VASAVI VIDYA TRUST GROUP OF INSTITUTIONS, SALEM -103

CLASS: I MBA UNIT: II

SUBJECT: OPERATIONS MANAGEMENT
_________________________________________________________________________
UNIT II OPERATIONS AND THE VALUE CHAIN
Capacity Planning – Long range, Types, Developing capacity alternatives, tools for capacity
planning. Facility Location – Theories, Steps in Selection, Location Models. Sourcing and
procurement - Strategic sourcing, make or buy decision, procurement process, managing
vendors

CAPACITY PLANNING:
EXPLAIN ABOUT CAPACITY PLANNING?
Meaning and Definition of Capacity Planning:
➢ Capacity is the rate of productive capability of a facility. Capacity is usually expresses as
volume of output per time period. Operations managers are concerned with capacity for
several reasons:
Capacity planning is a crucial aspect of operations management that involves determining
the capacity requirements of an organization to meet current and future demand. It ensures
that the organization has the necessary resources, infrastructure, and capabilities to deliver
products or services efficiently. In this module, we will explore the fundamentals of capacity
planning, determinants of effective capacity, developing capacity alternatives, strategies for
timing capacity, production strategies to meet demand, and conclude with key insights.

Determinants of Effective Capacity:

Facilities: The physical infrastructure, including buildings, equipment, machinery, and
technology, plays a significant role in determining effective capacity. Efficient utilization
and maintenance of facilities are essential for maximizing capacity.
Labor: The availability, skills, and productivity of the workforce impact effective capacity.
Workforce planning, training, and skill development are critical to ensure optimal utilization
of labor resources.
Processes: The design and efficiency of operational processes directly affect capacity.
Streamlining processes, eliminating bottlenecks, and implementing lean principles can
enhance effective capacity.
Inventory Management: Effective inventory management practices, such as just-in-time
(JIT) systems, can optimize capacity by reducing holding costs and minimizing space
requirements.
Technology and Automation: The adoption of advanced technologies and automation can
significantly improve effective capacity. Robotics, AI, and digitalization can streamline
operations and increase productivity.

Types of Capacity Planning

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Capacity planning can be categorized into three types based on the time horizon
considered:

 Short-Term Capacity Planning: This type focuses on meeting immediate demand by

adjusting resources, workforce, and production schedules in the short term, typically
ranging from a few days to several months.
 Medium-Term Capacity Planning: Medium-term capacity planning spans several
months to a few years and involves decisions regarding workforce planning, facility
expansions, and process improvements to align capacity with forecasted demand.
 Long-Term Capacity Planning: Long-term capacity planning extends beyond the
medium term, usually covering several years to decades. It involves strategic decisions
such as new facility construction, technology investments, and market analysis to
support long-term growth and sustainability.

Developing Capacity Alternatives:

Developing capacity alternatives involves analyzing different options to meet demand and
achieve optimal capacity utilization. Some key approaches include:
Expansion: Adding new facilities, equipment, or technology to increase capacity. This may
involve constructing new buildings, purchasing additional machinery, or implementing
advanced manufacturing systems.
Outsourcing: Utilizing external resources or partnering with other organizations to handle
excess capacity requirements. Outsourcing can provide flexibility and cost-effectiveness in
managing capacity fluctuations.
Collaboration and Alliances: Collaborating with other organizations or forming alliances to
share resources, knowledge, and capacity. This approach can enable organizations to
leverage each other's strengths and achieve economies of scale.
Subcontracting: Subcontracting certain processes or activities to external suppliers or
contractors to manage capacity constraints. This strategy allows organizations to focus on
core competencies while leveraging external expertise and capacity.

Explain the Capacity Planning Process

Step 1: Define expected demand
This is where you pull out your crystal ball and try to guess what your customers are going
to want in the future. Look at past data, market trends, and any other factors that might affect
demand. The key is to make an educated guess, not one based on wishful thinking.
Step 2: Estimate the required resource capacity
Once you have an idea of what demand will look like, you need to figure out how much
you’ll need to produce to meet it and which resources will help you with that. Consider
everything from physical resources like machinery and materials to human resources like
staff and their skill sets.

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Step 3: Measure your current capacity
Now it’s time to take a long, hard look at what you have. How much can you currently
produce? Are there any bottlenecks or constraints that might limit production? Be honest
with yourself – it’s better to know your limits now than to find out the hard way later.
Step 4: Identify the capacity gap
Once you know what you can do and what you need to do, compare the two. Is there a gap
between what you can produce and what you need to produce? If so, how big is it? This will
help you determine just how much work you need to do to bridge the gap.
Step 5: Match resource capacity with demand
Finally, figure out how to close that gap. This might mean investing in new machinery or
hiring additional staff. Alternatively, you might need to adjust your production processes
or streamline operations. Whatever it takes, make sure you align your resource capacity with
demand to ensure you can keep up with all those hungry customers.

Importance of Capacity Planning

Capacity planning is important due to the following reasons:
1. Capacity limits the rate of output. Therefore, capacity planning determines the ability of
an enterprise to meet future demand for its products and services.
2. Capacity influences the operating costs. Capacity is determined on the basis of estimated
demand. Actual demand is often different from estimated demand. As a result, there arises
excess capacity or under capacity. Excess or idle capacity increases the cost per unit of
output. Whereas under capacity results in the loss of sales.
3. Capacity decisions leave a direct impact on the amount of fixed investment made initially.
4. Capacity decisions result in long-term commitment of funds. Such long-term decisions
cannot be reversed except at major costs.

The following concepts of capacity are involved in capacity planning:

a. Design Capacity: It refers to the maximum output that can possibly be produced in a given
period of time. It is the ideal situation.
b. Effective Capacity: Refers to the maximum possible output, given the changes in product
mix, machine maintenance, scheduling and operating problems, labor problems, etc. It is
usually less than the design capacity.
c. Actual Output: It is the rate of output actually achieved. It cannot exceed effective
capacity due to machine breakdowns, labor absenteeism, irregular supply of raw materials,
unusual delay in supply of equipment, power breakdown, etc.
Tools for capacity planning:
 Waiting line models:
 Simulation
 Decision Trees
 Kanban board
 critical path
 Gantt chart

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 Concept of Facility Location

Facility location may be defined as a place where the facility will be set up for producing
goods or services. The need for location selection may arise under any of the following
conditions:

a. When a business is newly started.

b. When the existing business unit has outgrown its original facilities and expansion is not
possible; hence a new location has to be found.

c. When the volume of business or the extent of market necessitates th establishment of

branches. d. When the lease expires and the landlord does not renew the lease. e. Other
social or economic reasons.

