PM-Solved Paper 2006

8/9/2019 PM-Solved Paper 2006

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Q.2 what is production & production management? How production takesplace? What are various manufacturing systems? Explain in detail.

What is production?

Production is converting raw materials to finished products.

Production means the development and creation of goods and services usingresources to stimulate exchange. It is the physical output of a manufacturing orservice company.

Production involves three processes raw materials, work in process andfinished goods.

Means of production refer to the concept which combines the means of labor andthe subject of labor. Means of labor simply means all the things which requires laborto transform it. Subject of labor means the material to work on. Production,therefore, is the combined resources and equipment needed to come up with goodsor services.

Production managementProduction/operations management is the process, which combines and transformsvarious resources used in the production/operations subsystem of the organizationinto value added product/services in a controlled manner as per the policies of theorganization. Therefore, it is that part of an organization, which is concerned withthe transformation of a range of inputs into the required (products/services) havingthe requisite quality level.

The set of interrelated management activities, which are involved in manufacturingcertain products, is called as production management. If the same concept isextended to services management, then the corresponding set of managementactivities is called as operations management.

CONCEPT OF PRODUCTIONProduction function is that part of an organization, which is concerned with thetransformation of a range of inputs into the required outputs (products) having therequisite quality level. Production is defined as the step-by-step conversion of oneform of material into another form through chemical or mechanical process tocreate or enhance the utility of the product to the user. Thus production is a valueaddition process. At each stage of processing, there will be value addition. EdwoodBuffa defines production as a process by which goods and services are created.Some examples of production are: manufacturing custom-made products like,boilers with a specific capacity, constructing flats, some structural fabrication worksfor selected customers, etc., and manufacturing standardized products like, car,bus, motor cycle, radio, television, etc.
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5. Detailed planning is essential for sequencing the requirements of each product,capacitiesfor each work centre and order priorities.AdvantagesFollowing are the advantages of job shop production:1. Because of general purpose machines and facilities variety of products can be

produced.2. Operators will become more skilled and competent, as each job gives themlearningopportunities.3. Full potential of operators can be utilised.4. Opportunity exists for creative methods and innovative ideas.LimitationsFollowing are the limitations of job shop production:1. Higher cost due to frequent set up changes.2. Higher level of inventory at all levels and hence higher inventory cost.3. Production planning is complicated.4. Larger space requirements.

2. BATCH PRODUCTIONBatch production is defined by American Production and Inventory Control Society(APICS) as a form of manufacturing in which the job passes through the functionaldepartments in lots or batches and each lot may have a different routing. It ischaracterised by the manufacture of limited number of products produced atregular intervals and stocked awaiting sales.CharacteristicsBatch production system is used under the following circumstances:1. When there is shorter production runs.2. When plant and machinery are flexible.3. When plant and machinery set up is used for the production of item in a batch

andchange of set up is required for processing the next batch.4. When manufacturing lead time and cost are lower as compared to job orderproduction.AdvantagesFollowing are the advantages of batch production:1. Better utilisation of plant and machinery.2. Promotes functional specialisation.3. Cost per unit is lower as compared to job order production.4. Lower investment in plant and machinery.5. Flexibility to accommodate and process number of products.6. Job satisfaction exists for operators.LimitationsFollowing are the limitations of batch production:1. Material handling is complex because of irregular and longer flows.2. Production planning and control is complex.3. Work in process inventory is higher compared to continuous production.4. Higher set up costs due to frequent changes in set up.

3. MASS PRODUCTION


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Manufacture of discrete parts or assemblies using a continuous process are calledmass production. This production system is justified by very large volume ofproduction. The machines are arranged in a line or product layout. Product andprocess standardisation exists and all outputs follow the same path.CharacteristicsMass production is used under the following circumstances:

1. Standardisation of product and process sequence.2. Dedicated special purpose machines having higher production capacities andoutput rates.3. Large volume of products.4. Shorter cycle time of production.5. Lower in process inventory.6. Perfectly balanced production lines.7. Flow of materials, components and parts is continuous and without any backtracking.8. Production planning and control is easy.9. Material handling can be completely automatic.Advantages

Following are the advantages of mass production:1. Higher rate of production with reduced cycle time.2. Higher capacity utilisation due to line balancing.3. Less skilled operators are required.4. Low process inventory.5. Manufacturing cost per unit is low.LimitationsFollowing are the limitations of mass production:1. Breakdown of one machine will stop an entire production line.2. Line layout needs major change with the changes in the product design.3. High investment in production facilities.4. The cycle time is determined by the slowest operation.

4. CONTINUOUS PRODUCTIONProduction facilities are arranged as per the sequence of production operations fromthe first operations to the finished product. The items are made to flow through thesequence of operations through material handling devices such as conveyors,transfer devices, etc.CharacteristicsContinuous production is used under the following circumstances:1. Dedicated plant and equipment with zero flexibility.2. Material handling is fully automated.3. Process follows a predetermined sequence of operations.4. Component materials cannot be readily identified with final product.5. Planning and scheduling is a routine action.AdvantagesFollowing are the advantages of continuous production:1. Standardisation of product and process sequence.2. Higher rate of production with reduced cycle time.3. Higher capacity utilisation due to line balancing.4. Manpower is not required for material handling as it is completely automatic.5. Person with limited skills can be used on the production line.


