Module 1 MPS

ME3101 Management of Production Systems
MANAGEMENT OF
PRODUCTION SYSTEMS
(ME 3101)
Course Note
Prepared by: Dr. Vinay V. Panicker

Assistant Professor,
Department of Mechanical Engineering
National Institute of Technology Calicut
Calicut 673 601, Kerala, India
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MODULE 1
1. INTRODUCTION
The systems aspects of manufacturing are more important than ever today. The word manufacturing
was originally derived from two Latin words manus (hand) and factus(make), so that the
combination means make by hand.
In this way manufacturing was accomplished when the word first appeared in English around
1567. Commercial goods of those times were made by hand. The methods were handicraft,
accomplished in small shops and the goods were relatively simple. As many years passed, the
products become more complex along with processes. Thus factories were developed with many
workers at a single site; the work was organized using machines
Modern manufacturing enterprises that manage these production systems must cope with the
economic realities of the modern world. These realities include the following:
Globalization
International outsourcing
Local outsourcing
Contract manufacturing
Trend toward the service sector
Quality expectations
Operational efficiency
1.1. System: It consists of elements or components. The elements or components are interlinked
together to achieve the objective for which it exists. Eg: human body, educational
institutions, business organizations.
Inputs
Men
Material
Machine
Money
Information
Transformation
Process
Outputs
Desirable
Undesirable
Feedback
Figure 1.1 Transformation process
Components of a system: The input, processing, output and control of a system are called
the components of a system.
Control: There are two types of control, namely Proactive Control and Reactive Control.
There are three types of feedback mechanisms such as feed forward control, feedback control
and concurrent control
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2. What is Production management?

In any manufacturing system, the job of a Production Manager is to manage the process of converting
inputs into the desired outputs.
It is concerned with the production of goods and services, and involves the responsibility of
ensuring that business operations are efficient and effective.
It is also the management of resources, the distribution of goods and services to customers.
Therefore, Production Management can be defined as the management of the conversion process,
which converts land, labor, capital, and management inputs into desired outputs of goods and
services. It is also concerned with the design and the operation of systems for manufacture, transport,
supply or service.
3. Difference between Operations and Production
In the transformation process, the inputs change the form into an output, by adding value to the entity.
The output may be a product or service.
If it is a product centric that is known as production,
If it is a service centric then that is known as operation.
4. Production System
A production system is a collection of people, equipment, and procedures organized to perform the
manufacturing operations of a company (or other organization)
4.1. Components of a production system:
There are two components for a production system such as:
1. Facilities the factory and equipment in the facility and the way the facility is organized
(plant layout)
2. Manufacturing support systems the set of procedures used by a company to manage
production and to solve technical and logistics problems in ordering materials, moving work
through the factory, and ensuring that products meet quality standards
Figure 1.2 Diagrammatic representation for a production system
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Facilities include the factory, production machines and tooling, material handling equipment,
inspection equipment, and computer systems that control the manufacturing operations. For the
facilities, plant layout is a significant factor for the production system to be efficient. The plant layout
is the way in which the equipment is physically arranged in the factory
Manufacturing systems include the logical groupings of equipment and workers in the factory. A
combination of a group of workers and machines are termed as Production line. There can be
instances where there is only one worker and a machine. This arrangement is called as Stand-alone
workstation and worker. Based on the human participation in the production processes, the
manufacturing system can be classified as the following three systems:
Manual work systems - a worker performing one or more tasks without the aid of powered
tools, but sometimes using hand tools. For example, filing work carried out in the central
workshop
Figure 1.3a Diagrammatic representation a manual work system
Worker-machine systems - a worker operating powered equipment. For example, turning done
on a work piece using a Lathe.
Figure 1.3b Diagrammatic representation a worker-machine system
Automated systems - a process performed by a machine without direct participation of a

human For example, turning done on a work piece using a CNC machine.
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Figure 1.3c Diagrammatic representation an automated system

Manufacturing support systems: To operate the production facilities efficiently, a company must
organize itself to design the processes and equipment, plan and control the orders and satisfy product
quality requirements. The support systems have no direct contact with the product, but they plan and
control its progress throughout the factory. The manufacturing support system involves a cycle of
information-processing activities that consists of four functions. The four functions are depicted in
Figure 1.4.
Figure 1.4 Information processing cycle

i.
Business functions - sales and marketing, order entry, cost accounting, customer billing
This function is the principal means of communication with the customer
This represents the beginning and the end of the information-processing cycle
It is at this function, the customer comes in contact with the company and places an order
The production (or customer) order will be (1) order to manufacture an item to customers
specifications (2) customer order to buy one or more of the manufactures product and (3)
an internal company order based on a forecast of future demand.
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ii.
Product design - research and development, design engineering, prototype shop

The role of the product design team depends on the production order. As mentioned above,
the production order may change.
iii.
Manufacturing planning - process planning, production planning, MRP, capacity planning

Process planning is the sequence of individual processing and assembly operations needed
to produce the part.
Production planning considers the logistics issues in the production process
The authorization to produce the product must be translated into the Master Production
Schedule (MPS)
MPS is a list of products to be made, the dates on which they are to be delivered, and the
quantities of each are included
Based on the MPS, individual components and the sub-assemblies that make up each
product must be planned.
MPS must not list more quantities of products than the factory capacity for a period.
Capacity planning plans the manpower and machine resources of the firm.
iv.
Manufacturing control - shop floor control, inventory control, quality control

Managing and controlling physical operations in the factory to implement plans.
Shop floor control monitors the progress of the product as it is being processed, assembled,
moved and inspected in the factory
Materials being processed in the factory are called as Work-in-process (WIP)

inventory.
Both shop floor control and inventory control overlap each other.
Inventory control tries to strike a balance between the risk of too little inventory
(stock-out situation) and the carrying cost of too much inventory.
o
Right quantity to order and when to re-order a given item
Quality control ensures the quality of product and its components meet the standards
specified by the product designer.
o
Raw materials and component parts from outside sources are inspected when
they are received and final inspection and testing is done to ensure functional
quality and appearance.
Exercise: Refer the Textbook Automation, Production systems and Computer Integrated
Manufacturing by Mikell P. Groover Chapter 2: Exhibit on History of Manufacturing
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4.2. Aim of production: The aim of a production system is to provide goods and services for
mankind
In right quantities
At the appropriate place
At the desired time
With the required quantity
At a reasonable cost
4.3. Challenges in manufacturing : The challenges in manufacturing includes
Changing market conditions shift from sellers market to buyers market
Rate of change is faster
Global competition
Need to be pro-active
Increased customer focus the customers are less loyal.
4.4. Characteristics features of production system
Production is an organized activity.

