Introduction to P.O.M.

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Information about Introduction to P.O.M.

Published on March 9, 2009

Author: meetpal


PRODUCTION & OPERATIONS MANAGEMENT BY MeeTpaL: PRODUCTION & OPERATIONS MANAGEMENT BY MeeTpaL Lesson 1: Lesson 1 Production and Operations Management (POM): An Introduction Overview: Overview Introduction of Production/Operations (P/O) systems Some Historical Perspectives of P/O Management Basic components of P/O systems Manufacturing versus Service systems Major issues in P/O Management Current Trends Definitions of P/O systems: Definitions of P/O systems Production is the creation of goods and services. Production/operation system is any system which transforms input into output and in the mean time creates value Introduction of P/O systems: Introduction of P/O systems In some organizations the product is a physical good (refrigerators, bread, etc.) and the activities creating such tangible product is usually referred to as Production. In others the product is a service (insurance, health care for elderly, etc.). The production that takes place to produce a service is called Operations. Operations Management: Operations Management The management of systems or processes that create goods and/or provide services Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Feedback Feedback Value added PowerPoint Presentation: Hospital Process Inputs Processing Outputs Doctors, nurses Examination Healthy patients Hospital Surgery Medical Supplies Monitoring Equipment Medication Laboratories Therapy Twin objectives of operations management: Twin objectives of operations management 1. The customer service objective. To provide agreed/adequate levels of customer service (and hence customer satisfaction) by providing goods or services with the right specification, at the right cost and at the right time. 2. The resource utilization objective. To achieve adequate levels of resource utilization (or productivity) e.g., to achieve agreed levels of utilization of material,machines and labor . introduction to production and operations management: introduction to production and operations management Definition Production and Operations Management ("POM") is about the transformation of production and operational inputs into "outputs" that, when distributed, meet the needs of customers. PowerPoint Presentation: The process in the above diagram is often referred to as the "Conversion Process". There are several different methods of handling the conversion or production process – 1. Job, 2.Batch, 3.Flow and Group. SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT: SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT Following are the activities which are listed under production and operations management functions: Historical Perspectives of POM : Historical Perspectives of POM The Industrial Revolution Scientific Management Human Relations and Behaviorism Operations Research Influence of Japanese Approach The Industrial Revolution (18th century): The Industrial Revolution (18th century) The industrial revolution developed in England in the 1700s. The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories. Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor . Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers. The Industrial Revolution (18th century): The Industrial Revolution (18th century) The industrial revolution spread from England to other European countries and to the United Sates. In 1790 an American, Eli Whitney, developed the concept of interchangeable parts . In the 1800s the development of the gasoline engine and electricity further advanced the revolution. By the mid-1800s, the old cottage system of production had been replaced by the factory system . Scientific Management (1900s): Scientific Management (1900s) Frederick Taylor is known as the father of scientific management . His shop system employed these steps: Each worker’s skill, strength, and learning ability were determined. Stopwatch studies were conducted to precisely set standard output per worker on each task. Material specifications, work methods, and routing sequences were used to organize the shop. Supervisors were carefully selected and trained. Incentive pay systems were initiated. Scientific Management: Scientific Management In the 1920s, Ford Motor Company’s operation embodied the key elements of scientific management: standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts Human Relations and Behavioralism: Human Relations and Behavioralism In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production. Researchers and managers alike were recognizing that psychological and sociological factors affected production. From the work of behavioralists came a gradual change in the way managers thought about and treated workers. Operations Research (Management Science): Operations Research (Management Science) During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had