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6. Unit cost is lower due to high volume of production.LimitationsFollowing are the limitations of continuous production:1. Flexibility to accommodate and process number of products does not exist.2. Very high investment for setting flow lines.3. Product differentiation is limited.

Q 3. What is Economic Order Quantity & Economic Production quantity?Describe them in detail.

EOQ Assumptions Known and constant demand Known and constant lead time Instantaneous receipt of material No quantity discounts Only order (setup) cost and holding cost No stockouts

Inventory Usage Over Time

EOQ ModelHow Much to Order?


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EOQ ModelWhen To Order

EOQ Model Equations

Production Order Quantity Model


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includes regulation of the quality of raw materials, assemblies, products andcomponents; services related to production; and management, production andinspection processes.It is important to realize also that quality is determined by the intended users,clients or customers, not by society in general: it is not the same as 'expensive' or'high quality'. Even goods with low prices can be considered quality items if they

meet a market need. QA is more than just testing the quality of aspects of aproduct, service or facility, it analyzes the quality to make sure it conforms tospecific requirements and comply with established plans.

InspectionAn inspection is, most generally, an organized examination or formal evaluationexercise. It involves the measurements, tests, and gauges applied to certaincharacteristics in regard to an object or activity. The results are usually compared tospecified requirements and standards for determining whether the item or activityis in line with these targets. Inspections are usually non-destructive.

Producer's risk is the probability that a good product will be rejected as a badproduct by the consumer.Probability of loss from (1) rejecting a batch which, in fact, should have beenaccepted, or (2) accepting a batch that, in fact, will be rejected by the customer.

Consumer's riskor Consumer risk is a potential risk found in all consumer-orientedproducts, that a product not meeting quality standards will pass undetected thoughthe manufacturer's quality control system and enter the consumer marketplace.

Sampling Inspection involves inspecting a relatively small number of items

from a batch or lot and then using the results of this sample to either acceptor reject the entire lot. The accept/reject criteria is the number of defectiveitems found in the sample.Sampling inspection relies on statistical probability and it is possible that agood batch will be wrongly rejected, or a bad batch will be wrongly accepted.This can have significant economic consequences and so it is usual to use apublished sampling planMaintenance Engineering is the discipline and profession of applying engineeringconcepts to the optimization of equipment, procedures, and departmental budgetsto achieve better maintainability, reliability, and availability of equipment.

MAINTENANCE MANAGEMENTIn modern industry, equipment and machinery are a very important part of the totalproductive effort. Therefore, their idleness or downtime becomes are veryexpensive. Hence, it is very important that the plant machinery should be properlymaintained.
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The main objectives of maintenance management are:

To achieve minimum breakdown and to keep the plant in good working conditionat the lowest possible cost.

To keep the machines and other facilities in such a condition that permits themto be used at their optimal capacity without interruption.

To ensure the availability of the machines, buildings and services required byother sections of the factory for the performance of their functions at optimalreturn on investment.

1. Preventive maintenance (PM) has the following meanings:

The care and servicing by personnel for the purpose of maintaining equipmentand facilities in satisfactory operating condition by providing for systematicinspection, detection, and correction of incipient failures either before they occuror before they develop into major defects.

Maintenance, including tests, measurements, adjustments, and partsreplacement, performed specifically to prevent faults from occurring.

While preventive maintenance is generally considered to be worthwhile, there are

risks such as equipment failure or human error involved when performing PM, justas in any maintenance operation. PM as scheduled overhaul or scheduledreplacement provides two of the three proactive failure management policiesavailable to the maintenance engineer. Common methods of determining what PM(or other) failure management policies should be applied are; OEMrecommendations, requirements of codes and legislation within a jurisdiction, whatan "expert" thinks ought to be done, or the maintenance that's already done tosimilar equipment. However Reliability Centered Maintenance, provides the mostrigorous and method to determine applicable and effective failure managementpolicies - which may include PM tasks - for an item.

To make it simple: Preventive maintenance is conducted to keep equipment working and/or

extend the life of the equipment. Corrective maintenance, sometimes called "repair", is conducted to get

equipment working again.

2. Corrective maintenance can be defined as the maintenance which is requiredwhen an item has failed or worn out, to bring it back to working order. Correctivemaintenance is carried out on all items where the consequences of failure orwearing out are not significant and the cost of this maintenance is not greater thanpreventive maintenance.Corrective maintenance is probably the most commonly used maintenanceapproach, but it is easy to see its limitations. When equipment fails, it often leads todowntime in production. In most cases this is costly business. Also, if the equipment

needs to be replaced, the cost of replacing it alone can be substantial. It is alsoimportant to consider health, safety and environment (HSE) issues related tomalfunctioning equipment.

3. Predictive maintenance (PdM) techniques help determine the condition of in-service equipment in order to predict when maintenance should be performed. Thisapproach offers cost savings over routine or time-based preventive maintenance,because tasks are performed only when warranted.

