ECE – IV SEM) FUNDAMENTALS OF MANAGEMENT Manav Rachna College of Engg.

UNIT III Production Management : Definition, Objectives Functions and Scope, Production Planning and Control; its significance, stages in production planning and control Brief introduction to the concepts of material management Inventory control; its importance and various methods. Manav Rachna College of Engg.

PRODUCTION MANAGEMENT Production is a process by which goods and services are created. Production management deals with managerial functions related to the design of the production system and operations and control of the production system,i.e, production planning and control. Production system is a system whose function is to convert a set of inputs into a set of desired outputs. Production management involves managerial decisions regarding –design of the production system and its control- Production planning and control.

SCOPE AND FUNCTIONS OF PRODUCTION MANAGEMENT Design of product Design of production system Production planning and control Selection of location Layout of plant Selection of plant and equipment Research and development Quality control Method Analysis Inventory control Work measurement Material management and control

Productions Systems Process/continuous Production-refers to production of standardized products with a standard set of processes. Job/Unit production-products are non-standardized and are heterogeneous in nature. Customers may place orders in small batches and each batch contains a small lot of identical products and is different from other batches. Intermittent production- mixture of the above two technologies. In this, components are made for inventory but are combined differently for different customers.

Production planning and Control Production Planning Routing Scheduling Loading Production Control Dispatching Expediting or Follow- up Corrective action

Elements of PPC Routing - laying of path along which materials which travel. Scheduling - determines the starting and completion time for the various operations to be performed. Loading - deals with quantity of load assigned to various machines. Dispatching - includes movement of materials,tools and fixtures for each operation. Expediting or follow-up- ensures that the production of goods takes place as per predetermined schedules. Corrective Action- to rectify the mistakes and if need arises revise the production targets, loads and schedules. There is also a strong need of performance appraisal of all employees.

MATERIAL MANAGEMENT It is the planning, directing, controlling and coordination of all those activities concerned with material and inventory requirements, from the point of their inception to their introduction into the manufacturing process. It begins with the determination of material quality and quantity and ends with its issuance to production to meet the customer’s demand as per the schedule and at the lowest cost

CLASSIFICATION OF MATERIALS Raw materials Consumable stores and supplies Fabricated parts Spares and tools Industrial equipment Office stationery and supplies

OBJECTIVES OF MATERIAL MANAGEMENT Material selection Low operating costs Receiving material safely and in good condition. Efficient and economical handling of materials. Issue material upon receipt of appropriate authority. Identification of surplus stock and taking appropriate measures to reduce it. Regular uninterrupted supply raw materials to ensure continuity of operations. Providing economy in purchasing and minimizing waste. To minimize storage and stock control costs.

Objectives (contd.) To minimize cost of production to increase profits. To purchase items of best quality at competitive prices. Enhancing the firm’s goodwill by maintaining good relations with the suppliers. To undertake make or buy decisions. To communicate any new developments in material handling techniques. To ensure standardization of materials which will help in reducing costs and ensuring quality of products.

FUNCTIONS OF MATERIALMANAGEMENT Material planning Purchasing Store-keeping Inventory control Waste management Quality control and inspection Standardization Traffic

MATERIAL PURCHASE PLANNING Receiving purchase requisitions. Location and choice of suppliers. Placing the order. Follow-up Receipt of materials Inspection of materials Checking of invoices

INVENTORY CONTROL Inventory means stock of raw materials, semi- finished and finished goods maintained by the organization. Inventory control is the tool of maintaining the size of inventory at some desired level. The basic objective of inventory control is to reduce investments in inventories and ensure that the production does not suffer.

INVENTORY CONTROL For controlling inventory two important aspects are: 1. When to order?- reorder point. 2. How much to order?- order quantity.

OBJECTIVES OF INVENTORY CONTROL Protection against fluctuations in demand Better use of the 5M’s Protection against fluctuations in output. Control of stock volume Protection against spoilage, deterioration, pilferage etc To ensure continuous supply of raw material to ensure uninterrupted production. To ensure reliable delivery to customers. Maintaining reasonable safety stock. To reduce material handling costs by accumulating parts between operations.