Need for Facility Location Planning

 Facility location planning is also required for providing a cost benefit to the
organisation.
 The location planning should help in reducing the transportation cost for the
organisation. This ultimately helps in decreasing the cost of production and
generating cost advantage for the organisation.
 It is also needed to identify proximity to the sources of raw materials and
transportation facilities.
 A facility should ideally be located at a place where raw materials are available. This
is necessary for maintaining continuity in the production process

Factors affecting the location of an industry

The location of an Industry depends upon many factors. However, the following are the
common factors for deciding the location of industries.

 Availability of land.
 Availability of freshwater.
 Skilled, Semi-skilled and Unskilled labour.
 Availability of raw materials.
 Government Policies.
 Market facility.
 Electricity.
 Transportation facilities etc.

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 However, all the aforesaid factors are not available simultaneously at a place and impact
equally. For this reason, many Geographers and Economists tried to find the impact of these
factors for the optimum location of an industry.

Alfred Weber’s theory of industrial location

Alfred Weber, a German Economist gave the principle of Least transportation cost for
industrial location. He tried to find the least cost location of the manufacturing industry by
taking into account three important factors namely, Transportation cost, Labour cost and
Agglomeration cost. To reduce the complexities of real-world, he took certain assumptions.
Assumptions of Weber’s industrial location theory
 The Geographical area of industry is physically, technologically, culturally and politically
uniform.
 Both the sources of raw materials and consumption centres are known.
 The transportation cost of goods is dependent on weight and distance.
 The workforce or labour are geographically fixed.
 Due to high competition, there is perfect competitive pricing among the industries.

SARGANT’S THEORY OF INDUSTRIAL LOCATION

Sargant Florence has given his theory about industrial location, which has become
popular. He started with the idea that some of Weber’s assumptions are not realistic.
According to him geographical location of an industry is not as important, as the distribution
of occupied population. His main consideration is that occupational distribution of
population should be the main and primary factor for taking into consideration the location
of an industry. His theory is mainly based on inductive analysis and while explaining
location factor of an industry he has taken into consideration location factor and co-efficient
of localisation. Now a question arises as to what is location factor. According to him, it is an
index of the degree of concentration of an industry in a particular region. Now this raises
another problem namely how to arrive at the index, to which Sargant has made a reference.

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 Steps in Selection / Location Decision:
Following steps serve as guidelines for m
o Define the Location Objectives and Associated Constraints: the location objectives
and associated constraints are defined on the basis of the views and requirements of the
promoters, owners, employees, suppliers and customers of the firm.
o Identify the Relevant Decision Criteria: Firms should select a location by
formulating relevant decision criteria.
o Relate the Objectives to the Criteria Using Appropriate Models: Using the models
like break-even analysis, linear programming, and qualitative factor analysis, the relevant
decision criteria should be evaluated.
o Evaluate the Alternative Locations: Firms should collect the possible primary and
secondary data to evaluate different alternative locations. Primary data is the data that is
collected for a specific purpose for the first time. Secondary data is the data that is already
available but might have been collected for some other purpose or by some other institutions.
Publications of Center for Monitoring Indian Economy (CMIE), journals of Federation of
Indian Chambers of Commerce and Industry (FICCI), Central Statistical Organization (CSO)
are some of the secondary data sources.
o Select the Location that Best Satisfies the Criteria: A location, which can meet the
defined objectives, is able to satisfy the criteria and provides benefits to the community
should be selected
LOCATION MODELS:
Location Models/Techniques of Location Selection:
There are seven location analysis techniques, they are.

o Factor-Rating Systems
o Weighted Factor Rating Method/Qualitative Factor Analysis Method
o Location Break-Even Analysis
o Simple Median Model
o Transportation Method of Linear Programming
o Load-Distance Method

LOCATION MODELS:
Location Models/Techniques of Location Selection:
There are seven location analysis techniques, they are.

[Link]-Rating Systems:
Factor-rating systems are among the most commonly used techniques for choosing a
location, because they analyze diverse factors in an easily comprehensible manner. Factor-
rating system simply consist of a weighted list of the factors a company considers the most
important and a range of values for each other. Step for Identifying Appropriate Location
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[Link] Factor Rating Method/Qualitative Factor Analysis Method:
If economic criteria are not sufficiently influential to decide the location alternative, a system
of weighting the criteria might be useful in making a plant location decision. This approach
is referred to as qualitative factor analysis. In this method merge quantitative and qualitative
factors, factors are assigned weights based on relative importance and weightage score for
each site using a preference matrix is calculated.
3. Location Break-Even Analysis:
An economic comparison of locations can be made by identifying the fixed costs and
variable costs and clotting the break even analysis on graph for each location. This graphical
approach can easily identify the range of annual production volume over which a location is
preferable.
4. Simple Median Model:
This model is used for the final selection of the best location option. Transportation cost is a
major consideration is facility location planning. This model helps to locate a new facility
such that the total transportation cost between the new facility and the existing facilities of
the organizations is minimum.
5. Transportation Method of Linear Programming:
The transportation method of linear programming is one of the most effective techniques for
evaluating a facility location. The method attempts at matching the capacity and demand of a
firm and thereby minimizing the total transportation costs of the firm. The location that
incurs minimum total transportation cost will be the right location for setting up of the plant.
6. Load-Distance Method:
The load-distance method is a mathematical model used to evaluate locations based on
proximity factors. The objective is to select a location that minimizes the total weighted
loads moving into and out of the facility. The distance between two points is expressed by
assigning the points to grid coordinates on a map. An alternative approach is to use time
rather than distance.