[edit] Overview
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The "predictive" component of predictive maintenance stems from the goal ofpredicting the future trend of the equipment's condition. This approach usesprinciples of statistical process control to determine at what point in the futuremaintenance activities will be appropriate.

4. Reliability-centered maintenance, or RCM, emphasizes the use of predictive

maintenance (PdM) techniques in addition to traditional preventive measures. Whenproperly implemented, RCM provides companies with a tool for achieving lowestasset Net Present Costs (NPC) for a given level of performance and risk.

MATERIALS HANDLINGMovement of materials within the Plant having limited distance is known asMaterials handling. Movement from one factory and other factory or one location toother location or one city to other city is known as Transportation.

Equipments used in Materials Handling:1. Trolley2. Cranes3. Roller Conveyors4. Belt Conveyors5. HOT (Hand operated Overhead Travelling Crane)6. EOT (Electronic operated Overhead Travelling Crane)7. JIB crane (wall monsted crane)8. Tower Crane9. Hoist10.Lift

11.Forklift12.Tractor Trailor13.Chain Pulley block14.Wheel BarowsGeneral Safety principles of materials handling:

Avoid as much material handling as possible

Avoid back tracking

Avoid rehandling

Avoid reprocessing

Avoid missing of materials

Move materials in a group rather than individual pieces

Move materials at high speed in a bigger lot

Fix proper labels on material

Use most flexible equipment in material handling.

Maximise utilization of equipments

Keep all handling equipment at fixed place

Assign responsibility of materials handling to one individual

Select equipments with low ratio of payload to dead weight

Treat handling of scrap material with some respect of new materials
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Keep all handling equipments in well maintained condition

Introduce a system of load test for all handling equipments

Keep passage clear and illuminated

The efficiency of production depends on how well the various machines; productionfacilities and employees amenities are located in a plant. Only the properly laid outplant can ensure the smooth and rapid movement of material, from the rawmaterial stage to the end product stage. Plant layout encompasses new layout aswell as improvement in the existing layout.It may be defined as a technique of locating machines, processes and plant serviceswithin the factory so as to achieve the right quantity and quality of output at thelowest possible cost of manufacturing. It involves a judicious arrangement ofproduction facilities so that workflow is direct.

A plant layout can be defined as follows:Plant layout refers to the arrangement of physical facilities such as machinery,equipment, furniture etc. with in the factory building in such a manner so as to havequickest flow of material at the lowest cost and with the least amount of handling inprocessing the product from the receipt of material to the shipment of the finishedproduct

Plant layout is an important decision as it represents long-term commitment. Anideal plant layout should provide the optimum relationship among output, floor areaand manufacturing process. It facilitates the production process, minimizes materialhandling, time and cost, and allows flexibility of operations, easy production flow,makes economic use of the building, promotes effective utilization of manpower,and provides for employees convenience, safety, comfort at work, maximumexposure to natural light and ventilation. It is also important because it affects theflow of material and processes, labour efficiency, supervision and control, use ofspace and expansion possibilities etc.

An efficient plant layout is one that can be instrumental in achieving thefollowing objectives:a) Proper and efficient utilization of available floor spaceb) To ensure that work proceeds from one point to another point without anydelayc) Provide enough production capacity.d) Reduce material handling costse) Reduce hazards to personnelf) Utilise labour efficientlyg) Increase employee moraleh) Reduce accidentsi) Provide for volume and product flexibility

j) Provide ease of supervision and controlk) Provide for employee safety and healthl) Allow ease of maintenance


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m) Allow high machine or equipment utilizationn) Improve productivity

TYPES OF LAYOUTAs discussed so far the plant layout facilitates the arrangement of machines,equipment and other physical facilities in a planned manner within the factory

premises. An entrepreneur must possess an expertise to lay down a proper layoutfor new or existing plants. It differs from plant to plant, from location to location andfrom industry to industry. But the basic principles governing plant layout are moreor less same.

As far as small business is concerned, it requires a smaller area or space and can belocated in any kind of building as long as the space is available and it is convenient.Plant layout for Small Scale business is closely linked with the factory building andbuilt up area. From the point of view of plant layout, we can classify small businessor unit into three categories:1. Manufacturing units2. Traders

3. Service Establishments1. Manufacturing unitsIn case of manufacturing unit, plant layout may be of four types:(a) Product or line layout(b) Process or functional layout(c) Fixed position or location layout(d) Combined or group layout(a) Product or line layout:Under this, machines and equipments are arranged in one line depending upon thesequence of operations required for the product. The materials move form oneworkstation to another sequentially without any backtracking or deviation. Underthis, machines are grouped in one sequence. Therefore materials are fed into the

first machine and finished goods travel automatically from machine to machine, theoutput of one machine becoming input of the next, e.g. in a paper mill, bamboosare fed into the machine at one end and paper comes out at the other end. The rawmaterial moves very fast from one workstation to other stations with a minimumwork in progress storage and material handling.

(b) Process layout:In this type of layout machines of a similar type are arranged together at one place.E.g. Machines performing drilling operations are arranged in the drilling department,machines performing casting operations be grouped in the casting department.