to be deployed. Military operations research (OR) teams were formed to deal with the complexity of the deployment. After the war, operations researchers found their way back to universities, industry, government, and consulting firms. OR helps operations managers make decisions when problems are complex and wrong decisions are costly. Influence of Japanese Approach: Influence of Japanese Approach Total Quality Management Just In Time Management. Strong employees involvement Today's Factors Affecting POM: Today's Factors Affecting POM Global Competition Quality, Customer Service, and Cost Challenges Computers and Advanced Production Technology Growth of the Service Sector Scarcity of Production Resources Issues of Social Responsibility Production as a System: Production as a System Basic components of Production/ Operation Systems: Basic components of Production/ Operation Systems Inputs: All physical and nonphysical resources coming into the system External Legal, Economic, Social, Technological Market Competition, Customer Desires, Product Info. Primary Resources Materials, Personnel, Capital, Utilities Basic components of Production/ Operation Systems: Basic components of Production/ Operation Systems Outputs can be classified as: Direct Goods Services Indirect Waste Pollution Technological Advances Basic components of Production/ Operation Systems: Basic components of Production/ Operation Systems A pure good is a tangible product that can be stored, transported, and purchased for later use A pure service is an intangible product which cannot be stored since it is consumed as it is produced. Basic components of Production/ Operation Systems: Basic components of Production/ Operation Systems Transformation/Conversion subsystem: which converts inputs into goods or services. It consists of Concepts Procedures Non-equipment technologies Rules, Guideline, Steps, etc. PowerPoint Presentation: POM incorporates many tasks that are interdependent, but which can be grouped under five main headings: PRODUCT, PLANT, PROCESSES, PROGRAMMES, PEOPLE . [5 P’s] PRODUCT Marketers in a business must ensure that a business sells products that meet customer needs and wants. The role of Production and Operations is to ensure that the business actually makes the required products in accordance with the plan. The role of PRODUCT in POM therefore concerns areas such as: - Performance - Aesthetics - Quality - Reliability - Quantity - Production costs - Delivery dates PowerPoint Presentation: 2. PLANT To make PRODUCT, PLANT of some kind is needed. This will comprise the bulk of the fixed assets of the business. In determining which PLANT to use, management must consider areas such as: - Future demand (volume, timing) - Design and layout of factory, equipment, offices - Productivity and reliability of equipment - Need for (and costs of) maintenance - Heath and safety (particularly the operation of equipment) - Environmental issues (e.g. creation of waste products) PowerPoint Presentation: 3. PROCESSES There are many different ways of producing a product. Management must choose the best process, or series of processes. They will consider: - Available capacity - Available skills - Type of production - Layout of plant and equipment - Safety - Production costs - Maintenance requirements PowerPoint Presentation: 4. PROGRAMMES The production PROGRAMME concerns the dates and times of the products that are to be produced and supplied to customers. The decisions made about programme will be influenced by factors such as: - Purchasing patterns (e.g. lead time) - Cash flow - Need for / availability of storage - Transportation PowerPoint Presentation: 5. PEOPLE Production depends on PEOPLE, whose skills, experience and motivation vary. Key people-related decisions will consider the following areas: - Wages and salaries - Safety and training - Work conditions - Leadership and motivation - Unionization - Communication Trends in OPR MGT.: Trends in OPR MGT. Major trends The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Agility Other Important Trends: Other Important Trends Ethical behavior Operations strategy Working with fewer resources Cost control and productivity Quality and process improvement Increased regulation and product liability Lean production Entry-Level Jobs/ Career options in POM: Entry-Level Jobs/ Career options in POM Purchasing planner/buyer Production (or operations) supervisor Production (or operations) scheduler/controller Production (or operations) analyst Inventory analyst Quality specialist INTERFACING WITH OTHER SYSTEMS: INTERFACING WITH OTHER SYSTEMS BASIC FUNCTIONAL GROUPS: MARKETING GENERATES DEMAND FINANCE GENERATES THE CAPITAL PRODUCTION GENERATES THE SUPPLY OF OUTPUTS. PowerPoint Presentation: Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops. Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation MARKETING AND POM: MARKETING AND POM MARKETING SYSTEM DISCOVERS AND TRANSMITS THE NEED OF CONSUMERS TO THE TOTAL ORGANISATION INCLUDING THE POM SYSTEM WHICH SUPPLIES THESE NEEDS. TRANSLATES THE DEMAND FOR FUTURE INTO UNITS OF PRODUCTION & DESIRED DELIVERY SCHEDULES. PowerPoint Presentation: Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops. Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation POM-MARKETING INTERFACE: POM-MARKETING INTERFACE MARKETING FURNISHES DATA ON: SIZE OF MARKET VOLUME OF PRODUCTION NEEDED TO MEET ANTICIPATED MARKET NEEDS DESIRED INVENTORIES ANTICIPATED CHANGES IN PRODUCTION OF OTHER PRODUCTS ANTICIPATED DELIVERY SCHEDULES: AMOUNT,LOCATION,TIMING PACKAGING NEEDS CONFLICTS BETWEEN MARKETING AND POM: UNREASONABLE COMMITMENT TO CUSTOMERS REGARDING CUSTOMISATION DELIVERY SCHEDULE ORDER QUANTITY CONFLICTS BETWEEN MARKETING AND POM POM- FINANCE & ACCOUNTING INTERFACE: POM- FINANCE & ACCOUNTING INTERFACE F&A FUNCTION RESPONSIBLE FOR ALL CASH FLOWS BETWEEN THE ORGANISATION AND EXTERNAL ENVIRONMENT. INTERFACES FROM THE INCEPTION OF THE IDEA OF PRODUCT THROUGH ITS DEVELOPMENT STAGES TILL IT IS SOLD PowerPoint Presentation: Money CASH FLOW Stock Product Process Man-Job/ Materials / Equipments Labour Materials Depreciation charge Depreciation Reserve Physuical Plant Working Capital Surplus & Reserves Profits Taxes Money accounts Production/Product Money, time, and the POM system Sales: product becomes money POM-F&A INTERFACING: POM-F&A INTERFACING IMPORTANT AREAS ACCUMULATION OF OPERATING DATA TO FORM A STARTING POINT FOR STANDARDS ACCUMULATION OF COST DATA OF A JOB, A TIME PERIOD OR A PROCESS ASSIGNMENT OF GENERAL COSTS TO PROFIT CENTRES POM-F&A INTERFACING: POM-F&A INTERFACING DETERMINATION OF PROFIT/LOSS OF PROFIT CENTRES DETERMINATION OF VALUE OF WORK-IN-PROCESS (W-I-P) DETERMINATION OF FINANCIAL VALUE OF RAW MATERIAL & FINISHED GOODS INVENTORIES PROVIDING STATUS OF JOBS OR W-I-P PowerPoint Presentation: Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops. Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation POM- INFORMATION SYSTEM: POM- INFORMATION SYSTEM INFORMATION FUNCTION INCORPORATES POLICY INFORMATION FLOW FROM MANAGEMENT AND FEEDBACK INFORMATION TO MANAGEMENT ACCOMODATES INFORMATION FROM EXTERNAL AS WELL AS INTERNAL SYSTEMS WITHIN THE ORGANISATION PowerPoint Presentation: Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops. Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation POM-INFORMATION INTERFACING: POM-INFORMATION INTERFACING INFORMATION FUNCTION INTERFACES IN RESPECT OF INVENTORY CONTROL COST CONTROL REPORTING STATUS ON ORDERS PRODUCTION SCHEDULES FORECASTING & SCHEDULING MATERIAL REQUIREMENT CONTROL OF W-I-P POM-INFORMATION INTERFACING: POM-INFORMATION INTERFACING QUALITY CONTROL PREVENTIVE MAINTENANCE PLANNING MAKE OR BUY DECISION LABOUR EFFICIENCY RECORDS POM INTERFACING WITH OTHER FUNCTIONS: POM INTERFACING WITH OTHER FUNCTIONS R&D AND ENGINEERING TO EFFECT PRODUCT DEVELOPMENT, PRODUCTION PLANNING & CONTROL AND QUALITY CONTROL PURCHASING PURCHASES, INVENTORY CONTROL, RECEIVING AND WAREHOUSING PERSONNEL MANPOWER PLANNING, WAGES AND SALARIES, LABOUR RELATIONS, EMPLOYEE SERVICES AND PERSONNEL RECORDS PowerPoint Presentation: Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops. Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation AUTOMATION: AUTOMATION It means use of machine s& equipments for performing physical & mental operations in a production process in place of human beings. It can be visualized as electronic brain with capability of taking routine decisions like routing, scheduling & logical decisions like to make corrective actions. It can be done at following levels of system- Over the raw materials & WIP Over the machines & tools. Over the finished goods. PowerPoint Presentation: Advantages of automation Better quality Reduction in direct labor cost More accuracy Minimization of waste Saving of time, more speed & output & list goes on……. Disadvantages of automation High capital investment Can create un-employment High maintenance cost Continuous power supply Any break down leads to shutdown. MANUFACTURING PROCESS: MANUFACTURING PROCESS The combination of all activities & operations to produce some goods & services is called manufacturing process. It is basically of 2 types- Intermittent continuous Intermittent : Intermittent Here goods are manufactured specially to fulfill orders made by customers rather than for stock. e.g. HOSPITALS features- Items are made according to customer’s order. Production facilities are flexible enough to handle wide variety of products & sizes. Flow of materials is Intermittent. Products are produced in small quantities. Workload is generally unbalanced. In-process inventory is large. Requires Large capital investment. Demand can be discontinuous. Storage is necessary at each stage of production. Types of Intermittent system: Types of Intermittent system Job production Batch production Job production-it is the