Calculating a Load-Distance Score:

Suppose that firm planning a new location wants to select a site that minimizes the distances
that loads, particularly the larger ones, must travel to and from the site. Depending on the
industry, a load may be shipments from suppliers, between plants or to customers or it may
be customers or employees traveling to or from the facility. The firm seeks to minimize its
load-distance, generally by choosing a location so that large loads go short distances.
Centre of Gravity:
Centre of gravity is based primarily on cost considerations. This method can be used to assist
managers in balancing cost and service objectives. The centre of gravity method takes into
account the locations of plants and markets, the volume of goods moved and transportation
costs in arriving at the best location for a single intermediate warehouse.

SOURCING AND PROCUREMENT

Introduction:

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Sourcing takes care of everything from finding suppliers, vetting & contracting them and
maintaining a healthy chain of vendors to cater to the organizational needs. Procurement
involves procuring goods and services needed for the organization. Focuses on the who that
makes the supplies possible.
Global sourcing refers to buying the raw materials or components that go into a company's
products from around the world, not just from the headquarters' country. For example,
Starbucks buys its coffee from locations like Colombia and Guatemala
sourcing seeks to find, evaluate and engage suppliers to achieve cost savings and best value
for goods and services”, according to the Chartered Institute of Procurement and Supply.
Sourcing is the stage prior to procurement.
The sourcing process consists of the following steps:
- Define business’ purchasing needs
The first step in the sourcing process involves determining what the business needs to
operate. This includes evaluating how much the business is currently spending, what it is
spending it on against budgets, and identifying any opportunities to make savings.
- Assess the market
This step involves researching cost drivers including raw material, labor, and transportation
costs. It is also the point to assess current market trends, the competitive landscape, who the
key suppliers are, and the risks and opportunities present in the marketplace.
- Identify and review potential suppliers
The next step is to find suitable suppliers capable of meeting any specifications set when the
business’ purchasing needs were defined. Factors considered at this stage include price,
quality, delivery time, capacity, payment terms and CSR credentials. It is worth identifying
more than one viable supplier at this stage so there is a back-up option should the chosen
supplier fail to supply for any reason.
- Supplier selection
Selecting a supplier includes evaluating any RFIs (Request for Information), RFPs (Request
for Proposal) or RFQs (Request for Quote) submitted, short listing the most suitable
suppliers and negotiating with shortlisted suppliers for lower prices, better payment terms
and other benefits. Once the best supplier has been selected, contracts are drawn up,
reviewed and signed by representatives from both organizations.
- Supplier on boarding and relationship management
Once a supplier has been selected, they need to be on boarded. Once a relationship has been
established, it is important to ensure that the selected supplier is continuing to meet the needs
of the organization and analyze their performance based on a set of KPIs. Tracking saving
will identify when and where the supplier is adding value.

TYPES OF SOURCING
[Link]
The most realistic and simple example would be employing a third party outside of
a corporation to carry out tasks or produce things that were previously done within. This can
also be accomplished by moving operations overseas or collaborating with a local supplier. It
is possible to outsource both front and back-office duties.
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2. In- sourcing
In this kind of sourcing, you assign a task to a team or individual within the organization.
When offered, this alternative is preferred by most business executives because it offers a
great cost-saving method and enables on-site evaluation of the essential goods and services
quality.
3. Near-sourcing
This involves placing some of your operations close to where your end-products are sold.
4. Low-cost Country Sourcing (LCCS)
Materials for LCCS are sourced from nations with lower labor and production prices. This
kind of sourcing aims to lower an organization’s overall operational costs. For the majority
of multinational firms, China has emerged as the preferred place for this type of sourcing.
5. Global Sourcing
The world has become one big shopping mall. Crossing geographical boundaries to purchase
products and services from global markets has become simple. This approach has several
advantages and exposes your company to other markets while also giving you insight into
how business is done throughout the world.
Additionally, you have access to a wider variety of resources and talents that might not be
widely accessible in your home nation.
6. Vertical Integration
Involves the joining of businesses in the same industry that are at various stages of
production and/or distribution. Therefore, a company’s acquisition of its input supplier is
referred to as backward integration, whereas its acquisition of businesses in its supply chain
is referred to as forward integration.
7. Few or many Suppliers
For commodity products, a multi-supplier strategy is frequently employed, and purchasing
decisions are frequently made primarily on price. While other suppliers might offer
comparable products, single-source purchasing refers to purchases made from one chosen
supplier. The term “sole-source procurement” describes transactions with just one supplier.
8. Joint Ventures
This is a business established by two or more parties. Shared ownership, returns and risks,
and governance are its defining traits.
9. Virtual Enterprise
This occurs in a network of separate businesses connected by information technology to
share resources, cut expenses, and gain access to one another’s markets.

[Link] Service Operations

Captive Service Operations provide an alternative for businesses looking for greater control
over their equipment sourcing and procurement [Link] sort of supply sourcing gives for
greater control and confidence throughout the entire process because the sourcing and
procurement are being handled by a group firm or subsidiary

What is procurement?
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The procurement process begins when supplier contracts have been signed. “Procurement
and supply management involves buying the goods and services that enable an organisation
to operate in a profitable and ethical manner,” according to the Chartered Institute of
Procurement and Supply.

The procurement process consists of the following steps:

- Review purchase requisition
A purchase requisition is an internal document from an employee asking to make a purchase.
The role of the procurement department is to check that this document contains sufficient
information and a valid business reason for approval.
- Send purchase order
Once the purchase requisition has been approved, a purchase order is created and sent to the
supplier outlining what goods/services are needed and in what quantities and prices,
previously agreed in the sourcing process.
- Expediting
This step involves communicating with the supplier about production schedules, quality, and
compliance to ensure they are on track to meet the agreed delivery deadline.
- Receiving goods
Once an order is received, it is checked to ensure that it meets the quantity and quality
standards specified in the purchase order.
- Process invoice
Upon receiving an invoice from a supplier, three-way matching is carried out to make sure
that purchase orders, order receipts, and invoices display the same quantities and values.
This confirms that everything ordered was received and prevents any overspending.
- Payments
The final step in the procurement process is ensuring the accounts payable team pays
suppliers according to their payment terms.