Therefore the machines are installed in the plants, which follow the process layout.Hence, such layouts typically have drilling department, milling department, weldingdepartment, heating department and painting department etc. The process orfunctional layout is followed from historical period. It evolved from thehandicraftmethod of production. The work has to be allocated to each department in such away that no machines are chosen to do as many different job as possible i.e. theemphasis is on general purpose machine.

(c) Fixed Position or Location Layout


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In this type of layout, the major product being produced is fixed at one location.Equipment labour and components are moved to that location. All facilities arebrought and arranged around one work center. This type of layout is not relevant forsmall scale entrepreneur.

(d) Combined layoutCertain manufacturing units may require all three processes namely intermittentprocess (job shops), the continuous process (mass production shops) and therepresentative process combined process [i.e. miscellaneous shops]. In most ofindustries, only a product layout or process layout or fixed location layout does notexist. Thus, in manufacturing concerns where several products are produced inrepeated numbers with no likelihood of continuous production, combined layout isfollowed. Generally, a combination of the product and process layout or othercombination are found, in practice, e.g. for industries involving the fabrication ofparts and assembly, fabrication tends to employ the process layout, while theassembly areas often employ the product layout. In soap, manufacturing plant, themachinery manufacturing soap is arranged on the product line principle, but

ancillary services such as heating, the manufacturing of glycerin, the power house,the water treatment plant etc. are arranged on a functional basis.

Product layout Process layout

1. Investment

Needs high investment inmachine/equipment

Comparatively low investment needed

2. Duration of Production

Needs less manufacturing times as the

economy in time can be planned in thebeginning

Production time can not be economized

due to frequent movement of men andmaterial.

3. Immobilization due to Breakdown

Break down of any unit/componentimmobilises the whole system

Breakdown of any machine does notimmobilize the whole system

4. Adjustability to changes

Inflexible as each machine can performpre-designed operation only

Flexible as different section can adjust htoperation according to operation

5. Floor space

Requires less space. Require more space.6. Men/Equipment Utilization

Not to full capacity Comparatively better utilization

Lesser amount of material handling andcomparatively lesser time, money andefforts

Involves greater handling of materialrequiring more time, money and efforts.


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7. material handling

Lesser amount of material handling andcomparatively lesser time, money andefforts

Involves greater handling of materialrequiring more time, money and efforts.

8. Demand and supply relationship

Proper co-ordination between demandand as these are made to stock

Co-ordination between demand andsupply is likely to be difficulty as thesemade to order.

9. Control and Inspection

Specialized and expertise control isrequired thus increasing supervisioncosts

Comparatively lesser efforts on controlare needed.

Plant LocationThe performance of an enterprise is considerably affected by its location. Thelocation of an industry is as important as the choice is for the location of a businessor a shop in a city or locality. Unscientific and unplanned industrialization is harmfulnot only to the industrial unit but also to the social and economic structure of thecountry as a whole.

Nearly sixty years before, much importance was not given to the selection ofappropriate location and the decisions in this regard were mainly governed by theindividual preferences of the entrepreneurs and social customs. This resulted in

failure of any organization which otherwise could have been successful.Government also with the objective of establishing socialistic pattern of societybecame instrument all in the selection of site for various industries in undevelopedareas by providing various investment benefits and other incentives. All thisencouraged a large number of industrialists to follow a more scientific an logicalapproach towards the selection of site for establishing their industries.

The degree of significance for the selection of location for any enterprise mainlydepends on its size and nature. Sometimes, the nature of the product itself suggestsome suitable location. A small scale industry mainly selects the site where inaccordance with its capacity the local market for the product is available. It caneasily shift to other place when there is any change in the market. But for large

scales industries requiring huge amount of investment there are manyconsiderations other than the local demand int the selection of proper plantlocation. These plants cannot be easily shifted to other place and an error of

judgment in the selection of site can be very expensive to the organization.

Plant Location is a onetime exercise having a very long term impact on profit of anycompany and that is why lot of care is taken while locating a plant. There are 2methods by which Plants location is decided.


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1. Quantitative Method2. Qualitative Method.

In Quantitative Method, we use a method known as locational break even analysis.For any location, we have 2 costs

Annual Fixed cost Unit Variable cost

Qualitative Method

Example- A Coal based Thermal Plant

FactorWeightage% Sites

A B C D ERaw

Material 60% 58 55 50 45 48Water 20% 17 19 15 20 18Land 5% 3 5 4 3 5Environment 5% 5 3 4 2 4Labour 5% 2 5 4 3 5Others 5% 3 2 5 5 2

In the above example, we arbitrarily give weightage to the factors and on eachsites, allocate the points based on the feasibility factor. The site which generatesthe maximum points is the one which would be most beneficial to set up.

Inventory is stocks of materials which we carry for a smooth operation of theplant.There are 8 types of inventories:

Catalysts

Basic Raw Material

Work in process

Bought out items (eg. In a car, tyres are bought out items)

Spares

Consumables

Chemicals

Finished goods

Why we carry inventory:

To meet the requirements of materials

To minimize overall materials management cost

To avoid uncertainty in availability of materials


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In case of imported items, we carry inventory due to long lead time

We carry inventory due to size of containers

In case of seasonal items, we carry inventory to take care of total yearlyrequirements.