production of single complete unit by one operator or group of operators. e.g. bridge building Features- Whole project is taken as single operation Work is to be completed on each operation before passing to next item. Versatile & skilled labor is needed. High capital investment High capital investment. Types of Intermittent system cont.: Types of Intermittent system cont. Batch production- It is the extension of job production. Here product is divided into parts/operations & each operation is to be completed throughout the whole batch before the nest operation is undertaken. In other words, after the production of one batch, the plants & machines become available to other batch .e.g. chemical industry where different medicines are manufactured in batches. or electronic instruments CONTINOUS SYSTEM: CONTINOUS SYSTEM Here items are produced for stocks & not for specific orders. E.g. sugar Features- Items are produced for stocks Flow of materials is continuous Production facilities are inflexible Items are produced in large quantities Workload is generally balanced In-process inventory is less Require less capital investment Demand is continuous Storage is not necessary at each stage Product must be standardized. Types of continuous system: Types of continuous system Mass Process Mass- Standardization is fundamental feature of system Items are produced in large quantity Continuous flow of material System can produce only one type of product at one time. e.g. GNA-AUTO PARTS. Types of continuous system cont.: Types of continuous system cont. Process- It is similar to mass production system with more stress on automation in production process. Volume of production is very high It is used for manufacturing those items whose demand is continuous & high. E.g. petroleum products Here single raw material can be transformed into different kinds of products at different stages of production process. E.g. in processing of crude oil in refinery one gets kerosene, gasoline at different stages. Classification of Production System: Classification of Production System Production systems can be classified as Job Shop, Batch, Mass and Continuous Production systems. Process analysis: Process analysis A "business process," can be defined as "a chain of logical connected, repetitive activities that utilizes the organization's resources to refine an object for the purpose of achieving specified and measurable results or products for internal or external customers." Process analysis is an approach that helps managers improve the performance of their business activities. It can be a milestone in continuous improvement. PowerPoint Presentation: Process analysis generally involves the following tasks: Define the process boundaries that mark the entry points of the process inputs and the exit points of the process outputs. Construct a process flow diagram that illustrates the various process activities and their interrelationships. Determine the capacity of each step in the process. Calculate other measures of interest. Identify the bottleneck, that is, the step having the lowest capacity. Evaluate further limitations in order to quantify the impact of the bottleneck. Use the analysis to make operating decisions and to improve the process. PowerPoint Presentation: Process Flow Diagram The process boundaries are defined by the entry and exit points of inputs and outputs of the process. Once the boundaries are defined, the process flow diagram (or process flowchart ) is a valuable tool for understanding the process using graphic elements to represent tasks, flows, and storage. The following is a flow diagram for a simple process having three sequential activities: Process Flow Diagram The symbols in a process flow diagram are defined as follows: Rectangles: represent tasks Arrows: represent flows. Flows include the flow of material and the flow of information. Inverted triangles: represent storage (inventory). RAW ,WIP,FINISHED Circles: represent storage of information Process Performance Measures : Process Performance Measures Operations managers are interested in process aspects such as cost, quality, flexibility, and speed. Some of the process performance measures that communicate these aspects include: Process capacity - The capacity of the process is its maximum output rate, measured in units produced per unit of time. Capacity utilization - the percentage of the process capacity that actually is being used. Throughput rate (also known as flow rate ) - the average rate at which units flow past a specific point in the process. The maximum throughput rate is the process capacity. PowerPoint Presentation: 4. Flow time (also known as throughput time or lead time ) - the average time that a unit requires to flow through the process from the entry point to the exit point. 5. Cycle time - the time between successive units as they are output from the process. Cycle time for the process is equal to the inverse of the throughput rate. Cycle time can be thought of as the time required for a task to repeat itself. 