Facility location
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Friday, August 27, 2010
Wednesday, August 25, 2010
Course Module
Course breakup- Production & Operation Management ( BB 305 )
Class-BBA-3rd Semester
Course instructor-SSB
Topic: Production & Operation Management
Assignments: 3 External assessment:60
Case Studies: 2 Internal:40
Presentation :1 Mid Semester exams: 15 marks
Presentation: 5 marks
Assignment : 5 marks
Case Study : 5 marks
Hourly Test : 10 marks(5marks each)
Introduction
• This is a module in Production Operations and Management. It will cover Production management and its relationship to marketing, finance and accounting. This course will cover the topics like production planning , inventory management , maintenance management , supply chain management which are part of our day to day to life. Other topics discussed include: quality control, product and process design, facility location and layout, productivity improvement.
Objectives
Upon completion of the course, the student will have a basic understanding about the field of production and operations management and also how it is related to other functions like marketing etc .
Upon completion of the course, the student will have a basic understanding about the factors which are considered essential for locating a facility and how important is capacity planning and layout planning in an organization.
Upon completion of the course, the student will be familiar with the role of supply chain management in our day to day life . Also it will also help the students to know about how the cost price of the product can be reduced by using supply chain management.
LECTURE PROGRRAME:
Sr. No. Topics Date Case study Test Assignment
1
Introductory Session
Brief description about the course.
2
Production and Operations Management: concepts, functions
Production management deals with that part of the organization which deals with actual transformation of materials into finished goods or services.
Operations Mgt is design , Operation and improvement of Production mgt.
3
Relation of Production and Operations management with other functional areas
Production as a core of the organization
Assignment 1
4 Types of Production Systems
>Intermittent
When the production is for a particular order and not for the stock
Types
Job Shop
Batch
5
Types of Production Systems
>Continuous
When the production is for the stock and not for a particular order .
Types
Mass Production
Process Production
6 Facility location analysis, , features
Measures for the selection of location
Analysis based upon quantitative factors
Comparisons of qualitative factors
Selection of site
7
Facility location importance ,
Facility location decision
Facility location for already established company
8
Factors affecting facility location
Facility location decision depends upon
Availability of raw material
Nearness to the potential market
Nearness to operating requirements
Supply of labour
Transport and communication facility
Suitability of Land and capital
Safety requirements
9
Techniques for selecting a Plant Location
10
Case Study – Tata’s Dream Car Plant Location 1
11
Facility Layout (Features, Importance)
Layout identically involves the allocation of space and arrangement of equipment in such a manner that overall operating costs are minimised.
Importance to workers and costs reduction
12 Factors affecting plant layout, layout decisions
Nature of the product
Size of output
Nature of manufacturing systems
Localization of plant
Machines or equipments
13
Types of layout
14 1st Hourly Test 1
15 Productivity: calculation
Is measure of how much input is required to produce a given output.
16 Productivity linked incentives
17 Inventory Management
Importance and features
18 Functions of inventory, Types of inventory, Inventory costs, Various methods of inventory control
19 ABC analysis
20 EOQ analysis
Calculation of EOQ
21
Capacity Planning
Concept & Features
22
Capacity Planning Decisions
How to calculate capacity
23
Production Planning & Control (PPC) Concepts, Objectives
Functions
24 Assignment 2
25 Assembly Line Balancing
26
Work Study -Branches
Is the analysis of work by dividing it into smaller parts followed by rearrangement of these parts
27 Method Study: Its Calculation
Is the examination of work performance and its rearrangement to produce same result with less effort
28 Time Study
Its calculation
work simplification, work measurement
29 Motion study
Concept and its working
30 2nd hourly Test 2
31
Materials Management
Concept :Is planning, directing, controlling and co-coordinating those activities which are concerned with materials and inventory management.
Objectives: Material selection and Low cost
Functions
32 Case Study – Harley Davidson 2
33
Supply chain management
Concept of SCM
Functions of supply chain management
34
Supply chain strategies 1
35 Supply chain strategies 2
Vendor Selection
36
Maintenance management
Concept
Is concerned with planning and controlling Routine, planned and preventive maintenance activities of an organization.