We carry finished goods inventory to avoid loss of sales.

Elements of carrying cost:Interest 15 % p.a.Storage 2 % p.a.Damages 2 % p.a.Protectives 2 % p.a.Pilferage 2 % p.a.Insurance 1 % p.a.Obsolete 2 % p.a.

-----------26 % p.a.

Techniques of Inventory Control1. ABC analysis is a business term used to define an inventory categorizationtechnique often used in materials management. It is also known as SelectiveInventory Control.

ABC analysis provides a mechanism for identifying items which will have asignificant impact on overall inventory cost [1] whilst also providing a mechanismfor identifying different categories of stock that will require differentmanagement and controls[2]

When carrying out an ABC analysis, inventory items are valued (item costmultiplied by quantity issued/consumed in period) with the results then ranked.

The results are then grouped typically into three bands[3]. These bands are calledABC codes.

V E D Control: V: Vital items E: Essential items D: Desirable items The basis of control is the criticality of the item

ABCClassification

VED Classification

V items E items D items

A items Regular stockswith constantcontrol

Medium stock No Stock

B items Medium Stock Medium Stock Very low Stocks

C items High Stock Medium Stock Low Stock

2. X Y Z Control:a. X: Items with high inventory valueb. Y: Items with moderate inventory valuec. Z: Items with low inventory value
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d. The basis of control is the annual closing inventory value

ABCClassification

XYZ Classification

X items Y items Z items

A items Attempts to reducestocks

Attempt toconvert Z items

Items are with incontrol

B items Review Stock &consumption moreoften

Items are with incontrol

Review items bi-annually

C items Dispose of thesurplus

Check & maintaincontrol

Review annually

4 FNSD Control: F: Fast moving Items

N: Normal moving Items S: Slow moving Items D: Dead items The basis of control is the Usage rate

SelectiveControl

Technique

Basis of classification Chief Use

ABC Consumption value Controlling RM, WIP andcomponents

VED Criticality of item Determining the inventory level of

spare parts

XYZ Value of item in storage Reviewing the inventories & otheruses

FNSD Consumption rate of item

Controlling obsolescence

Fixed Order Quantity System (Q)A fixed quantity of material (EOQ) is ordered whenever the stock on hand reachesthe re-order point.Advantages:

a. Each material can be procured in the most economical quantityb. Positive control can easily be exerted to maintain total inventory investment

Disadvantage: The orders are raised at irregular intervals


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Fixed-Order Period System (P System)The stock position of each item of material is regularly reviewed.Advantages:

a. The ordering and inventory costs are low.b. Attractive discounts can be negotiated.

Disadvantages:a. Chances of shortages should be avoidedb. Inflexible order quantities which may deviate from the optimum.

MATERIALS MANAGEMENT


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Materials management is that aspect of management function which is primarilyconcerned with the acquisition, control and use of materials needed and flow ofgoods and services connected with the production process having somepredetermined objectives in view.

The main objectives of materials management are:

To minimize material cost. To purchase, receive, transport and store materials efficiently and to reduce the

related cost.

To cut down costs through simplification, standardisation, value analysis, importsubstitution, etc.

To trace new sources of supply and to develop cordial relations with them inorder to ensure continuous supply at reasonable rates.

To reduce investment tied in the inventories for use in other productive purposesand to develop high inventory turnover ratios.

Types of Markets

There are 5 types of markets1. Perfect Competitive MarketIn this type of market, there are plenty of buyers and sellers. Economic forcesdetermine the price of the product in this type of market. Most of the items arecovered under this class of market.2. OligopolyIn this type of market, there are plenty of buyers but very few suppliers. Demand ismuch more than supply. Suppliers dictate most of the terms of contracts includingprices.

3. OligosonyIn this type of market, there are plenty of suppliers but very few buyers. Supply is

much more than the demand. Buyers dictate most of the terms of the contractincluding prices4. MonopolyIn this type of market, virtually there is a single supplier, all others are buyers.Supplier dictates all the terms of the contract including prices5. MonosonyIn this type of market, virtually there is a single buyer. All others are suppliers.Buyers dictate all the terms of the contract including prices.

TYPES OF PURCHASINGThere are 5 types of purchasing.

1. Hand to Mouth buyingIn this type of purchasing, we purchase requirements ranging from one day to onemonth. We dont follow the concept of economic order quantity. This is not aprofessional way of purchasing. However in certain situations, this could be thebest way of purchasing. Situations could be

When your working capital position is not very comfortable and good.

When market fluctuations are wild and volatile, then it is not possible topredict how market is going to behave in future


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2. Forward buyingIn this type of purchasing, we purchase requirements ranging from one month to 6months. We follow the concept of economic order quantity. This is a professionalway of buying/purchasing.

3. Speculative BuyingThis is very much similar to forward buying with only one major difference. Inforward buying, we purchase our own requirements only. While in SpeculativeBuying, we purchase much more than our own requirements. Here the intention isthat a major portion of raw materials will be sold in open market whenever there isrise in price. This is not a professional, legal as well as ethical way of purchasing.However, a number of companies indulge themselves in such type of practices.