The system transforms the various inputs into useful outputs.
Production system does not operate in isolation from the other organizational
systems.
There exists a feedback about the activities which is essential to control and
improve system performance.
4.5. Classification of production systems

The production system can be classified on the basis of the following:
Type of production Job shop production, Batch production, Mass production
Types of
production
system
Continuous
production
Flow
production
Low
High
High
Intermittent
production
Mass
production
Batch
production
Variety
Uniformity
Volume per output
Job
production
Project
production
High
Low
Low
Figure 1.5 (a) Type of production system
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Size of the plant Large size plant (eg. Oil refinery), Medium size plant, Small size plant
(eg. Printing press)
Type of product- Complex to manufacture (Aircraft) and simple to manufacture
Physical flow of material Automated flow, Semi-automated flow and Manual flow
Nature of order/demand pattern Stable demand, Unstable demand
Variety of jobs More variety (eg. Automobiles/electronic goods), One variety (eg. Oil
refinery)
4.6. Job shop production
Characterised by make-to-order strategy
There are three possible situations for production quantity

o
Product is manufactured only once
Small quantities of product are repeated at irregular time intervals (demand not
certain)
Small quantities of product are repeated at regular time intervals
In Job shop production, first and second situations are common.
End product is most of the time as per the customer need.
No standard methods and time standards can be developed as the job is not regularly
produced.
Machines and resources must be of general purpose and flexible.
Highly skilled workforce is needed to work on product variety.
In-process inventory is high.
Machines are grouped as per their functional capabilities.
System is flexible
Planning and control is very difficult.
Job-shops are typically inefficient and have long lead times, large work-in-process
inventory and high costs.
Example: Commercial printer, Boiler manufacture, Tailoring shop
4.7. Batch production
Batch of identical articles are manufactured
The demand rate is lesser than the rate of production and hence batch production method
is traditionally adopted
There is a built-up of inventory in batch production

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There are three possible situations

o
A batch is manufactured only once (make-to-order)
Batch is repeated at irregular time intervals (make-to-order)
Batch is repeated at regular time intervals (make-to-stock)
Final product is usually standard. The basic design is same.
Such production of standardized items on a continuous basis is called repetitive

production.
Customer may be external or internal. For example, in an automobile plant, the engine
assembly plant will be an internal customer for gear assembly plant)
Machines and resources must be of general purpose or semi-automated.
Skilled workforce is needed to work on product variety.
Less supervision is need in comparison with job-shop
Less flexible than job-shop
Machines are grouped as per their functional capabilities.
4.8. Mass production
The demand rate is more than the rate of production.
Similar product is manufactured and hence, standard method and time standard is to be
analysed.
Most of the machines used in mass production are special purpose. The equipment is
dedicated to the manufacture of a single product type such as light bulbs, medicines etc.
The system is capital intensive and a long term planning needed before the investment.
Semi-skilled labour is only needed as the product design is similar mostly.
This system is a rigid production system.
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Figure 1.5 (b) Process flexibility Vs. Product variety

5. Decisions in Production Management
Production management involves the following major decisions:
1. Strategic Decisions: are taken at top level management. Examples for strategic
decisions include
Warehouse location
Distribution systems
Building a new plant
Growth strategy for expansion - Mergers and Acquisitions
New product planning
Compensation planning
Quality assurance planning
R&D planning
Adoption of New technology
Dropping a product from the product mix
Corporate Social Responsibility (CSR)

2. Tactical decisions: are taken at the middle level of management. Few examples of such
decisions are
Pricing a product
Product improvement value analysis
Preventive maintenance policy
Budget analysis
Short term forecasting

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Make or buy analysis
Plant layout
Buying equipments
Project scheduling
3. Operational decisions: are taken at the first-line level of management. Few examples of
such decisions are
Design of sampling plan inspection of raw materials and products
Price discount at salesman level
Production Scheduling
Maintenance manpower scheduling
Machine loading
Order entry
Inventory control
6.
Forecasting
The first step of planning is forecasting
Estimating the future demand for products, services and resources necessary to
produce these outputs.
Forecasts are estimates of the timing and the magnitude of occurrence of future
events.
6.1. Why forecasting?

These are the reasons for forecasting
Dynamic and complex environments forecasting is not required if the

organisation has complete control over the market forces and knows exactly what
the sale of its products is going to be in the future. This situation seldom exists.
Short term fluctuations in production - In production, there will be a short term

fluctuation in demand. If information is known, organizations can avoid knee-jerk
reactions to the unfolding reality. The organizations can plan that minimize the
costs of adjusting production system for short term fluctuations.
Better materials management Organizations benefit from better materials

management and ensure better resources availability.
Workforce scheduling the workforce must be scaled up or down to meet the

demand fluctuations by re-assignment, overtime, layoffs or hiring. Moreover
better planning of overtime and idle time can also lead to cost minimization.
Strategic decisions this includes planning for product line decisions, new
products, augmenting capacity, building factories and expanding the current level
of activities.
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6.2. Forecasting time horizon

The three categories of forecasting on the basis of time horizon are: short term, medium
term and long term horizons.
Criterion
Typical decision
Nature of decision
Nature of data
Degree of uncertainty
Key consideration
Short-term
1-3 months
Operational
Quantitative
Low
Random
effects
Medium term
6-18 months
Tactical
Quantitative or Qualitative
Moderate
Seasonal
and
cyclical
effects
Long term
5-10 years
Strategic
Qualitative
High
Trends or cycles
6.3 Elements of a good forecast: A properly prepared forecast should fulfill the
following requirements:
The forecast should be timely. Usually, a certain amount of time is needed to

respond to the information contained in a forecast.
For example, capacity cannot be expanded overnight, nor can inventory levels
be changed immediately. Hence, the forecasting horizon must cover the time
necessary to implement possible changes.
The forecast should be accurate, and the degree of accuracy should be stated.
This will enable users to plan for possible errors and will provide a basis for
comparing alternative forecasts.
The forecast should be reliable; it should work consistently.
The forecast should be expressed in meaningful units. Financial planners

