERVICES

Product Design ----------------------------------------------------------------------------------------- 17

Factors Determining the Design of a Product -------------------------------------------------- 18

Product Development Process ---------------------------------------------------------------------- 18

Application of Applied Research in Product Development Process ---------------------- 20

Product Life Cycle/ Life Cycle approach of POM --------------------------------------------- 21

Types of Process Technology ----------------------------------------------------------------------- 22

Process life cycle---------------------------------------------------------------------------------------- 24

Service Product ----------------------------------------------------------------------------------------- 26

Designing of services---------------------------------------------------------------------------------- 27

Service Process Technologies ----------------------------------------------------------------------- 27

Automation / Service Automation ---------------------------------------------------------------- 29

EXERCISE – 2 ------------------------------------------------------------------------------------------- 29

Chapter 3

FACILITY LOCATION AND LAYOUT PLANNING

Location Decision -------------------------------------------------------------------------------------- 31

Importance of Location Decisions ----------------------------------------------------------------- 32

Factors Influencing Location Decision ------------------------------------------------------------ 32

Behavioral Aspects of Location Decision -------------------------------------------------------- 33

Stages in Location Selection ------------------------------------------------------------------------- 34

General Procedure for Facility Location Decision/ Techniques for Selecting Location34

Qualitative Models for selecting locations ------------------------------------------------------- 37

Layout Decision ---------------------------------------------------------------------------------------- 38

Considering Factors in Layout Design ----------------------------------------------------------- 39

Objectives of Layout ---------------------------------------------------------------------------------- 39

The Importance of Layout --------------------------------------------------------------------------- 39

Factors Influencing Plant Layout ------------------------------------------------------------------ 41

Basic Facilities Layout / Types of Layout ------------------------------------------------------- 41

Advantages (Pros) ------------------------------------------------------------------------------------- 43

Dis-Advantages (Cons) ------------------------------------------------------------------------------- 43

Some Examples of Product layout / Assembly Line Layout ------------------------------- 43

EXERCISE – 3 ------------------------------------------------------------------------------------------- 46

Chapter 4

CONVERSION PROCESS

Job Design ----------------------------------------------------------------------------------------------- 47

Physical Dimensions of Job Design---------------------------------------------------------------- 48

Behavioral Dimensions of Job Design ------------------------------------------------------------ 49

Work Measurement ----------------------------------------------------------------------------------- 50

Advantages of Work Measurement --------------------------------------------------------------- 50

The advantages of work measurement can outlined as below: ---------------------------- 50

General Procedure for Work Measurement ----------------------------------------------------- 51

Techniques of Work Measurement ---------------------------------------------------------------- 51

EXERCISE – 4 ------------------------------------------------------------------------------------------- 52

Chapter 5

PRODUCTION PLANNING AND SCHEDULING

Concept --------------------------------------------------------------------------------------------------- 53

Aggregate Production Planning ------------------------------------------------------------------- 53

Aggregate Planning Process ------------------------------------------------------------------------ 54

Master Production Schedule (MPS) --------------------------------------------------------------- 55

Steps in Preparation of MPS------------------------------------------------------------------------- 56

Scheduling for different production system ---------------------------------------------------- 58

Capacity Planning ------------------------------------------------------------------------------------- 60

Estimation of Future Capacity Planning --------------------------------------------------------- 60

Need for Capacity Planning ------------------------------------------------------------------------- 60

Measurement of Capacity---------------------------------------------------------------------------- 61

Relationship between aggregate planning and capacity planning ------------------------ 62

Relationship between Location Planning and Capacity Planning ------------------------- 62

Loading --------------------------------------------------------------------------------------------------- 62

Priority Sequencing------------------------------------------------------------------------------------ 64

Expediting ----------------------------------------------------------------------------------------------- 65

Input output control----------------------------------------------------------------------------------- 65

EXERCISE – 5 ------------------------------------------------------------------------------------------- 66

Chapter 6

MAINTENANCE MANAGEMENT

Concept --------------------------------------------------------------------------------------------------- 67

Objective of Maintenance ---------------------------------------------------------------------------- 68

Importance of Maintenance ------------------------------------------------------------------------- 68

Types of Maintenance -------------------------------------------------------------------------------- 69