4. Reciprocal BuyingWhen your buyer happens to be your seller or your seller happens to be your buyer,this practice is known as Reciprocal buying or Reciprocity. If a product of companyA happens to be raw material for company B, and a product of company B happens

to be raw material for company A, these two companies A and B are supposed tohave reciprocal arrangement or reciprocity.

5. HedgingHedging is a phenomenon to protect your business when market prices come down.

There are two requirements to do hedging.

Hedging can be done only at Metro cities where there is market having bothcurrent transaction as well as forward transaction.

There should be plenty of buyers and plenty of sellers both in current marketas well as in forward market.

o Eg. On 1st Jan 08, we buy 1000 kgs of gold at 10 lac per kg by paying Rs. 100

crores.On 1st April 08, we want to sell 1000 kgs of jewellery at Rs.11 lacs per kg totalingRs.110 crores. Out of 110 crores, cost of gold is 100 crores and other expenses Rs.5 crores. We want to make a profit of Rs..5 crores.

Quality circleA quality circle is a volunteer group composed ofworkers (or even students),usually under the leadership of their supervisor (but they can elect a team leader),who are trained to identify, analyse and solve work-related problems and presenttheir solutions to management in order to improve the performance of the
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organization, and motivate and enrich the work of employees. When matured, truequality circles become self-managing, having gained the confidence ofmanagement.Quality circles are an alternative to the dehumanizing concept of the division oflabor, where workers or individuals are treated like robots. They bring back theconcept of craftsmanship, which when operated on an individual basis is

uneconomic, but when used in group form (as is the case with quality circles), it canbe devastatingly powerful and enables the enrichment of the lives of the workers orstudents and creates harmony and high performance in the workplace. Typicaltopics are improving occupational safety and health, improving product design, andimprovement in the workplace and manufacturing processes.Quality circles were first established inJapan in 1962; Kaoru Ishikawa has beencredited with their creation. The movement in Japan was coordinated bythe Japanese Union of Scientists and Engineers(JUSE). The first circles wereestablished at the Nippon Wireless and Telegraph Company but then spread tomore than 35 other companies in the first year. [5] By 1978 it was claimed that therewere more than one million Quality Circles involving some 10 million Japaneseworkers.[citation needed] There are now Quality Circles in most East Asian countries; it was

recently claimed that there were more than 20 million Quality Circles in China.

HedgingHedging is a phenomenon to protect your business when market prices come down.

There are two requirements to do hedging.

Hedging can be done only at Metro cities where there is market having bothcurrent transaction as well as forward transaction.

There should be plenty of buyers and plenty of sellers both in current marketas well as in forward market.

o Eg. On 1st Jan 08, we buy 1000 kgs of gold at 10 lac per kg by paying Rs. 100

crores.On 1st April 08, we want to sell 1000 kgs of jewellery at Rs.11 lacs per kg totalingRs.110 crores. Out of 110 crores, cost of gold is 100 crores and other expenses Rs.5 crores. We want to make a profit of Rs..5 crores.

Total Quality ManagementTotal Quality Management is an approach to the art of management that originatedin Japanese industry in the 1950's and has become steadily more popular in theWest since the early 1980's.

Total Quality is a description of the culture, attitude and organization of a companythat aims to provide, and continue to provide, its customers with products andservices that satisfy their needs. The culture requires quality in all aspects of the

company's operations, with things being done right first time, and defects andwaste eradicated from operations.Important aspects of TQM include1. Customer-driven quality

TQM has a customer-first orientation. The customer, not internal activities andconstraints, comes first. Customer satisfaction is seen as the company's highestpriority. The company believes it will only be successful if customers aresatisfied. The TQM company is sensitive to customer requirements and respondsrapidly to them.
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2. TQM leadership from top managementTQM is a way of life for a company. It has to be introduced and led by topmanagement. This is a key point. Attempts to implement TQM often fail because topmanagement doesn't lead and get committed - instead it delegates and pays lipservice. Commitment and personal involvement is required from top managementin creating and deploying clear quality values and goals consistent with the

objectives of the company, and in creating and deploying well defined systems,methods and performance measures for achieving those goals.3. Continuous improvementContinuous improvement of all operations and activities is at the heart of TQM.Once it is recognized that customer satisfaction can only be obtained by providing ahigh-quality product, continuous improvement of the quality of the product is seenas the only way to maintain a high level of customer satisfaction. As well asrecognizing the link between product quality and customer satisfaction, TQM alsorecognizes that product quality is the result of process quality. As a result, there is afocus on continuous improvement of the company's processes. This will lead to animprovement in process quality. In turn this will lead to an improvement in productquality, and to an increase in customer satisfaction.

4. Fast responseTo achieve customer satisfaction, the company has to respond rapidly to customerneeds. This implies short product and service introduction cycles. These can beachieved with customer-driven and process-oriented product development becausethe resulting simplicity and efficiency greatly reduce the time involved.5. Actions based on facts

The statistical analysis of engineering and manufacturing facts is an important partof TQM. Facts and analysis provide the basis for planning, review and performancetracking, improvement of operations, and comparison of performance withcompetitors.6. Employee participationA successful TQM environment requires a committed and well-trained work force

that participates fully in quality improvement activities.