need to know how many INR will be needed, production planners need to
know how many units of raw materials will be needed, and schedulers need to
know what machines and man-power will be required. The choice of units
depends on the user requirement.
The forecast should be in writing. Although this will not guarantee that all
concerned are using the same information, it will at least increase the
likelihood of it. In addition, a written forecast will help in evaluating the
forecast once actual results are in.
The forecasting technique should be simple to understand and use. Users

often lack confidence in forecasts based on sophisticated techniques; they do
not understand either the circumstances in which the techniques are
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appropriate or the limitations of the techniques. Misuse of techniques is an

obvious consequence. Not surprisingly, fairly simple forecasting techniques
enjoy widespread popularity because users are more comfortable working with
them.
The forecast should be cost-effective: The benefits should outweigh the costs.
6.4 Types of forecasting methods: The forecasting methods can be classified as
Qualitative
methods
Forecasting
methods
Quantitative
methods
Time series
models
Casual models
(associative)
Figure 1.6 Forecasting methods
7. Qualitative forecasting methods

7.1. Educated guess: uses his or her best judgement based on experience and intuition to
estimate a sales forecast.
Used for short-term forecast
Cost of forecast-inaccuracy is low
Owner of a small convenience store uses to decide the number of units to be

stocked for the next to meet the demand.
7.2. Executive committee consensus (Panel consensus): knowledgeable executives

from various departments within the organisation form a committee with the
responsibility of developing a sales forecast.
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Tend to be a compromise forecasts, not reflecting the extremes.
It has the advantage of bringing together the considerable knowledge and

talents of various managers. However, there is the risk that the view of one
person will prevail, and the possibility that diffusing responsibility for the
forecast over the entire group may result in less pressure to produce a good
forecast.
7.3. Delphi method: used to achieve a consensus within a committee. This method is
developed by RAND Corporation, 1950.
Executives anonymously answer a series of questions on successive rounds
Each response is fed back to all participants on each round and process is
repeated.
Four-Six rounds may be required before consensus.
Result in forecast that most participants have ultimately agreed to in spite of

their initial disagreement.
As a forecasting tool, the Delphi method is useful for technological

forecasting, that is, for assessing changes in technology and their impact on
an organization.
Often the goal is to predict when a certain event will occur. For instance, the
goal of a Delphi forecast might be to predict when video telephones might be
installed in at least 50 percent of residential homes.
For the most part, these are long-term, single-time forecasts, which usually
have very little hard information to go by or data that are costly to obtain, so
the problem does not lend itself to analytical techniques. Rather, judgments of
experts or others who possess sufficient knowledge to make predictions are
used.
7.4. Survey of sales forces future regional sales are obtained from individual members
of the sales force.
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Companies have a good communication system and have sales people who
sell directly to customers.
There are, however, several drawbacks to using sales-force opinions. One is

that staff members may be unable to distinguish between what customers
would like to do and what they actually will do.
Another is that these people are sometimes overly influenced by recent

experiences. Thus, after several periods of low sales, their estimates may tend
to become pessimistic. After several periods of good sales, they may tend to
be too optimistic.
In addition, if forecasts are used to establish sales quotas, there will be a

conflict of interest because it is to the salespersons advantage to provide low
sales estimates.
7.5. Survey of customers: directly from customers.
What quantity of firms products they intend to purchase in each future time
period.
The obvious advantage of consumer surveys is that they can tap information
that might not be available elsewhere.
On the other hand, a considerable amount of knowledge and skill is required

to construct a survey, administer it, and correctly interpret the results for valid
information. Surveys can be expensive and time-consuming. In addition, even
under the best conditions, surveys of the general public must contend with the
possibility of irrational behaviour patterns.
7.6. Historical analogy: this method ties the estimate of sales of a product to a similar
product.
Useful in forecasting sales of new product
7.7. Market research: In market surveys, mail questionnaires, telephone interviews or

field interviews form the basis for testing hypothesis about real markets.
For new products or existing products to be introduced into new market

segment
8. Quantitative forecasting models
Are mathematical models based on historical data
Assume that past data are relevant to the future.
Can be time series and causal relationships.
8.1. Time series analysis based on the idea that the history of occurrences over time
can be used to predict the future.
Time series methods are statistical techniques that make use of historical data
accumulated over a period of time.
Time series methods assume that what has occurred in the past will continue to
occur in the future.
As the name time series suggests, these methods relate the forecast to only one
factortime.
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These methods assume that identifiable historical patterns or trends for demand
over time will repeat themselves.
They include (i) linear regression (ii) simple moving average (iii) weighted
moving average (iv) exponential smoothing, (v) Box Jenkins model
Linear regression
Linear regression is a method of forecasting in which a mathematical relationship

is developed between demand and some other factor that causes demand
behaviour.
However, when demand displays an obvious trend over time, a least squares
regression line, or linear trend line, that relates demand to time, can be used to
forecast demand.
If the data are a time series, the independent variable is the time period.
A linear trend line relates a dependent variable, which for our purposes is demand
(or sales), to the independent variable, time, in the form of a linear equation:
Y a bX
Where,
Y Dependent variable
X Independent variable
a- Intercept in y axis
b- Slope of the trend
x 2 y x xy
a
n x 2 ( x ) 2
b
8.1..1.
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xy x y
n x 2 ( x ) 2
Coefficient of correlation (r): The coefficient of correlation, r, explains

the relative importance of the relationship between X and Y.
The sign of r shows the direction of the relationship.
The absolute value of r shows the strength of the relationship.
The sign of r is always the same as the sign of b.
r can take on any value between 1 and +1.
Meanings of several values of r:

-1
a perfect negative relationship

(as x goes up, y goes down by one unit, and vice versa)
+1
a perfect positive relationship