6. Process time - the average time that a unit is worked on. Process time is flow time less idle time. 7. Idle time - time when no activity is being performed. 8. Work In process - the amount of inventory in the process. 9. Set-up time - the time required to prepare the equipment to perform an activity on a batch of units . 10. Direct labor content - the amount of labor (in units of time) actually contained in the product. 11. Direct labor utilization - the fraction of labor capacity that actually is utilized as direct labor. Little's Law : Little's Law The inventory in the process is related to the throughput rate and throughput time by the following equation: W.I.P. Inventory  =  Throughput Rate  x  Flow Time This relation is known as Little's Law . Since the throughput rate is equal to 1 / cycle time, Little's Law can be written as: Flow Time  =  W.I.P. Inventory  x  Cycle Time The Process Bottleneck : The Process Bottleneck The process capacity is determined by the slowest series task in the process; that is, having the slowest throughput rate or longest cycle time. This slowest task is known as the bottleneck . Identification of the bottleneck is a critical aspect of process analysis since it not only determines the process capacity, but also provides the opportunity to increase that capacity. Starvation and Blocking Starvation occurs when a downstream activity is idle with no inputs to process because of upstream delays. Blocking occurs when an activity becomes idle because the next downstream activity is not ready to take it. Both starvation and blocking can be reduced by adding buffers that hold inventory between activities. Process Improvement : Process Improvement Improvements in cost, quality, flexibility, and speed are commonly sought. The following lists some of the ways that processes can be improved : Reduce work-in-process inventory - reduces lead time. Add additional resources to increase capacity of the bottleneck. For example, an additional machine can be added in parallel to increase the capacity. Improve the efficiency of the bottleneck activity - increases process capacity. Move work away from bottleneck resources where possible - increases process capacity. Increase availability of bottleneck resources, for example, by adding an additional shift - increases process capacity. PowerPoint Presentation: 6. Minimize non-value adding activities - decreases cost, reduces lead time. Non-value adding activities include transport, rework, waiting, testing and inspecting, and support activities. 7. Redesign the product for better manufacturability - can improve several or all process performance measures. 8. Flexibility can be improved by outsourcing certain activities. Flexibility also can be enhanced by postponement, which shifts customizing activities to the end of the process. In some cases, dramatic improvements can be made at minimal cost when the bottleneck activity is severely limiting the process capacity. A cost-benefit analysis should be performed to determine if a process change is worth the investment. Ultimately, net present value will determine whether a process "improvement" really is an improvement. New Product Development Process: New Product Development Process Idea Generation Concept Development and Testing Marketing Strategy Development Idea Screening Business Analysis Product Development Market Testing Commercialization New Product Development Process Step 1. Idea Generation: Customers Competitors Distributors Suppliers Idea Generation is the Systematic Search for New Product Ideas Obtained Internally From Employees and Also From: New Product Development Process Step 1. Idea Generation New Product Development Process Step 2. Idea Screening: New Product Development Process Step 2. Idea Screening Process to spot good ideas and drop poor ones as soon as possible. Many companies have systems for rating and screening ideas which estimate: Market Size Product Price Development Time & Costs Unit Costs Rate of Return Then, the idea is evaluated against a set of general company criteria. New Product Development Process Step 3. Concept Development : 1. Develop New Product Ideas into Alternative Detailed Product Concepts 2. Concept Testing - Test the New Product Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers New Product Development Process Step 3. Concept Development New Product Development Process Step 4. Marketing Strategy: Part Three Describes Long-Term: Sales & Profit Goals Marketing Mix Strategy Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share New Product Development Process Step 4. Marketing Strategy Step 5. Business Analysis Step 6. Product Development: If No, Eliminate Product Concept Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives Step 5. Business Analysis Step 6. Product Development If Yes, Move to Product Development Product