Types of Procurement
Procurement can be categorized in several ways. It can be classified as direct or indirect
procurement, depending on how the company will use the items being procured. It can also
be categorized as goods or services procurement depending on the items that are being
procured.

Direct procurement refers to obtaining anything that’s required to produce an end-product.

For a manufacturing company, this includes raw materials and components. For a retailer, it
includes any items purchased from a wholesaler for resale to customers.
Indirect procurement typically involves purchases of items that are essential for day-to-day
operations but don’t directly contribute to the company’s bottom line. This can include
anything from office supplies and furniture to advertising campaigns, consulting services and
equipment maintenance.

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Goods procurement largely refers to the procurement of physical items, but it can also
include items like software subscriptions. Effective goods procurement generally relies on
good supply chain management practices. It may include both direct and indirect
procurement.
Services procurement focuses on procuring people-based services. Depending on the
company, this may include hiring individual contractors, contingent labor, law firms or on-
site security services. It may include both direct and indirect procurement.

Strategic sourcing
Strategic sourcing is an approach to supply chain management that formalizes the way
information is gathered and used so an organization can use its consolidated purchasing
power to find the best possible values in the marketplace and align its purchasing strategy to
business goals.

Strategic sourcing process steps

The strategic sourcing process has many variations, but is most commonly broken into seven
steps popularized by consulting firm A.T. Kearney. These include the following:

1. Analyze product categories used by the business, spending patterns, and the processes
and departments involved.
2. Develop a sourcing strategy based on business goals.
3. Analyze the supplier market and create a supplier portfolio.
4. Define request for proposal criteria and templates.
5. Negotiate with and select suppliers.
6. Integrate suppliers into existing processes, onboarding any new vendors or outsourcing
providers.
7. Track performance metrics and optimize the sourcing plan, as needed.

Examples
A strategic sourcing plan can help businesses achieve a number of goals that contribute to
success. Examples include the following:
 managing environmental conditions and logistics by sourcing crops or goods in the
locations they are readily available or have easy access to transportation;
 competitive differentiation from using suppliers with desired brand images and
emphasizing them through marketing -- i.e., the Intel Inside logo;
 meeting compliance or regulatory guidelines by choosing certified components;
 supporting business sustainability by selecting Fair Trade or other sustainably grown
or manufactured goods;
 mitigating geopolitical instability by diversifying locations of suppliers and creating
contingency plans for those in volatile areas; and

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 minimizing risk by engaging secondary and alternative suppliers and closely monitoring
changes in factors such as product availability, quality, shipping, taxes, exchange rate and
regulations.

Strategic sourcing vs. procurement

Procurement refers to the range of activities and procedures necessary for businesses to
acquire products and services. While this technically involves both strategic and
administrative responsibilities, procurement departments often focus on the day-to-day
transactions and processes involved in e-procurement, such as purchase orders, invoicing and
payments.

In contrast, strategic sourcing emphasizes the activities leading up to an actual

purchase, including analyzing business needs and the marketplace at large. While
procurement generally looks for the lowest-priced option, strategic sourcing keeps the big
picture in mind, employing large sets of data to evaluate the value of other factors, such as
optimal vendor relationships and reduced risk to the business.

MAKE-OR-BUY DECISION

Make-or-buy decision analysis analyzes and compares the cost of manufacturing a product
in-house with the cost of it buying from a supplier.
Service-based businesses analyze the cost of providing a service versus outsourcing.
A make-or-buy analysis aims to save costs and handle setbacks from suppliers
Factors Favoring a “Make” Decision
These factors include:
Costs Concerns: When buying from outside sources is expensive, organizations opt for in-
house production.
A Desire to Manufacture: Organizations intending to venture into manufacturing will select
the “buy” decision.
Untrustworthy Suppliers: This is common in manufacturing industries. Here, businesses
have doubts about the reliability of outsourcing partners. These doubts lead to in-house
production.
Quality Control Requirements: When an organization carries out production activities,
they have control over product quality. But when they outsource a part of the production,
they do not control the product quality. Therefore, in-house production is the best option for
the best quality control.
Emotional Motives: This reason becomes overlooked when analyzing make-or-buy
decisions. A company can manufacture a product based on emotional responses such as
pride or contempt instead of logical reasoning.

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Transportation Costs: Sometimes, transportation costs play a key role in the make-or-buy
analysis. Unstable and high transportation costs can lead businesses to in-house production.

Other factors leading to a “make” decision include:

 Concerns about intellectual property

 Concerns about quality
 Inadequate supply of qualified suppliers
 To preserve a backup source
 Environmental considerations
 Political considerations

Factors Favoring a “Buy” Decision

These factors include:
Lack of Skills: Outsourcing is the best choice when a business lacks skills for manufacturing
a product. Suppliers with expertise can offer the product cheaper; therefore, the “buy” option
is best for a business.

Financial Considerations: Businesses outsource when manufacturing a product or

providing a service is expensive.

Lack of Facilities: Outsourcing is better when the business lacks facilities or capacity,
equipment, resources, etc.

Low Demand Quantity: Depending on the product quantity, a company can outsource or
decide to produce. For smaller quantities, businesses can go for a “buy” decision.

They usually outsource a product or service that is not essential to the core business.

Other factors leading to a “buy” decision can include:

 Procurement and inventory considerations.
 Preferences for certain brands.

What is vendor management?

Vendor management is a term that describes the processes organizations use to
manage their suppliers, who are also known as vendors. Vendor management includes
activities such as selecting vendors, negotiating contracts, controlling costs, reducing
vendor-related risks and ensuring service delivery

vendor management process is the set of directives to shortlist, onboard, and engage with
vendors.

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vendors, a company engaging in vendor management will follow some common steps to
ensure the selection of the right vendors. They are:

1. Choosing vendors - The process starts by making a selection of vendors deemed suitable
for the business. Then quotes are sought using e-sourcing tools such as Requests for
Quotation (RFQs) and Requests for Proposals (RFPs). Though price will be a deciding
factor, the company can also gauge a vendor’s potential based on quality, reputation,
capacity to meet requirements and track record.