(as x goes up, y goes up by one unit, and vice versa)
no relationship exists between x and y
+0.3
a weak positive relationship
-0.9
a strong negative relationship
Simple moving average: A moving average forecast uses a number of the most
recent actual data values in generating a forecast. The moving average forecast
can be computed using the following equation:
Ft
At 1 At 2 ... At n
n
(1.1)
Where, Ft= Forecast for the coming period, t

n = Number of periods to be averaged
At 1 = Actual occurrence in the past period

At 2 , At 3 ,, At n = Actual occurrences two periods ago, three periods ago, and
so on up to n periods ago.
The disadvantage of the moving average method is that it does not react to
variations that occur for a reason, such as cycles and seasonal effects.
Factors that cause changes are generally ignored. It is basically a mechanical
method, which reflects historical data in a consistent way.
The advantage of moving average method is that it is easy to use, quick, and
relatively inexpensive. In general, this method can provide a good forecast for
the short run, but it should not be used for a long term.
It is called moving because as new demand data becomes available, the
oldest data is not used
By increasing the Averaging Period (AP), the forecast is less responsive to
fluctuations in demand (low impulse response and high noise dampening)
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By decreasing the AP, the forecast is more responsive to fluctuations in

demand (high impulse response and low noise dampening)
Weighted moving average: A weighted average is similar to a moving average,

except that it assigns more weight to the most recent values in a time series.
For instance, the most recent value might be assigned a weight of .40, the next
most recent value a weight of .30, the next after that a weight of .20, and the next
after that a weight of .10.
Note that the weights must sum to 1.00, and that the heaviest weights are
assigned to the most recent values.
Ft
W1 At 1 W2 At 2 ... Wn At n
n
(1.2)
Where W1, W2,, Wn are the weight to be given to the actual occurrence for
periods t-1, t-2, , t-n respectively.
The advantage of a weighted average over a simple moving average is that the
weighted average is more reflective of the most recent occurrences.
Choosing weights: However, the choice of weights is somewhat arbitrary and
generally involves the use of trial and error to find a suitable weighting scheme.
Experience also helps in deciding the weights.
As a general rule, the most recent past is the most important indicator of
what to expect in the future.
If the most recent periods are weighted too heavily, the forecast might
overreact to a random fluctuation in demand.
If they are weighted too lightly, the forecast might underreact to actual
changes in demand behaviour.
Exponential smoothing: Exponential smoothing is a sophisticated weighted

averaging method that is still relatively easy to use and understand. Each new
forecast is based on the previous forecast plus a percentage of the difference
between that forecast and the actual value of the series at that point.
That is:
Next forecast = Previous forecast (Actual demand- Previous forecast)

Where, (Actual demand -Previous forecast) represents the forecast error and is
a percentage of the error. More concisely,
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Ft Ft 1 (At 1 Ft 1 )
(1.3)
Where, Ft
exponentially smoothened forecast for period t
Ft 1
exponentially smoothened forecast for period t-1
At 1
actual demand during the period t-1
smoothening coefficient
Recursively substituting Ft 1 in (2.3)
Ft (1 )[ Ft 1 ( At 1 )]
(1 )[(1 ) Ft 2 ( At 2 )] ( At 1 )
(1 ) 2 Ft 2 (1 ) ( At 2 ) ( At 1 )
Ft (1 )t 1 F1 (1 )t 2 ( A1) ... (1 )( At 2 ) ( At 1) (1.4)

This method is called exponential smoothing because each increment in the past
is decreased by (1-)
Choosing the appropriate value of : Constant is between 0 and 1
If real demand is stable, we would like a small alpha to lessen the effects
of short term or random changes.
If real demand is rapidly increasing or decreasing we would like a large
alpha to try to keep up with the change.
250
200
Actual demand
150
alpha 0.5
100
alpha 0.3
50
alpha 0.1
0
0
10
15
Figure 1.7 Exponential forecast verses actual demand for units of a product
showing the forecast lag
As shown in Figure 1.7, the forecast lags during an increase or decrease, but
overshoots when a change in direction occurs.
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Note that the higher the value of alpha, the more closely the forecast
follows the actual.
Trend effects in exponential smoothing

As we move toward medium-range forecasts, trend becomes more important.
Incorporating a trend component into exponentially smoothed forecasts is
called double exponential smoothing.
The estimate for the average and the estimate for the trend are both smoothed.
An upward or downward trend in data collected over a sequence of time
periods causes the exponential forecast to always lag behind (be above or
below the actual occurrence)
Exponentially smoothed forecasts can be corrected somewhat by adding in a
trend adjustment.
In addition to smoothing constant , the trend equation also uses a smoothing
constant .
Trend smoothing constant reduces the impact of the error that occurs
between the actual and the forecast.
The equation to compute the forecast including trend is
FITt Ft Tt
Ft FITt 1 ( At 1 FITt 1 )
(1.5)
Tt Tt 1 ( Ft FITt 1 )
Where, Ft is exponentially smoothed forecast for period t
Tt is exponentially smoothed trend for period t

FITt is forecast including trend for period t
FITt 1 is forecast including trend for period t-1
At 1 is actual demand for period t-1
exponential smoothing constant
trend smoothing constant
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8.2. Causal relationship tries to understand and the system underlying and surrounding
the item being forecast. Sales may be affected by advertising, quality and
competitors.
8.3. Common types of trends - Analysis of time-series data require the analyst to
identify the underlying behavior of the series.
i.
ii.
This can often be accomplished by merely plotting the data and visually
examining the plot.
One or more patterns might appear: trends, seasonal variations, cycles, or
variations around an average.
In addition, there will be random and perhaps irregular variations. These
behaviors can be described as follows:
Trend refers to a long-term upward or downward movement in the data.
Population shifts, changing incomes, and cultural changes often account for such
movements.
Seasonality refers to a data pattern that repeats itself after a short period of time.
Fairly regular variations generally related to factors such as the calendar or time of
day. Restaurants, supermarkets, and theaters experience weekly and even daily
seasonal variations.
Figure 1.8 Trend, cyclical and seasonal data plots, with random and irregular
variations
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iii.
Cycles are data pattern that covers several years before it repeats again. These
wavelike variations occur for more than one years duration. These are often
related to a variety of economic, political, and even agricultural conditions.
Irregular variations are due to unusual circumstances such as severe weather
conditions, strikes, or a major change in a product or service. They do not reflect
typical behavior, and their inclusion in the series can distort the overall picture.
Whenever possible, these should be identified and removed from the data.
Random variations or noise is a pattern resulting from random variation or
unexplained causes. These are residual variations that remain after all other
behaviors have been accounted for.
iv.
v.
9. Forecast errors
A forecast is never completely accurate; forecasts will always deviate from the actual
demand.
This difference between the forecast and the actual is the forecast error. These errors
are called residuals.
Errors can be classified as bias or random.
Bias error occurs when a consistent mistake is made. Bias error include the
failure to include the right variables, the use of the wrong relationships
among variables; employment of wrong trend line.
Random error can be defined as those that cannot be explained by the
forecast model.
Although forecast error is inevitable, the objective of forecasting is that it be as slight
as possible. A large degree of error may indicate that either the forecasting technique
is the wrong one or it needs to be adjusted by changing its parameters.
9.1. Standard error is a measure of how historical data points have been dispersed about
the trend line
S yx
y 2 a y b xy
n2
(1.6)
9.2. Mean Squared Error (MSE) is ( S yx )2