Basic Maintenance Decisions ----------------------------------------------------------------------- 72

Breakdown Vs preventive Maintenance Decision --------------------------------------------- 72

Total Productive Maintenance ---------------------------------------------------------------------- 73

EXERCISE – 6 ------------------------------------------------------------------------------------------- 73

Chapter 7

PRODUCTIVITY MANAGEMENT

Concept --------------------------------------------------------------------------------------------------- 75

Importance and Role of Productivity ------------------------------------------------------------- 76

Measurement of Output ------------------------------------------------------------------------------ 76

Measurement of Input -------------------------------------------------------------------------------- 77

Types of Productivity --------------------------------------------------------------------------------- 78

Factors affecting productivity ---------------------------------------------------------------------- 80

Productivity Improvement Techniques ---------------------------------------------------------- 81

Strategic Perspectives of Productivity Improvement ----------------------------------------- 82

EXERCISE – 7 ------------------------------------------------------------------------------------------- 84

Chapter 8

INVENTORY SYSTEM

Introduction --------------------------------------------------------------------------------------------- 85

Importance of Inventory ----------------------------------------------------------------------------- 86

Reasons for Carrying Inventory -------------------------------------------------------------------- 86

Inventory Costs ----------------------------------------------------------------------------------------- 87

Independent Vs Dependent Demand ------------------------------------------------------------- 87

Inventory Types ---------------------------------------------------------------------------------------- 88

Inventory System Concepts ------------------------------------------------------------------------- 91

Types of Inventory Systems ------------------------------------------------------------------------- 92

Inventory Control Procedures ---------------------------------------------------------------------- 93

Material Requirement Planning (MRP) ---------------------------------------------------------- 95

Manufacturing Resource Planning (MRP II) ---------------------------------------------------- 96

Materials Handling ------------------------------------------------------------------------------------ 97

Economic Order Quantity (EOQ) ------------------------------------------------------------------ 99

ABC Inventory System ------------------------------------------------------------------------------ 100

VED Analysis ------------------------------------------------------------------------------------------ 106

Inventory Models ------------------------------------------------------------------------------------- 106

WORKED OUT EXAMPLES ----------------------------------------------------------------------- 114

EXERCISE – 8 ------------------------------------------------------------------------------------------ 118

Chapter 9

MANAGING FOR QUALITY

Introduction -------------------------------------------------------------------------------------------- 121

Definition of Quality Control ---------------------------------------------------------------------- 122

Objective of Quality Control ----------------------------------------------------------------------- 122

Importance of Quality Control -------------------------------------------------------------------- 123

Control Charts ----------------------------------------------------------------------------------------- 123

Quality Circles ----------------------------------------------------------------------------------------- 134

Total Quality Management ------------------------------------------------------------------------- 136

International Organization for Standardization (ISO) --------------------------------------- 137

Acceptance Sampling -------------------------------------------------------------------------------- 139

The Operating Characteristic (OC) Curve ------------------------------------------------------ 142


EXERCISE – 9 ------------------------------------------------------------------------------------------ 146

Chapter 10

IMPROVING PRODUCTION COMPETITIVENESS

Total Quality Management (TQM) --------------------------------------------------------------- 149

Philosophical element of TQM -------------------------------------------------------------------- 149

Tools for TQM ----------------------------------------------------------------------------------------- 150

Just in Time (JIT) Philosophy ---------------------------------------------------------------------- 155

Quality Circle (QC) ----------------------------------------------------------------------------------- 157

Kanban System ---------------------------------------------------------------------------------------- 160

Kaizen System ----------------------------------------------------------------------------------------- 161

Flexible Manufacturing System (FMS) ---------------------------------------------------------- 166

Business Process Re-Engineering (BPR) --------------------------------------------------------- 167

Automation --------------------------------------------------------------------------------------------- 168

Optimum Production Technology (OPT) ------------------------------------------------------- 170

Yield Management------------------------------------------------------------------------------------ 171

EXERCISE – 10 ----------------------------------------------------------------------------------------- 172

Chapter 11

DECISION MAKING

Introduction -------------------------------------------------------------------------------------------- 173

Essential Terminology in Decision Theory ----------------------------------------------------- 173

Decision Making Environment -------------------------------------------------------------------- 179