2. Engage in contract negotiations - This stage involves discussions on the terms and
conditions of the contract between the company and the chosen vendor. Terms can be
related to the type/quantity of the goods and/or services, delivery dates, payment terms, and
legal conditions that cover risks. The contract must be acceptable and mutually beneficial to
both parties.

3. On boarding of vendors - The process of collecting relevant information and associated

documents is important to recognize vendors as approved suppliers for the company. Bank
account information, tax forms, valid industry licenses, are some of the main information
collected to make payments to vendors and for audit purposes.

4. Track and evaluate vendor performance - Companies need to check vendor

performance to see if standards are met, quality of products or services are good, deliveries
happen on time, and service is satisfactory. Deviations can be set right with action plans
discussed with vendors to ensure smoother business transactions.

5. Monitoring and managing risks - Risk management involves assessing and monitoring
vendors for potential risks that can impact the business harshly. Breach of
compliance, vendor fraud, data leaks, lawsuits, loss of intellectual property are all serious
risks that need to be addressed as part of risk monitoring.

6. Timely payments - Making payments on time to vendors can be crucial to ensure good
working relationships. Following contract terms for payment and ensuring invoices get
cleared without delays can build trust and confidence for vendors to maintain continued
services.

When managing vendors, activities can include:

 Vendor sourcing, appraisal and contract negotiation
 Contract creation and agreement
 Reporting and KPI tracking
 Arranging and conducting QBRs
 Setting mutually beneficial business goals
 Compliance monitoring and security testing
 Risk mitigation
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  Recording escalation processes and key contacts
 Resolving disputes.

REFERENCE:
1. Production and operations Management by [Link]
2. Operation Management by [Link]
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UNIT III
DESIGNING OPERATIONS
Product Design - Criteria, Approaches. Product development process - stage-gate approach - tools for
efficient development. Process - design, strategy, types, analysis. Facility Layout – Principles, Types,
Planning tools and techniques.

What is Product Design?

The definition of product design describes the process of imagining, creating, and iterating products that
solve users’ problems or address specific needs in a given market.
The key to successful product design is understanding the end-user customer, the person for whom the
product is being created. Product designers attempt to solve real problems for real people by using empathy
and knowledge of their prospective customers’ habits, behaviors, frustrations, needs, and wants.
Features of a good Product Design
 It should provide utility to the customer and fulfil its promises.
 It should be easily distinguished from its competitors so that consumers don’t get confused with other
products.

Objectives of Product Design

(i) The overall objective is profit generation in the long run
(ii) To achieve the desired product quality.
(iii) To reduce the development time and cost to the minimum.
(iv) To reduce the cost of the product.
(v) To ensure producibility or manufacturability (design for
manufacturing and assembly).

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What are the Essential Requirements/criteria of a Good Product Design?

1. Function
The product must be designed in such a way that it optimally performs the main task or
function for which it is purchased by a buyer. In other words, the product must satisfy the
needs and wants of the consumer.
2. Repairability
The product must be designed in such a way that it can be easily repaired whenever necessary
during a malfunction. The product repairs must be done quickly that too at a low repair cost.
Consumers usually don't buy those costly products, which are either very expensive to repair /
maintain or those who take a longer time and more money for repairing
3. Reliability
Reliability means dependability on a product. Consumers prefer to purchase and use often
those products which perform their main function or task optimally for a longer period
without any annoying malfunctions, breakdowns or failures.
4. Aesthetics
Aesthetics must be kept in mind while designing a product. It refers to, how the product looks,
feels, sounds, tastes or smells. That is, the product must look, feel, sound, taste or smell very
good. It must be attractive, compact and convenient to use. Its packaging must also be made
graphically appealing and colorful. If this aspect is not considered, product will fail in the
market. This factor is very important, especially in case a product is designed for and targeted
to the young generation that is emerging with a modern mindset and current trends.
5. Durability
Durability refers to the life of a product. A durable product performs flawlessly for a longer
period. It is a sign of a good-quality product. Consumers want their products to have a longer
life. They do not want to replace their products repeatedly. This factor is very crucial for
durable and costly products like televisions, refrigerators, cars, so on. Therefore, durability is
another important requirement that must be kept in mind while designing a product.
6. Producibility
The product must be designed in such a way that it can be produced in large quantities with
ease at a minimum production cost. The production department must be able to produce the
product easily, quickly, in ample quantities and at a low production cost. The production
process must not be very complex, and it must not require costly machines to produce the
product
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7. Simplicity
The design of the product must be very simple. The simpler a design, the easier, it is to produce
and use (handle). Simple products are also economical and reliable. The product must have the
least number of operations without affecting its functionality
8. Compact
The product must be small; it must occupy less space, and must have lower weight. In other
words, it must be very compact. The company must try to make its products as small as
possible. Today, everything is turning smaller. Big sized cell phones are now out of fashion.
Factors Influencing Product Design

CUSTOMER'S PERSPECTIVES:
1. The product redesign should be as per the customers' requirements.
2. The product alteration should be customer-oriented.
The customers' perspectives are normally in four different sectors which are as follows:
i)Functions:
The product or the service should be fit for the use by the customer.
The functions of the product or the service can be divided into two types of needs — the 'musts' and
'wants'.
ii)Aesthetics:
The aesthetics is the external look of the product or service constitutes the basic requirement
iii)user friendliness
The user friendliness of the product or service decides its market share or the market leadership.

iv) esteem associated with possession:

All the products or services in the market have two types of value —
1. The use value
2. The products or services must fulfill the basic needs of customers to survive in the market.

2. ORGANIZATIONAL PERSPECTIVE:
The products or services manufactured and marketed by the organization
✓has certain internal factors to be taken into consideration
i) Intrinsic Cost of Material: The main objective of value analysis is
1. to reduce the material cost by the way of elimination of wastages,
2. reduction in the material consumption and
3. elimination or substitution of the non-value adding components in the products or services.