Just in time production (JIT)Just in time is a pull system of production, so actual orders provide a signal forwhen a product should be manufactured. Demand-pull enables a firm to produceonly what is required, in the correct quantity and at the correct time.

This means that stock levels of raw materials, components, work in progress andfinished goods can be kept to a minimum. This requires a carefully plannedscheduling and flow of resources through the production process. Modernmanufacturing firms use sophisticated production scheduling software to planproduction for each period of time, which includes ordering the correct stock.Information is exchanged with suppliers and customers through EDI (ElectronicData Interchange) to help ensure that every detail is correct.Supplies are delivered right to the production line only when they are needed. Forexample, a car manufacturing plant might receive exactly the right number andtype of tyres for one days production, and the supplier would be expected todeliver them to the correct loading bay on the production line within a very narrowtime slot.Advantages of JIT


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Lower stock holding means a reduction in storage space which saves rent andinsurance costs

As stock is only obtained when it is needed, less working capital is tied up instock

There is less likelihood of stock perishing, becoming obsolete or out of date Avoids the build-up of unsold finished product that can occur with sudden

changes in demand Less time is spent on checking and re-working the product of others as the

emphasis is on getting the work right first timeDisadvantages of JIT There is little room for mistakes as minimal stock is kept for re-working faulty

product Production is very reliant on suppliers and if stock is not delivered on time, the

whole production schedule can be delayed There is no spare finished product available to meet unexpected orders, because

all product is made to meet actual orders however, JIT is a very responsivemethod of production

Break-even analysis

Break-even analysis is a technique widely used by production management andmanagement accountants. It is based on categorizing production costs betweenthose which are "variable" (costs that change when the production output changes)and those that are "fixed" (costs not directly related to the volume of production).

Total variable and fixed costs are compared with sales revenue in order todetermine the level of sales volume, sales value or production at which thebusiness makes neither a profit nor a loss (the "break-even point").In its simplest form, the break-even chart is a graphical representation of costs atvarious levels of activity shown on the same chart as the variation of income (orsales, revenue) with the same variation in activity. The point at which neither profitnor loss is made is known as the "break-even point" and is represented on the chartbelow by the intersection of the two lines:

In the diagram above, the line OA represents the variation of income at varyinglevels of production activity ("output"). OB represents the total fixed costs in thebusiness. As output increases, variable costs are incurred, meaning that total costs(fixed + variable) also increase. At low levels of output, Costs are greater thanIncome. At the point of intersection, P, costs are exactly equal to income, and henceneither profit nor loss is made.


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Fixed CostsFixed costs are those business costs that are not directly related to the level ofproduction or output. In other words, even if the business has a zero output or highoutput, the level of fixed costs will remain broadly the same. In the long term fixedcosts can alter - perhaps as a result of investment in production capacity (e.g.adding a new factory unit) or through the growth in overheads required to support a

larger, more complex business.Variable costs are those costs which vary directly with the level of output. Theyrepresent payment output-related inputs such as raw materials, direct labour, fueland revenue-related costs such as commission.A distinction is often made between "Direct" variable costs and "Indirect" variablecosts. Direct variable costs are those which can be directly attributable to theproduction of a particular product or service and allocated to a particular costcentre. Raw materials and the wages those working on the production line are goodexamples.Indirect variable costs cannot be directly attributable to production but they dovary with output. These include depreciation (where it is calculated related tooutput - e.g. machine hours), maintenance and certain labour costs.

Semi-Variable CostsWhilst the distinction between fixed and variable costs is a convenient way ofcategorising business costs, in reality there are some costs which are fixed in naturebut which increase when output reaches certain levels. These are largely related tothe overall "scale" and/or complexity of the business. For example, when a businesshas relatively low levels of output or sales, it may not require costs associated withfunctions such as human resource management or a fully-resourced financedepartment. However, as the scale of the business grows (e.g. output, numberpeople employed, number and complexity of transactions) then more resources arerequired. If production rises suddenly then some short-term increase inwarehousing and/or transport may be required. In these circumstances, we say thatpart of the cost is variable and part fixed.

ISO 9000

ISO 9000 is a familyofstandards for quality management systems. ISO 9000 ismaintained by ISO, the International and is administered by accreditation andcertification bodies. The rules are updated, as the requirements motivate changesover time. Some of the requirements in ISO 9001:2008 (which is one of thestandards in the ISO 9000 family) include

a set of procedures that cover all key processes in the business; monitoring processes to ensure they are effective; keeping adequate records; checking output for defects, with appropriate and corrective action where

necessary; regularly reviewing individual processes and the quality system itself for

effectiveness; and facilitating continual improvement

A company or organization that has been independently audited and certified to bein conformance with ISO 9001 may publicly state that it is "ISO 9001 certified" or"ISO 9001 registered". Certification to an ISO 9001 standard does not guarantee any
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quality of end products and services; rather, it certifies that formalized businessprocesses are being applied.Marketing departments take advantage of public confusion and ignorance about ISO9000. Goods and services outstanding proclaim their ISO 9000 STATUS. Mostconsumers suppose that ISO 9000 is the same as ISO 9001.Although the standards originated in manufacturing, they are now employed across

several types of organizations. A "product", in ISO vocabulary, can mean a physicalobject, services, or software.Quality is a "culture" - ISO 9001 "Quality" is an important accreditation to achieve, itis also essential for maximum benefit that information is shared so that the cultureof the business ensures that the Quality culture is embedded