9.3. Mean Absolute Deviation (MAD) is one of the most popular and simplest to use
measures of forecast error. MAD is an average of the absolute difference between the
forecast and actual demand, as computed by the following formula:
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MAD
Actual demandi forecast demandi

i 1
(1.7)
If the MAD is small, the actual data closely follow forecasts of the dependent
variable and the forecasting model is providing actual forecasts.
9.4. Mean Absolute Percentage Error (MAPE): The mean absolute percent error
(MAPE) measures the absolute error as a percentage of demand rather than per
period. As a result, it eliminates the problem of interpreting the measure of accuracy
relative to the magnitude of the demand and forecast values, as MAD does. The
mean absolute percent error is computed according to the following formula:
n
MAPE
i 1
Actual demandi forecast demandi

Actual demandi
n
100
(1.8)
9.5. Tracking Signal (TS): A tracking signal indicates if the forecast is consistently
biased high or low. It is computed by dividing the Running Sum of Forecast Error
(RSFE or cumulative error) by MAD, according to the formula:
n
RSFE
TS
MAD
( Di Fi )
i 1
n
( Di Fi )
(1.9)
i 1
Acceptable limits of TS depend on the size of the demand being forecast (highvolume or high revenue) item monitored frequently.
Amount of personnel time available (narrow limits require more time to
investigate)
The tracking signal is recomputed each period, with updated, running values of
cumulative error and MAD. The movement of the tracking signal is compared to
control limits; as long as the tracking signal is within these limits, the forecast is
in control.
9.6. Evaluation of Short-range forecasting models : are evaluated on the basis of three
characteristics:
i.
Impulse response
ii.
Noise-dampening ability
iii.
Accuracy
23 | P a g e
If forecasts have little period-to-period fluctuation, they are said to be noise

dampening.
Forecasts that respond quickly to changes in data are said to have a high impulse
response.
A forecast system that responds quickly to data changes necessarily picks up a

great deal of random fluctuation (noise).
Hence, there is a trade-off between high impulse response and high noise
dampening.
Accuracy is the typical criterion for judging the performance of a forecasting

approach
Accuracy is how well the forecasted values match the actual values
10. Manufacturing Planning and Control

Manufacturing Planning and Control (MPC) system is concerned with planning and
controlling all aspects of manufacturing, including managing materials, scheduling
machines and people, and coordinating suppliers and key customers.
Provides information to effectively manage the flow of material, effectively utilize

people and equipment, and coordinate supply chain.
10.1 MPC System:

The essential task of the MPC system is to manage efficiently the flow of material, to
manage the utilization of people and equipment, and to respond to customer
requirements by utilizing the capacity of the suppliers, that of the internal facilities, and
(in some cases) that of the customers to meet customer demand.
Important additional activities involve the acquisition of information from customers on
product needs and providing customers with information on delivery dates and product
status.
MPC supports to make intelligent decisions.
An important point to note is that the MPC system provides the information upon which
managers make effective decisions. The MPC system does not make decisions nor
manage the operationsmanagers perform those activities. The MPC system provides
the support for them to do so wisely.
10.2 Typical support activities of MPC
The support activities of the MPC system can be broken roughly into three time
horizons: long term, medium term, and short term.
24 | P a g e
In the long term, the system is responsible for providing information to make
decisions on the appropriate amount of capacity (including equipment, buildings,
suppliers, and so forth) to meet the market demands of the future.
Moreover, long-term planning is necessary for the firm to provide the appropriate mix
of human resource capabilities, technology, and geographical locations to meet the
firms future needs.
In the case of supply chain planning, the long term has to include the same kind of
capacity planning for the key suppliers. For companies that outsource their
manufacturing to outside companies, the planning of supplier capacity can be more
critical than internal capacity planning.
In the intermediate term, the fundamental issue addressed by the MPC system is
matching supply and demand in terms of both volume and product mix.
This means planning for the right quantities of material to arrive at the right time and
place to support product production and distribution. It also means maintaining
appropriate levels of raw material, work in process, and finished goods inventories in
the correct locations to meet market needs.
Another aspect is providing customers with information on expected delivery times
and communicating to suppliers the correct quantities and delivery times for the
material they supply.
Planning of capacity may require determining employment levels, overtime
possibilities, subcontracting needs, and support requirements.
In the short term, detailed scheduling of resources is required to meet production
requirements. This involves time, people, material, equipment, and facilities.
As the day-to-day activities continue, the MPC system must track the use of resources
and execution results to report on material consumption, labour utilization, equipment
utilization, completion of customer orders, and other important measures of
manufacturing performance.
Moreover, as customers change their minds, things go wrong, and other changes
occur, the MPC system must provide the information to managers, customers, and
suppliers on what happened, provide problem-solving support, and report on the
resolution of the problems.
Throughout this process, communication with customers on production status and
changes in expectations must be maintained
10.3 MPC System Framework: MPC System framework is depicted in figure 2.3. The
figure is divided into three parts or phases.
25 | P a g e
The top third, or front end, is the set of activities and systems for overall direction
setting. This phase establishes the overall company direction for manufacturing
planning and control.
Demand management encompasses forecasting customer/end-product demand,
order entry, order promising, accommodating interplant and intercompany
demand, and spare parts requirements. In essence, demand management
coordinates all activities of the business that place demands on manufacturing

capacity.
Sales and operations planning balance the sales/marketing plans with available
production resources. Increasingly, this activity is receiving more management
attention as the need for coordination is recognized in progressive firms.
The master production schedule (MPS) is the disaggregated version of the

sales and operations plan. The MPS must support the sales and operations
plan.
Figure 1.9 MPC Framework
Resource planning determines the capacity necessary to produce the required