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ii) Intrinsic Cost of Labor: More important aspect that the cost of labor is the quality and the competency
of labor.

iii) Replacement, Exchange, and Disposal: Due to the product design or re-design is an important aspect
of the value analysis,
The cost of replacement, exchange, disposal or removal of personnel, machines or material

WHAT ARE THE VARIOUS ASPECTS OF ISSUES IN PRODUCT DESIGN?

LEGAL ISSUES IN PRODUCT DESIGN:

• The legal issues play a crucial role in the design process. They are as follows:

i) Product Liability:
ii) Intellectual Property: It refers to property of the mind or intellect. IP is legally protected and a designer
must be aware of this.
Protecting IP is essential if research and development is to remain the property of the designer.
It is a means to ensure that the financial gain from the design goes to the creator of the intellectual
property.
ETHICAL ISSUES IN PRODUCT DESIGN:
• That influence designers They include:
i) Assessing the Impact of the Design on Consumer
ii) Protection of intellectual property.
iii) Privacy.
iv) Exposure to the Undesirable.
v) Advertising Of Designs

ENVIRONMENTAL ISSUES IN PRODUCT DESIGN

i) Greenhouse Effect or Global Warning
ii) Ozone Layer
iii) Tropical Deforestation
iv) Waste
v) Water Pollution
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vi) Resource Consumption

What are the Approaches/ Elements of Product design?

1. Research and Development
2. Reverse Engineering
3. Manufacturability
4. Standardization
5. Modular Design
6. Robust Design
7. Concurrent Engineering
8. Computer-aided Design
9. Life-cycle Of a Product

The various elements involved in product design are:

1) Research and Development:
The design of new products is done by the Research and Development (R & D) department of organizations
with the help of many other departments.
In R & D, fundamental research is the advancement of the state of knowledge in a subject,
Though it may to be practically converted into commercial applications.
2)Manufacturability:
Manufacturability implies designing a product in such a way that it’s manufacturing/ assembling can be
done easily.
WHILE DESIGNING A NEW PRODUCT,
the manufacturing capabilities (such as existing machines, equipment, skills of workers, etc.) of the
organization have to be kept in mind.

3)Standardization: Standardization refers to less variety in the design of products, i.e., new products are
designed such that there is no major variation from the existing
4) Modular Design:
One of the significant aspects of the product design is modular design.
Modular design is another type of standardization,
which means designing a product in part or modules.
The modules are sub-assemblies of different components and parts.
5) Robust Design:
Robust design means designing a product that is operational in varying environmental conditions.
6) Concurrent Engineering :
Concurrent engineering is the Product design approach in which the design team includes personnel from:
1. the marketing department (to specify the customer requirements),
2. engineering department ( to look at the feasibility of the design),
3. production department (to suggest if production capability exists for the design),
4. materials department (to give inputs about material availability according to design specifications), and
5. Finance department (to suggest financial feasibility of the design) in addition to the design department.

7) Computer-aided Design:
Computer-aided design (CAD) is a software which helps the designer to make the three dimensional design
of a product on the computer and visualize the design from various angles.
8) Life Cycle of a Product:
The product life cycle has five stages spread throughout the life of a product.
The duration of the life of a product depends upon the type of product.

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 The incubation stage witnesses a low demand of the product owing to the customer not being aware
of the new product.

What is product development?

Product development is the process of building a new product, from ideation all the way through launch.
Product development begins with those initial brainstorming sessions, when you’re just discussing a budding
idea. From there, the process is creative but strategic, and you may have seen it done in a million different
ways. But without clear organization, it can be hard to mesh creativity and strategy effectively. Which is
where the product development process comes in—a six step framework to help you standardize and define
your work.
1. Idea generation (Ideation)
The initial stage of the product development process begins by generating new product ideas. This is the
product innovation stage, where you brainstorm product concepts based on customer needs, concept testing,
and market research.
It’s a good idea to consider the following factors when initiating a new product concept:
 Target market: Your target market is the consumer profile you’re building your product for. These are your
potential customers. This is important to identify in the beginning so you can build your product concept
around your target market from the start.

 Existing products: When you have a new product concept, it’s a good idea to evaluate your existing
product portfolio. Are there existing products that solve a similar problem? Or does a competitor
offer a product that doesn’t allow for market share? And if yes, is your new concept different enough
to be viable? Answering these questions can ensure the success of your new concept.
 Functionality: While you don’t need a detailed report of the product functionality just yet, you
should have a general idea of what functions it will serve. Consider the look and feel of your product
and why someone would be interested in purchasing it.
 SWOT analysis: Analyzing your product strengths, weaknesses, opportunities, and threats early in
the process can help you build the best version of your new concept. This will ensure your product is
different from competitors and solves a market gap.
 SCAMPER method: To refine your idea, use brainstorming methods like SCAMPER, which
involves substituting, combining, adapting, modifying, putting to another use, eliminating, or
rearranging your product concept.
 To validate a product concept, consider documenting ideas in the form of a business case. This will
allow all team members to have a clear understanding of the initial product features and the
objectives of the new product launch.
2. Product definition
Once you’ve completed the business case and discussed your target market and product functionality, it’s
time to define the product. This is also referred to as scoping or concept development, and focuses on
refining the product strategy.
During this stage, it’s important to define specifics including:
Business analysis: A business analysis consists of mapping out distribution strategy, ecommerce strategy,
and a more in-depth competitor analysis. The purpose of this step is to begin building a clearly defined
product roadmap.

 Value proposition: The value proposition is what problem the product is solving. Consider how it
differs from other products in the market. This value can be useful for market research and for
developing your marketing strategy.

 Success metrics: It’s essential to clarify success metrics early so you can evaluate and measure
success once the product is launched. Are there key metrics you want to look out for? These could be
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 basic KPIs like average order value, or something more specific like custom set goals relevant to
your organization.
 Marketing strategy: Once you’ve identified your value proposition and success metrics, begin
brainstorming a marketing strategy that fits your needs. Consider which channels you want to
promote your product on—such as social media or a blog post. While this strategy may need to be
revised depending on the finished product, it’s a good idea to think about this when defining your
product to begin planning ahead of time.