Marginal Analysis Approach ---------------------------------------------------------------------- 185

Decision Tree Approach----------------------------------------------------------------------------- 188


EXERCISE – 11 ----------------------------------------------------------------------------------------- 204

Chapter 12

LINEAR PROGRAMMING PROBLEM

Introduction -------------------------------------------------------------------------------------------- 209

Applications of Linear Programming ------------------------------------------------------------ 210

Structure of Linear Programming Problem ---------------------------------------------------- 211

Linear Programming Formulation --------------------------------------------------------------- 211

Terminology used in Linear Programming Problem ---------------------------------------- 213

Guidelines on Linear Programming Model Formulation ----------------------------------- 214

Terminology used in Graphical Method -------------------------------------------------------- 215

Limitation of Linear Programming Method --------------------------------------------------- 223

Terminologies used for Solving the LPP by Simplex Method ----------------------------- 224

Summary of the Simplex Maximization Procedure ------------------------------------------ 231

Big M Method ------------------------------------------------------------------------------------------ 234

Simplex Method for Minimization Problem --------------------------------------------------- 238

Summary of Simplex Minimization Procedure ----------------------------------------------- 239

Important Stages in Simplex Algorithm -------------------------------------------------------- 241

Initialization -------------------------------------------------------------------------------------------- 241


EXERCISE – 2 ------------------------------------------------------------------------------------------ 288

Chapter 13

DUALITY IN LINEAR PROGRAMMING PROBLEM

Introduction -------------------------------------------------------------------------------------------- 295

Importance Of Duality ------------------------------------------------------------------------------- 296

Advantages of Duality ------------------------------------------------------------------------------- 296

General Guidelines For Constructing the Dual Problem ----------------------------------- 296

Standard Results on Duality ----------------------------------------------------------------------- 297

Relationship between Primal and Dual Problem --------------------------------------------- 297

Formulation of Dual Linear Problem ------------------------------------------------------------ 298

Economic Interpretation of Dual Problem ------------------------------------------------------ 303


EXERCISE – 13 ----------------------------------------------------------------------------------------- 317

Chapter 14

TRANSPORTATION PROBLEM

Introduction -------------------------------------------------------------------------------------------- 321

Mathematical Model of Transportation Problem --------------------------------------------- 322

General Mathematical Model of Transportation Problem ---------------------------------- 323

Types of Transportation Problem ----------------------------------------------------------------- 325

Solution to Transportation Problem-------------------------------------------------------------- 325

Degeneracy in Transportation Problem --------------------------------------------------------- 337

Unbalanced Transportation Problem ------------------------------------------------------------ 341

Maximization of Transportation Problem ------------------------------------------------------ 343

Alternative Optimal Solution of a Transportation Problem ------------------------------- 345


EXERCISE – 14 ----------------------------------------------------------------------------------------- 372

Chapter 15

ASSIGNMENT PROBLEM

Introduction -------------------------------------------------------------------------------------------- 379

Characteristics of the Assignment Problem ---------------------------------------------------- 380

Mathematical Model of Assignment Problem ------------------------------------------------- 380

Types of Assignment Problem --------------------------------------------------------------------- 381

Solution to Assignment Problem ----------------------------------------------------------------- 382

Unbalanced Assignment Problem ---------------------------------------------------------------- 386

Maximization Assignment Problem ------------------------------------------------------------- 389

Constrained Assignment Problem ---------------------------------------------------------------- 391

Alternative Solution to an Assignment Problem ---------------------------------------------- 393


EXERCISE – 15 ----------------------------------------------------------------------------------------- 416

Chapter 16

QUEUING THEORY

Introduction -------------------------------------------------------------------------------------------- 423

Definitions and Objectives of Queuing Theory ----------------------------------------------- 423

Essential Elements of Queuing System ---------------------------------------------------------- 425

Calling Population ------------------------------------------------------------------------------------ 425

Queuing Process -------------------------------------------------------------------------------------- 426

Queuing Discipline ----------------------------------------------------------------------------------- 426

Service Process: ---------------------------------------------------------------------------------------- 427

Single Channel Queuing Model ------------------------------------------------------------------- 428

Operating Characteristic of Queuing System -------------------------------------------------- 429


Cost Analysis------------------------------------------------------------------------------------------- 440