products now and in the future. Resource planning provides the basis for
matching manufacturing plans and capacity.
The middle third, or engine, encompasses the set of MPC systems for detailed
material and capacity planning.
The master production schedule feeds directly into the detailed material planning
module. Firms with a limited product range can specify rates of production for
developing these plans.
26 | P a g e
However, for firms producing a wide variety of products with many parts per product,
detailed material planning can involve calculating requirements for thousands of parts
and components, using a formal logic called material requirements planning (MRP).
MRP determines (explodes) the period-by-period (time phased) plans for all
component parts and raw materials required to produce all the products in the
MPS.
The bottom third, or back end, depicts MPC execution systems. For example,
firms producing a large variety of products using thousands of parts often
group all equipment of a similar type into a single work centre. Their shop
floor system establishes priorities for all shop orders at each work centre so the
orders can be properly scheduled.
Other firms will group mixtures of equipment that produce a similar set of
parts into work centres called production cells.
The supplier systems provide detailed information to the company suppliers.
10.3.1 Functions of MPC/Production Planning and Control (PPC)
Figure 1.10 PPC Process

10.4. Dependent demand Vs. Independent demand
27 | P a g e
Demand for final products is called as Independent demand.

Demand for the items that are subassemblies or component parts which are to be
used in production of finished goods is called as Dependent demand.
The Figure 2.5 diagrammatically explains the definition for dependent demand
and independent demand.
Figure 1.11 Dependent demand Vs. Independent demand

The difference between dependent demand and independent demand is tabulated in
Table 2.2.
Table 1.2 Difference between dependent demand and independent demand
Attribute
Dependent demand
Nature of demand
No uncertainty
Considerable uncertainty
Parent-child relationship Independent
cause dependency
100% a necessity
100% not a feasible
solution
Service level
Independent demand
Demand occurrence
Often lumpy
Often continuous
Estimation of demand
By production planning
By forecasting
How much to order
Known with certainty
Estimate based on past

consumption
When to order
Can be estimated
Cannot
directly
be
answered
10.5. Material Requirements Planning (MRP) is used to determine the quantity and
timing for the acquisition of dependent items needed to satisfy master schedule
requirements.
Managerial objective is to provide the right part at the right time.
It is a production planning process that starts from the demand for finished
products and plans step by step the production of subassemblies and parts.
Computer-based information system (i.e. glorified database) for ordering and
scheduling of dependent demand inventories
Basic inputs for MRP are listed below:
o Product structure or Bill of materials
28 | P a g e
o Master production schedule for the final assembly

o Economic order quantity
o Beginning inventory (Inventory status)
MRP is characterised by the use of time-phased requirement records.
10.5.1 Explosion process
The desired quantity of each component part is calculated by using the Master
Production Schedule (MPS) in a process known as Bill of Material Explosion.
Consider an example of a basic telephone instrument.
Telephone
Base unit
Cover
plates (2)
Hand set
Speaker
Wire
Microphone
Screw (2)
Figure 1.12 Bill of Material Explosion for Telephone instrument
29 | P a g e
A telephone instrument consists of a base unit and a hand set. The hand set has
a speaker and a microphone and is covered by a pair of cover plates firmly
held together using a pair of screws. There is a wire that connects the handset
to the base unit. This is the parent-child relationship as shown in Figure 2.6.
Let us assume that we have in stock an inventory of 30 telephones, 27

handsets and 16 cover plates. Suppose that we want to plan for the production
of 100 telephones during the next week. How much inventory do we need in
each of these components?
One method is merely subtracting the on-hand inventory from the requirement
at each level to arrive at this number. (Method I in Table 2.4a).
Another method is to proceed level by level in the computation. In this

method, after computing the requirement at one level, we use the parent child
relationship to compute the requirement at the next level (Method II in Table
2.4b)
Table 1.3a Method I

Basic Telephone
Required
100
On-hand inventory
30
Planned quantity
70
Hand set
Required
100
On-hand inventory
27
Planned quantity
73
Cover plate
Required
200
On-hand inventory
16
Planned quantity
184
Table 1.3b Method II
Basic Telephone
Required
On-hand inventory
Planned quantity
Hand set
Required
On-hand inventory
Planned quantity
Cover plate
Required
On-hand inventory
Planned quantity
10.5.2
100
30
70
70
27
43
86
16
70
Bill of Materials (BOM)
Shows exactly what goes into what instead of being just a part list.
Two ways the bill of material is represented
10.5.2.1 Product structure diagram or product tree
Level 0
B(2)
D(1)
E(4)
F(2)
G(5)
Figure 1.13 Product structure for product A

30 | P a g e
Level 1
C(3)
H(4)
Level 2
Higher the level the lower its level number and the more complete the items.
When common items appear in more than one level, they must be represented at
the lowest level of their appearance. This is known as low level coding.
Figure 1.14a Product structure for Telephone showing low level coding
-
Low level coding does not alter the logic behind planning for the requirement,
but merely serves to improve the efficiency of processing.
The product structure graphically depicts the dependency relationships among

various items that make up the final product. Each level in the product structure
has a parent relationship with those below it.
The number of items needed to assemble one unit of its parent is shown in
parentheses.
If the number of components that make up a final product is numerous and the
number of levels involved also be many, it is not possible to represent the
dependency information in the form of product structure.
Instead the information can be represented using a standard data structure.
Such a structure is known as intended bill of material.
Other formats of bill of materials are Single level parts list and Modular BOM.
10.5.2.2.Indented bill of material/ Single level parts list/ Modular BOM

Single level parts list: it consists of a list of all components that are directly
used in a parent item.
31 | P a g e
Modular BOM describe the product structure for basic sub-assemblies of

parts that are common to different end items.
Modularization is used for end items that contain

many options.
Intended BOM: is a form of multi-level BOM
It exhibits the final product as level 0 and all its components as level 1.
Indented parts list