Prototyping
During the prototyping stage, your team will intensively research and document the product by creating a
more detailed business plan and constructing the product.
These early-stage prototypes might be as simple as a drawing or a more complex computer render of the
initial design. These prototypes help you identify areas of risk before you create the product.
 Feasibility analysis: The next step in the process is to evaluate your product strategy based on feasibility.
Determine if the workload and estimated timeline are possible to achieve. If not, adjust your dates
accordingly and request help from additional stakeholders.

 Market risk research: It’s important to analyze any potential risks associated with the production of
your product before it’s physically created. This will prevent the product launch from being derailed
later on. It will also ensure you communicate risks to the team by documenting them in a risk
register.
 Development strategy: Next, you can begin working through your development plan. In other
words, know how you’ll be assigning tasks and the timeline of these tasks. One way you can plan
tasks and estimate timeline is by using the critical path method.
 MVP: The final outcome of the prototyping stage is a minimum viable product. Think of your MVP
as a product that has the features necessary to go to launch with and nothing above what’s necessary
for it to function. For example, an MVP bike would include a frame, wheels, and a seat, but wouldn’t
contain a basket or bell. Creating an MVP can help your team execute the product launch quicker
than building all the desired features, which can drag launch timelines out. Desired features can be
added down the road when bandwidth is available.
4. Initial design
During the initial design phase, project stakeholders work together to produce a mockup of the product
based on the MVP prototype. The design should be created with the target audience in mind and
complement the key functions of your product.
A successful product design may take several iterations to get just right, and may involve communicating
with distributors in order to source necessary materials.
 Source materials: Sourcing materials plays an important role in designing the initial mockup. This may
entail working with various vendors and ordering materials or creating your own. Since materials can come
from various places, you should document material use in a shared space to reference later if needed.
 Connect with stakeholders: It’s important to keep tight communication during the design phase to
verify your initial design is on the right track. Share weekly or daily progress reports to share updates
and get approvals as needed.
 Receive initial feedback: When the design is complete, ask senior management and project
stakeholders for initial feedback. You can then revise the product design as needed until the final
design is ready to be developed and implemented.
5. Validation and testing
To go live with a new product, you first need to validate and test it. This ensures that every part of the
product—from development to marketing—is working effectively before it’s released to the public.
To ensure the quality of your product, complete the following:

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 Concept development and testing: You may have successfully designed your prototype, but you’ll still
need to work through any issues that arise while developing the concept. This could involve software
development or the physical production of the initial prototype. Test functionality by enlisting the help of
team members and beta testers to quality assure the development.

 Front-end testing: During this stage, test the front-end functionality for risks with development code
or consumer-facing errors. This includes checking the ecommerce functionality and ensuring it’s
stable for launch.
 Test marketing: Before you begin producing your final product, test your marketing plan for
functionality and errors. This is also a time to ensure that all campaigns are set up correctly and
ready to launch.
6. Commercialization
Now it’s time to commercialize your concept, which involves launching your product and implementing it
on your website.
By now, you’ve finalized the design and quality tested your development and marketing strategy. You
should feel confident in your final iteration and be ready to produce your final product.
 Product development: This is the physical creation of your product that will be released to your customers.
This may require production or additional development for software concepts. Give your team the final
prototype and MVP iterations to produce the product to the correct specifications.
 Ecommerce implementation: Once the product has been developed and you’re ready to launch,
your development team will transition your ecommerce materials to a live state. This may require
additional testing to ensure your live product is functioning as it was intended during the previous
front-end testing phase.

Explain the Stage gate approach.

The stage gate process from idea to launch

The stage gate model follows an iterative process. Each stage is completed and followed by a checkpoint, or
“gate.” The name and number of these stages can vary depending on the project, but most follow the same
template which we’ll look at now.
Idea
The idea stage is used to brainstorm potential new projects. This involves performing market research to
identify gaps in the market and holding discussions to flesh out ideas. This stage can involve team members,
customers, and stakeholders.
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Scoping
The scoping stage allows teams to deep-dive the most promising ideas from stage one to figure out the
project’s viability. This can involve more market research and is a great opportunity to run a SWOT
analysis.
Business case
Before starting to develop the product, teams should build a strong business case for the project. This stage
will involve creating a detailed product definition and a feasibility study if required.
Development
The development stage should result in a functional, ready-to-launch product. This will be the most
intensive stage in the stage gate model.
Launch
The launch stage involves creating a strong marketing strategy that will increase product awareness and
consumer demand.

PROCESS – PLANNING & DESIGN:

• Process Meaning: A process is any part of an organization that takes inputs and transforms them into
outputs.
• The value the process generates is the difference between what the final product is worth to the customer
and its initial value.
• The objective of the process is to provide the maximum overall value to the customer in the product.

PROCESS PLANNING:
• Production Planning organizes the resources needed to make a product.
• Most products can be made by a number of different processes.
• For e.g: a table can be hand-built by craftsman's, it can be assembled from bought-in parts by semi-skilled
people; it can be made automatically by machines on an assembly line; So, operations manager have to
design a process that will make a product with the features described in the product plans.

AN ORGANIZATIONS PROCESS STRATEGY WOULD INCLUDE:

1) Make-or-Buy Decisions:
The extent to which an organization will produce goods or provide in-house as opposed to relying on an
outside organization to produce or provide them.
2) Capital Intensity: The mix of equipment and labor will be used by the government.
3) Process Flexibility: The degree to which the system can be adjusted to changes in processing
requirements due to such factors as changes in product or service design, changes in volume processed, and
changes in technology.
Process Selection Decision:
There are many ways in which processes can be categorized. They can be categorized on the basis of their
orientation, e.g., market orientation or manufacturing processes; they may also be categorized on the basis of
the production methodology or customer involvement.
Given below are the various categorizations of processes commonly used:
1) Processes by Market Orientation: Processes can also be categorized on the basis of four market
orientations:
i i) Make to Stock (MTS): The goods usually are standard, mature products with few product
customization options. For examples, such products include most retail goods such as breakfast cereals,
milk, shirts, jeans, and office desks.
i ii) Assemble to Order (ATO): 'Assemble to order' products are standard items that are assembled
from in-stock subassemblies. For example, many camera dealers can 'assemble' any configuration of a
single lens reflex camera from a basic body
ii iii) Make to Order (MT0): Make to order products are made from previously engineered designs,
but are made only after an order has been received. 'Me to order' products are used when a standard product
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is too costly to stock, have too uncertain demand, or will deteriorate if stocked on a shelf. Examples of
goods made using the 'Make to order' products market orientations are: commercial airplanes, prescription
glasses, etc.
iii iv) Engineer to Order (ET0): This market orientation is used to make unique products that have not
been previously engineered. Extensive customization to suit the customer's need is possible, but only if the
customer is willing to wait for this addition stage in the value creation process.