Objectives (cont.) To minimize investment of funds in inventories. To facilitate production during lead time. To enjoy economies of large scale buying. To facilitate reasonable utilization of labour and equipment. To decouple operations. Maintaining inventory records.

FUNCTIONS OF INVENTORY To meet unanticipated customer demand To decouple suppliers-production-distribution. To take advantage of quantity discounts through bulk purchases. To hedge against inflation and price increases. To protect against delivery variations To avoid production disruptions through use of work-in- progress. To reduce material handling costs by accumulating parts between the operations. NEGATIVE ASPECTS large inventories hide operational problems. Financial costs in carrying excess inventory. Risk of damage of goods held in inventory., Risk of product obsolescence.

Methods of stock-taking Perpetual inventory control- in this method every receipt and issue of stores are recorded immediately. It helps to keep a continuous watch on materials. Periodic/physical count method- quantity and value of inventory is found only at the end of the accounting period./

TECHNIQUES OF INVENTORY CONTROL Setting up of various stock levels. Preparation of inventory budgets. Maintaining a perpetual inventory system. Establishing a proper purchase procedure. Inventory turnover ratios. ABC analysis. VED analysis.

How to use EOQ in your organization How much inventory should we order each month? The EOQ tool can be used to model the amount of inventory that we should order each month.

The Definition of EOQ EOQ, or Economic Order Quantity, is defined as the optimal quantity of orders that minimizes total variable costs required to order and hold inventory.

How EOQ Works &  The Principles Behind EOQ: The Total Cost Curve

INVENTORY COSTS Ordering costs(S )- costs associated with ordering too much. S= No of orders placed per year X Order cost per order = Annual demand X Order cost per order No. units in each order = D X s Q Carrying costs(C)- costs associated with ordering too little. C = Average inventory level X Holding cost per unit/per year = Q X c 2 average inventory level = max.inventory+ min inventory 2 These costs are opposing costs i.e, as one increases the other decreases. EOQ = √ 2DS C

Real Life Example:

First, Recall the EOQ Equation: P = Purchase cost per unit R = Forecasted monthly usage C = Cost per order event (not per unit) F = Holding cost factor

Real Life Example: Next let’s identify the correct variables…

Real Life Example: Next let’s identify the correct variables… Forecasted Amount

Real Life Example: Next let’s identify the correct variables… Ordering Costs

Real Life Example: Next let’s identify the correct variables… Cost per Unit

Real Life Example: Next let’s identify the correct variables… Holding Cost Factor

Real Life Example: R = Annual demand C = Fixed ordering cost P = Cost per case F = Holding Cost Factor

Real Life Example: R = 5200 C = $10 per order P = $2 F = 20% of value of inventory per year

Real Life Example: R = 5200 C = $10 per order P = $2 F = 20% of value of inventory per year EOQ = 2(10)(5200) (2 )(.20)

Real Life Example: EOQ = 2(10)(5200) (2 )(.20) EOQ = 510 cases

ABC Analysis ABC (always better control)analysis- classifies inventory according to some measure of importance and allocating control efforts accordingly. Class A - constitutes10% of total items and accounts for 75% of total money spend on inventory. Class B - constitutes 15% of total items and accounts for 15% of total money spend on inventory. Class C - constitutes 75% of total items and accounts for 10% of total money spend on inventory. above rule is also called as PARETO”S law- States that a few high usage value items constitutes a major part of the capital invested in inventory whereas bulk of inventories having low usage value constitute insignificant part of capital.

VED Analysis This analysis represents classification of items based on criticality. It classifies the items in 3 groups called Vital, Essential and Desirable. Vital items are those items,the unavailability of which will stop production. Essential items are those whose stock out costs are very high. Desirable items will not cause any immediate production stoppage and their stock-out costs are nominal. So this analysis is mainly carried out to identify critical items.