A
B(2)
D(1)
E(4)
C(3)
F(2)
G(5)
H(4)
Single level parts list

A
B(2)
C(3)
B
D(1)
E(4)
C
F(2)
G(5)
H(4)
The level numbers increase as you proceed down the tree structure.
If an item is used in more than one parent within a given product

structure, it appears more than once, under every sub-assembly in
which it is used.
Problem 1: Product A is assembled from one B assembly, three C assemblies, two D

assemblies, and four H components. Each B assembly is made from two F subassemblies.
Each C is made from one G component and one H component. Each D assembly is made
from two I assemblies and three G components. Each F subassembly is made from three H
components. Each I subassembly is made from one H component.
a.
Construct a product structure tree for product A.
b.
Prepare and indented bill of materials for Product A.
10.5.3 Basic MRP Record: There is a universal representation of the status and
plans for any part number, which is the MRP time-phased record.
32 | P a g e
A single record provides the correct information on each part in the system.
All the single records associated with the parts needed for a complex product
is linked together for proper managing.
Key elements for linking the records are the bill of material, explosion process
and lead time.
Table 1.4 Basic MRP Record
Gross requirements
Scheduled receipts
Projected available balance
Planned order release
Lead Time (LT) = 1 period
Lot size = 50 units
Period
1 2 3 4 5
10
40 10
50
50
54 44 44 4 44
50
Figure 1.15 Product structure for a ladder-back chair

10.5.3.1 Terms in MRP record: There are certain terms used in a basic MRP record as
shown in Table 2.5. The terms are defined as follows:
Gross requirements- are the total demand derived from all parent-production
plans. They also include demand not otherwise accounted for, such as demand
33 | P a g e
for replacement parts for units already sold. With respect to Table 2.5, item X
is produced in lots of 50 units and has a lead time of one week. The inventory
record shows that Xs gross requirements for next five weeks. These five
weeks constitute the planning horizon for item X.
Figure 1.16 Assembly time chart
Scheduled receipts (open orders) are orders that have been placed but not
yet completed.
Existing replenishment orders for a component that has been released to the
shop floor and are due at the beginning of each period. It represents a
commitment.
One 50 unit order of item X is due in week 1. The inventory planner released
the order one week ago.
Table 1.5 Basic MRP Record
Gross requirements
Scheduled receipts
Projected available 4
balance

Lead Time (LT) = 1
period
Lot size = 50 units
34 | P a g e
1
0
50
4+50-0 =54
2
10
Period
3
0
54+0-10=44 44+00=44
4
40
44+040=4
50
5
10
50
4+0-10=
-6
(need
for
a
scheduled/planned
receipt in week 4
since lead time is 1
week)
Projected on-hand inventory (or projected available balance) is an estimate

of the amount of inventory available at end of each week after gross requirements
have been satisfied.
- The beginning inventory shown as 50 indicates the on-hand inventory available at
the time the record was computed.
(Projected on-hand inventory balance at end of week t) =
(Inventory on-hand at end of week t-1) +
(Scheduled or planned receipt in week t)
(Gross requirement in week t).
Planned receipts planning for receipt of new orders will keep the projected onhand balance from dropping below zero.
Planned order release indicates when an order for a specified quantity of an
item is to be issued. We must place the planned order release quantity in the
proper time-bucket (at the beginning of each period)
Planned order release date = planned receipt date lead time
- Whenever projected available balance shows a quantity insufficient to satisfy
gross requirements, additional material must be planned for.
Period can vary in length from a day to a quarter or even longer. The periods
are also called a time bucket.
- Widely used time bucket is one week.
- The number of period in the record is the planning horizon
- This is done by creating a planned order release in time to keep the projected
available balance from becoming negative.
10.6. Safety Stock and safety lead time
Safety stock is a buffer of stock above and beyond that needed to satisfy the gross
requirements.
Theoretically, MRP systems should not require safety stock
Variability may necessitate the strategic use of safety stock
A bottleneck process or one with varying scrap rates may cause shortages
in downstream operations
Shortages may occur if orders are late or fabrication or assembly times are
longer than expected
When lead times are variable, the concept of safety time is often used
Safety lead time is a procedure whereby shop orders are released and scheduled to
arrive one or more periods before necessary to satisfy the gross requirements.
When safety stock is used, the projected available balance does not fall below the
safety stock level instead of reaching zero.
35 | P a g e
Table 1.6a MRP Record with safety stock

Period
2 3 4 5
10
40 10
50
50
54 44 44 54 44
50
1
Gross requirements
Scheduled receipts
Lot size = 50 units
Safety stock = 10
Table 1.6b MRP Record with safety lead time

Period
2 3 4 5
10
40 10
50
50
54 44 94 54 44
50
1
Gross requirements
Scheduled receipts
Lot size = 50 units
Safety lead time = 2 period
10.7. Lot sizing rules

A lot sizing rule determines the size of order quantities for each component in a
product.
A lot sizing rule must be assigned to each item before planned receipts and
planned order releases can be computed.
While deciding on an appropriate lot size, the planner must keep in mind, the
influence of two sets of costs set up cost and inventory holding cost.
It is important because they determine the number of set-ups required and the
inventory holding costs for each item.
Large lot sizes will require fewer set-ups, but may result in carrying a huge
inventory for a longer time.
Smaller lot sizes require several set-ups, thereby increasing the set-up costs.
The objective of the planner is to minimize the total cost.
Different methods which are available to determine effective lot size in MRP are
as follows:
1. Lot-for-Lot method (L4L)
2. Economic Order Quantity (EOQ) method
3. Fixed Order Quantity method (FOQ)
4. Period Order Quantity (POQ) method
5. Periods of supply
36 | P a g e
6. Least Unit Cost (LUC) method

7. Part Period Balancing (PPB) method
8. Minimum Cost per Period (MCP) method
10.7.1 Lot-to-lot batch sizing: is the simplest for lot sizing technique. The rule is to supply
in each period what is demanded in that period. Lot for lot batch sizing results in
minimal inventory holding costs.
However, lot-for-lot means setting up to manufacture (or purchase) once for each
period in which the item is required, no matter how many are required.
When setup (or order) costs are low and inventory carrying costs are high, lot-forlot frequently results in the lowest inventory costs.
Because lot-for-lot is simple, it can be calculated quickly. This is important if the
firm has many lot sizing decisions to make each time it runs or regenerates its MRP
schedules.
Table 1.7a MRP Record given
Period
0
Gross
requirement
Scheduled
receipt
Projected
30
available
balance
Planned
release
LT=1 week
Lot-of-lot
Period
0
Gross
requirement
Scheduled
receipt
Projected
30
available
balance
Planned
release
LT=1 week
Lot-of-lot
37 | P a g e
1
30
2
50
3
40
4
-
5
15
6
20
7
20
8
-
9
10
10
-
11
15
12
50
Table 1.7b MRP Record solution