EXERCISE – 16 ----------------------------------------------------------------------------------------- 442

Chapter 17

GAME THEORY

Introduction -------------------------------------------------------------------------------------------- 445

Basic Terminology ------------------------------------------------------------------------------------ 446

Two Persons Zero Sum Game --------------------------------------------------------------------- 446

Assumptions of Two Persons Zero Sum Game ----------------------------------------------- 447

Types of Two Persons Zero Sum Game --------------------------------------------------------- 447

Games with Saddle Point --------------------------------------------------------------------------- 447

Games without Saddle Point ----------------------------------------------------------------------- 448

Algebraic Method ------------------------------------------------------------------------------------- 449

Arithmetic Method ----------------------------------------------------------------------------------- 450

Calculus Method -------------------------------------------------------------------------------------- 451

Matrix Method ----------------------------------------------------------------------------------------- 452

Graphical Method ------------------------------------------------------------------------------------ 453

Linear Programming Method ---------------------------------------------------------------------- 457

Dominance Rule Method --------------------------------------------------------------------------- 463

Flow Chart of the Game Theory------------------------------------------------------------------- 465


EXERCISE – 17 ----------------------------------------------------------------------------------------- 475

Chapter 18

NETWORK ANALYSIS

Introduction -------------------------------------------------------------------------------------------- 481

Critical Path Method (CPT) ------------------------------------------------------------------------ 482

Project Evaluation and Review Technique (PERT) ------------------------------------------- 482

Basic Differences between PERT and CPM ---------------------------------------------------- 483

Network Diagram ------------------------------------------------------------------------------------ 483

Critical Path and Critical (Bottleneck) Activities ---------------------------------------------- 487

Calculation of Activity Times ---------------------------------------------------------------------- 489

Probability in PERT Analysis ---------------------------------------------------------------------- 492

Project Time Cost Trade-Off (Crashing of Project) ------------------------------------------- 496

Shortest Route (Path) Method --------------------------------------------------------------------- 504

Maximum Flow Technique ------------------------------------------------------------------------- 506


EXERCISE – 18 ----------------------------------------------------------------------------------------- 524

Chapter 19

SIMULATION

Introduction -------------------------------------------------------------------------------------------- 533

Objectives of the Simulation ----------------------------------------------------------------------- 534

Characteristics of Simulation ---------------------------------------------------------------------- 534

Advantages and Disadvantages of Simulation ------------------------------------------------ 535

Steps in Simulation Process ------------------------------------------------------------------------ 536

Models of Simulation -------------------------------------------------------------------------------- 536

Types of Simulation ---------------------------------------------------------------------------------- 537

Application of Simulation in Inventory System ----------------------------------------------- 539

Application of Simulation in Queuing System ------------------------------------------------ 540

Application of Simulation in Capital Investment --------------------------------------------- 541

Outputs of Simulation Models -------------------------------------------------------------------- 543


EXERCISE – 19 ----------------------------------------------------------------------------------------- 548

Chapter 20

FORECASTING

Introduction -------------------------------------------------------------------------------------------- 551

Importance of Forecasting -------------------------------------------------------------------------- 552

Applications of Forecasting ------------------------------------------------------------------------ 552

Limitations of Forecasting -------------------------------------------------------------------------- 553

Steps in Forecasting ---------------------------------------------------------------------------------- 553

Forecasting Time Horizons ------------------------------------------------------------------------- 554

Forecasting and Operations Sub-System -------------------------------------------------------- 554

Techniques or Methods of Forecasting ---------------------------------------------------------- 555

Simple Linear Regression Equation -------------------------------------------------------------- 567

Multiple Linear Regression Equation ------------------------------------------------------------ 568

Econometric Modeling ------------------------------------------------------------------------------ 570

Measures of Forecasting Accuracy / Forecast Errors ---------------------------------------- 571

Seasonal Variations ----------------------------------------------------------------------------------- 573

Simple Average Seasonal Index ------------------------------------------------------------------- 574


EXERCISE – 20 ----------------------------------------------------------------------------------------- 586

Appendix

Glossary ------------------------------------------------------------------------------------------------- 594

Bibliography-------------------------------------------------------------------------------------------- 602

Statistical Tables --------------------------------------------------------------------------------------- 604

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