Process design / strategy

• Process design is concerned with the overall sequences of operations required to achieve the product
specifications.
• It specifies the type of work stations that are to be used, the machines and equipment necessary and the
quantities in which each is required.
• A Process strategy is an organization approach to transforming resources into goods and services.
• The main objective of strategy is to build such production process that meets customer requirements and
specifications.
• The process strategies guide the process design.
• Process strategies are also termed as process design.

What are the Types of process strategy / designs ?

1. Product- Focused System
2. Process- Focused System
3. Repetitive Focus System.

[Link] Customized Focus

5. Group-Technology / Cellular Manufacturing System

Facility Layout – Principles, Types, Planning tools and techniques.

Facility layout may be defined as the arrangement of machinery, equipment, and other amenities in a
facility, which should ensure a smooth movement of materials.

According to Moore, facility layout is the plan of or the act of planning an optimum arrangement of
facilities, including personnel, operating equipment, storage space, material handling equipment, and all
other supporting services along with the design of the best structure to contain these facilities..

Objectives of a Good Plant Layout

 Only through an efficient layout, the organization can attain the following objectives:

 Economy in handling of materials, work-in-process and finished goods.

 Minimization of product delays.
 Lesser work-in-progress and minimum manufacturing cycle time.
 Efficient utilization of available space.
 Easy supervision and better production control.
 Greater flexibility for changes in product design and for future expansion.
 Better working conditions by eliminating causes of excessive noise, objectionable odor smoke etc.
Principles of Plant Layout:
 Integration
 Minimum distance
 Maximum space utilisation
 Process Flow

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  Maximum flexibility
 Safety, security and satisfaction
 Minimum material handling
 Overall integration of factors
A good layout is one that integrates men, materials, machines and supporting activities and others in a way
that the best compromise is obtained. no layout can satisfy each and every principle of a good layout.
 Minimum Movement
A good layout is one that permits the minimum movement between the operations. The plant and machinery
in case of product layout and departments in case of process layout should be arranged as per sequence of
operations of most of the products.
A straight line is the shortest distance between any two points. men and materials should be made to move
along the straight path.
 Uni-direction flow
A good layout is one that makes the materials move only in the forward direction, towards the completion
stage.
When a straight line flow is not possible, other flows like a U-shaped flow, circular or zig-zag flow may be
adopted but the layout must ensure that materials move in a forward direction.
 Effective use of available space
A good layout is one that makes effective use of available space both horizontal and vertical
Backtracking and duplicated movements consume more time, involve unnecessary materials handling, add
to costs and lead to inefficiency..
 Maximum Visibility
A good layout is one that makes men, machines and materials ready and observable at all times
All departments should be integrated, convenient to service and easy to supervise
Enclosures, cupboards, offices, partitions should be avoided except when their utility is established beyond
doubt.
 Maximum Accessibility
A good layout is one that makes all servicing and maintenance points readily accessible
Machines should be kept sufficiently apart and with reasonable clearance from the wall so that lubrication,
adjustment, replacement of belts, removal of parts at times of repair can be done conveniently by the
maintenance staff
The area of electrical panels and fire extinguishers should be kept free from obstructions.

Types of Facility Layouts

 Process Layout
 Product Layout
 Fixed Position Layout
 Cellular Manufacturing Layout
 Combination or Hybrid Layout

Process layout: Process layout, also called functional layout or batch productionlayout, is characterised by
the grouping together of similar machines, based upon their operational characteristics.
Product layout: In product layout, also called straight line layout, machinery isarranged in one line as per
the sequence of production operations. Materials are fed into the first machine and finished products come
out of the last machine.
Fixed position layout: This type of facility layout is used to assemble products that are too large, heavy or
fragile to move to a location for completion. In the fixed position layout, machinery, men, as well as other
pieces of material, are brought to the location where the product is to be assembled.
Cellular manufacturing layout: In Cellular Manufacturing (CM) layout, machines are grouped into cells,
which function somewhat like a product layout in a larger shop or a process layout. Each cell in the CM
layout is formed to produce a single part family, that is, a few parts with common characteristics.
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 Combination or hybrid layout: It is difficult to use the principles of product layout, process layout, or
fixed location layout in facilities that involve fabrication of parts and assembly. Fabrication tends to employ
the process layout, while assembly areas often employ the product layout.

Factors influencing Facility Layout:

1. Management/Managerial Policy and Decisions
2. Nature of plant location
3. Type of machinery used
4. Nature of product to be manufactured or produced
5. Method of production
6. Minimum movement
7. The arrangement of materials handling equipment.
8. Continuance
9. Availability of total floor area
10. Type of industry

The common techniques for Plant Layout

1. Process Flow Chart: It is a graphic summary of all the activities to take place on the production floor of
the plant. The study of this chart can reveal the operations that can be eliminated, rearranged or simplified to
achieve economy in production. The inflexibility of layout can also be ascertained from this chart.
2. Process flow diagram : It is both a supplement and substitute of flow chart. It exhibits long material
hauls and back tracking of existing layouts indicating how the layout can be improved.

3. Machine data cards : This is an effective method to provide necessary information for placement or
layout of the equipment. These cads are prepared for each machine showing its capacity, space and power
requirements, handling needs and the corresponding dimensions.

4. Two or three dimensional replicas or Templates : The most common method of planning a layout is to
make replicas of machines, racks, benches and the equipment and then arranging these on the two or three
dimensional plan of the floor space.
UNIT-III (COMPLETED)

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