1
2
3
4
5
6
7
30 50 40 15 20 20
8
-
9
10
10
-
11
15
12
50
50
40
15
20
20
10
15
50
50
40
15
20
20
10
15
50
10.7.2 Economic Order Quantity method In this method, the economic order
quantity based on the data given are computed.
Problem 2: Consider an item that has projected requirement as shown below. The
beginning inventory is 30 units. The carrying cost per unit per week is Rs 2.50. The cost
per set-up is Rs. 250 and lead time is 1 week.
Initial inventory on hand = 30 units
Average demand per week (d) = 20.83 units/week
Carrying cost per unit per week (Cc) = Rs. 2.50
Set up cost per set up (Co) = Rs.250
EOQ
2Co d
Cc
2 250 20.83
64.54 65 units
2.50
EOQ is the least-cost position if all the assumptions of constancy of cost and certainty
of demand and delivery are satisfied.
Inventory is much higher than it was when the firm used the lot-for-lot technique.
Period
0
Gross
requirement
Scheduled receipt
Projected
30
available balance
Planned release
LT=1 week
Lot
size
=
EOQ=65 units
1
30
2
50
3
40
4
-
5
15
6
20
7
20
8
-
9
10
10
-
11
15
12
50
9
10
10
-
11
15
12
50
25
65
40

Period
0
Gross
requirement
Scheduled receipt
Projected
30
available balance
Planned release
LT=1 week
Lot
size
=
EOQ=65 units 65
units
1
30
2
50
3
40
65
15
65
40
65
65
4
-
40
5
15
25
6
20
7
20
65
50
65
Total number of orders in the planning horizon = 4 weeks

38 | P a g e
8
-
50
40
40
65
Ordering cost = 4 x 250 = 1000

Carrying cost = 370 x 2.50 = 925
Total cost = 1925.00
10.7.3 Period Order Quantity (POQ) method: In this method, the economic order size is
computed as in EOQ method. The optimal order period is computed using the
following formula:
Initial inventory on hand = 30 units
Average demand per week (d) = 20.83 units/week
Carrying cost per unit per period (Cc) = Rs. 2.50
Set up cost per set up (Co) = Rs.250
EOQ
2Co D
2 250 20.83
64.54 65 units
Cc
2.50
Optimal order period (P*) =
N
52
3.114 3 weeks
D / EOQ 1084 / 65
Where N is the number of periods per year (52 weeks); D is the annual demand
Period
0
Gross
requirement
Scheduled
receipt
Projected
30
available
balance
Planned
release
LT=1 week
Lot size =
65 units
1
30
2
50
3
40
4
-
5
15
6
20
7
20
8
-
9
10
10
-
11
15
12
50
In this method, whenever a planned order release is made, its order quantity is equal to
the sum of the non-zero projected requirements of optimal order periods in sequence
starting from the first period in that periods combination.
For example, the projected requirement for week 1 (=30 units) is met from the inventory.
The requirement for weeks 2, 3, 4 and 5 is added together (50+40+0+15=105) and
accordingly a planned order release for 105 units is made at the beginning of period 1.
(Since the lead time is 1 week)
39 | P a g e

Period
0
Gross
requirement
Scheduled
receipt
Projected
30
available
balance
Planned
release
LT=1 week
Lot size =
65 units
40 | P a g e
1
30
2
50
3
40
4
-
5
15
105
0
105
55
6
20
7
20
8
-
9
10
10
-
50
15
15
50
30
11
15
12
50
65
10
10
65
50

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ME3101 Management of Production Systems

Prepared by: Dr. Vinay V. Panicker

ME3101 Management of Production Systems

Trend toward the service sector

Figure 1.1 Transformation process

ME3101 Management of Production Systems

2. What is Production management?

If it is a product centric that is known as production,

If it is a service centric then that is known as operation.

Figure 1.2 Diagrammatic representation for a production system

ME3101 Management of Production Systems

Figure 1.3a Diagrammatic representation a manual work system

Figure 1.3b Diagrammatic representation a worker-machine system

Automated systems - a process performed by a machine without direct participation of a

ME3101 Management of Production Systems

Figure 1.3c Diagrammatic representation an automated system

Figure 1.4 Information processing cycle

ME3101 Management of Production Systems

Product design - research and development, design engineering, prototype shop

Manufacturing planning - process planning, production planning, MRP, capacity planning

Manufacturing control - shop floor control, inventory control, quality control

Materials being processed in the factory are called as Work-in-process (WIP)

Right quantity to order and when to re-order a given item

ME3101 Management of Production Systems

Production is an organized activity.

4.5. Classification of production systems

Figure 1.5 (a) Type of production system

ME3101 Management of Production Systems

Type of product- Complex to manufacture (Aircraft) and simple to manufacture

Nature of order/demand pattern Stable demand, Unstable demand

4.6. Job shop production

Characterised by make-to-order strategy

There are three possible situations for production quantity

Product is manufactured only once

Small quantities of product are repeated at regular time intervals

In Job shop production, first and second situations are common.

End product is most of the time as per the customer need.

Machines and resources must be of general purpose and flexible.

Highly skilled workforce is needed to work on product variety.

In-process inventory is high.

Machines are grouped as per their functional capabilities.

Planning and control is very difficult.

Example: Commercial printer, Boiler manufacture, Tailoring shop

4.7. Batch production

Batch of identical articles are manufactured

There is a built-up of inventory in batch production

ME3101 Management of Production Systems

There are three possible situations

A batch is manufactured only once (make-to-order)

Batch is repeated at irregular time intervals (make-to-order)

Batch is repeated at regular time intervals (make-to-stock)

Final product is usually standard. The basic design is same.

Such production of standardized items on a continuous basis is called repetitive

Machines and resources must be of general purpose or semi-automated.

Skilled workforce is needed to work on product variety.

Less supervision is need in comparison with job-shop

Less flexible than job-shop

Machines are grouped as per their functional capabilities.

4.8. Mass production

The demand rate is more than the rate of production.

Semi-skilled labour is only needed as the product design is similar mostly.

This system is a rigid production system.

ME3101 Management of Production Systems