Negotiation

Negotiation is a dialogue intended to resolve disputes, to produce an agreementupon courses of action, to bargain for individual or collective advantage, or to craftoutcomes to satisfy various interests. It is the primary method of alternative.Negotiation occurs in business, non-profit organizations, and government branches,

legal proceedings, among nations and in personal situations such as marriage,divorce, parenting, and everyday life. The study of the subject is called negotiationtheory. Professional negotiators are often specialized, such as unionnegotiators, leverage buyout negotiators, peace negotiators, hostage negotiators,or may work under other titles, such as diplomats, legislators or brokers.Approaches to negotiationNegotiation typically manifests itself with trained negotiator acting on behalf of aparticular organization or position. It can be compared to mediation where adisinterested third party listens to each sides' arguments and attempts to help craftan agreement between the parties. It is also related to arbitration which, as with alegal proceeding, both sides make an argument as to the merits of their "case" andthen the arbitrator decides the outcome for both parties.

There are many different ways to segment negotiation to gain a greaterunderstanding of the essential parts. One view of negotiation involves three basicelements:process, behaviorand substance. The process refers to how the partiesnegotiate: the context of the negotiations, the parties to the negotiations, thetactics used by the parties, and the sequence and stages in which all of these playout. Behavior refers to the relationships among these parties, the communicationbetween them and the styles they adopt. The substance refers to what the partiesnegotiate over: the agenda, the issues (positions and - more helpfully - interests),the options, and the agreement(s) reached at the end.Another view of negotiation comprises 4 elements: strategy,process and tools,and tactics. Strategy comprises the top level goals - typically including relationshipand the final outcome. Processes and tools include the steps that will be followedand the roles taken in both preparing for and negotiating with the other parties.

Tactics include more detailed statements and actions and responses to others'statements and actions. Some add to thispersuasion and influence, asserting thatthese have become integral to modern day negotiation success, and so should notbe omitted.Skilled negotiators may use a variety of tactics ranging from negotiation hypnosis,to a straight forward presentation of demands or setting of preconditions to more
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deceptive approaches such as cherry picking. Intimidation and salami tactics mayalso play a part in swaying the outcome of negotiations.Another negotiation tactic is bad guy/good guy. Bad guy/good guy tactic is whenone negotiator acts as a bad guy by using anger and threats. The other negotiatoracts as a good guy by being considerate and understanding. The good guy blamesthe bad guy for all the difficulties while trying to get concessions and agreement

from the opponent.

Value engineering (VE) is a systematic method to improve the "value" of goods orproducts and services by using an examination of function. Value, as defined, is theratio of function to cost. Value can therefore be increased by either improving thefunction or reducing the cost. It is a primary tenet of value engineering that basicfunctions be preserved and not be reduced as a consequence of pursuing valueimprovements.

In the United States, value engineering is specifically spelled out in Public Law 104-106, which states Each executive agency shall establish and maintain cost-effective value engineering procedures and processes."

Value engineering is sometimes taught within the project management or industrialengineering body of knowledge as a technique in which the value of a systemsoutputs is optimized by crafting a mix of performance (function) and costs. In mostcases this practice identifies and removes unnecessary expenditures, therebyincreasing the value for the manufacturer and/or their customers.VE follows a structured thought process that is based exclusively on "function", i.e.what something "does" not what it is. For example a screw driver that is being usedto stir a can of paint has a "function" of mixing the contents of a paint can and not

the original connotation of securing a screw into a screw-hole. In value engineering"functions" are always described in a two word abridgment of an active verb andmeasurable noun (what is being done - the verb - and what it is being done to - thenoun) and to do so in the most non-prescriptive way possible. In the screw driverand can of paint example, the most basic function would be "blend liquid" which isless prescriptive than "stir paint" which can be seen to limit the action (by stirring)and to limit the application (only considers paint.) This is the basis of what valueengineering refers to as "function analysis".

Value engineering uses rational logic (a unique "how" - "why" questioningtechnique) and the analysis of function to identify relationships that increase value.It is considered a quantitative method similar to the scientific method, which

focuses on hypothesis-conclusion approaches to test relationships, and operationsresearch, which uses model building to identify predictive relationships.

Value engineering is also referred to as "value management" or "valuemethodology" (VM), and "value analysis" (VA). VE is above all a structured problemsolving process based on function analysisunderstanding something with suchclarity that it can be described in two words, the active verb and measurable nounabridgement. For example, the function of a pencil is to "make marks". This then
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facilitates considering what else can make marks. From a spray can, lipstick, adiamond on glass to a stick in the sand, one can then clearly decide upon whichalternative solution is most appropriate.

PM-Solved Paper 2006

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Transcript of PM-Solved Paper 2006