Development Process Step 7. Test Marketing: Advertising Atmosphere Product Budget Levels Positioning Location Pricing Branding Elements that May be Test Marketed by a Company Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings. Product Development Process Step 7. Test Marketing New Product Development Process Step 8. Commercialization: When is the Right Time to Introduce Product? Where to Launch a New Product? Commercialization is the Introduction of the New Product into the Marketplace. New Product Development Process Step 8. Commercialization Product Development through Acquisition: Product Development through Acquisition Large companies will sometimes buy a small companies rather than develop their own new companies. Sometimes, companies purchase distressed chains to turn them around. For example, PepsiCo purchased KFC and Taco Bell. Plant location: Plant location Meaning-the establishment of an industry at a particular place. It is of 2 types- Localization /centralization-means concentration of similar type of industries at some particular place. E.g. textile in Mumbai. Delocalization /Decentralization-means spreading of similar type of industries at different places. E.g. banking industries. Factors affecting location & site decisions : Factors affecting location & site decisions Availability of raw material Nearness to the potential market Near to the source of operating requirements like electricity, disposal of waste, drainage facilities. Supply of labor Transport & communication facilities Integration with other group of companies Suitability of land & climate Availability of housing, other amenities & services Local building & planning regulations Safety requirements Others like low interest on loans, special grants, living standards selection of the site for the factory : selection of the site for the factory Known as location analysis where firstly some geographical area is selected & from that area a particular site is selected for the establishment of the plant. Methods for the evaluation of plant location- Involving quantitative factors- Comparative cost chart, b. dimensional analysis. 2. Comparison of qualitative factors. Comparative cost chart: Comparative cost chart Is appropriate where the location problem concerns the placement of a single plant. This is based on location cost summary chart. A comparative chart of total costs involved in setting up a plant of desired size is prepared. PowerPoint Presentation: The total cost is represented by the height of column for each location. we select a location for which total cost is minimum. The cost summary chart has advantage of clarity in presentation. but analysis is restricted to certain specified factors only. Least cost centre analysis- Here transportation cost associated with various location alternatives is considered. Limitation of these techniques- 1.Choice of plant location assumed to be entirely dependent upon minimization of operational costs. 2.Operational costs are assumed to be linearly related to distance involved. Dimensional analysis: Dimensional analysis It involves calculation of the relative merits or cost ratios for each of the factors, giving each of the cost factor an appropriate weightage by means of an index to which the cost ratio is raised & multiplying these weighted ratios in order to arrive at a figure on the relative merits of alternative sites. PowerPoint Presentation: Let Cm1,Cm2,Cm3,…..Cmz are the costs associated with site M for various cost factors. Cn1,Cn2,Cn3,…….Cnz are of site N.W1,W2,W3,…….Wz are weightage for various factors. Merit of location M=(Cm1)W1*(Cm2)W2*…(Cmz)Wz Merit of location N=(Cn1)W1*(Cn2)W2*…(Cnz)Wz Relative merits of sites M & N are- merit of M merit of N If this value is > 1, then select site M & vice-versa. Advantages- it compares both subjective & objective factors & gives a quantitative figure. Comparison of qualitative factors. : Comparison of qualitative factors. These are the factors to which cost values can’t be assigned. Like lack of good schools, community attitude. These can be termed as good or excellent. Clearly location B appears to be better one. factors Location A Location B labor adequate excellent relation good Very good education Good Very good Ranking & weight method: Ranking & weight method Various locations are ranked acc. To their contribution Various factors are assigned weights acc. To their importance Weights are then multiplied with rank assigned Total of these products for each location is calculated Location having max. total is then selected. PowerPoint Presentation: Advantages &disadvantages of urban, rural & sub-urban sites for a plant- urban rural Sub-urban Better transportation More water Planned industrial Large labor supply Cheaper land Larger area Big local market Lower taxes Easy finance Few ordinances Municipal services Better civil attitude Labor stability

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