Importance
Types of maintenance
Preventive maintenance, importance
37 Assignment 3
38
Statistical Quality control, its calculation
Testing the response time taken to the query
39
Accepting Sampling, its parts
40
Services, Importance, nature
41
Nature & Design of Services
Concept of JIT: Its working
42
TQM : Features, Importance
43
Quality Control
Inspection and its types
44
ISO quality systems
45 CAM
Books referred
Production & Operation Management : Adam & Ebert
Operations Management : William Stevenson
Operations Management : B.S.Goel
Assignments
The students will be given the topic for the assignment on the scheduled date and will be required to submit the same after 4 days. Late submissions will not be accepted.
The students are required to keep a record of all the assignments given so that at the time of giving the assessment no confusion is created.
1st - After 4th Lectures : Innovation
Assignment Description : Students in groups will have to find out two products in which there has been changes made by the manufacturing company in the past years.
Assignment Utility : Importance of innovation in product design
2nd -After 15th Lectures:--> Facility Location
Assignment Description : During your visit to any hospital , restaurant , coffee shop ets in your city , meet their concerned operations manager/ owner . Ask him/her about the factors considered by him in location of the site ?
Assignment Utility : Factors affecting facility location
3rd - After 38th Lectures:--> Capacity Planning
Assignment Description : Visit a restaurant/disco near you and find out the capacity it has so far for the customers. Ask them about the rates of the restaurant/disco and about the seasonal factors which influence the rate. If the occupancy is low , suggest measures to improve it.
Assignment Utility : Capacity Planning Decisions
Activity
1st Activity - Students will be divided in groups and then the group has to visit any production company and they have to shoot their production process and the same has to be discussed in the class.
2nd Activity - Students will be divided in groups and then the group will be allowed to select any one department which exist in an organization( like Production , Marketing ,Human resource , Strategic , Finance , etc. ) without which the organization cannot survive in the market.
CASE STUDIES
Tata’s ‘Dream Car’ Plant Location
The ‘dream car’ project of Ratan Tata, the Chairman of one of India’s largest and most respected business conglomerates is located in West Bengal. In 2005-06 the group had revenues of US$21.9 billion—the equivalent of about 2.8 per cent of the country’s GDP—and a market capitalization of US$46.9 billion. Tata dreams to create a car to be sold in the Indian markets with a price tag of Rs 100,000. The car will have a Euro IV compliant 700 cc petrol engine, a suspension, and a steering system designed for its size. Targeting the burgeoning middle-class, Tata Motors plans to roll out its car in the next three years by using a low-cost assembly operation. The car will be smaller compared to most existing cars on the road and will be produced in larger volumes, with all the high-volume parts manufactured in one plant. The other cost-cutting measures relate to intensive use of plastics on the body of the car and eliminating dealer margin. The group is looking at a very low-cost assembly operation and the use of modern-day adhesives instead of welding. There are some issues concerning safety, mainly because of the car’s modest size, but Tatas are determined to resolve them before the car reaches the market. In view of the socio-economic dimension in manufacturing the car, the company is looking at small satellite units, with very low break- even points, where the cars would be assembled, sold, and serviced. Tatas are planning to encourage local entrepreneurs to invest in these units, and to train these entrepreneurs to assemble the fully knocked-down or semi-knocked-down components that Tatas would send. These entrepreneurs would also sell and service the assembled vehicles. This approach would replace the dealer, and, therefore, the dealer’s margin. It will lead to an assembly-cum-retail operation that would be combined with very low-cost service facilities.
Tatas always wanted to have a car manufacturing facility, but during the early 1940s, they lost the race to B.M. Birla and Walchund Hirachand, who secured the British Government’s permission to establish their car factories in India. Hindustan Motors Limited (HML), India’s pioneering automobile manufacturing company was established just before Indian independence, in 1942 by B.M. Birla. Commencing operations in a small assembly plant in Port Okha near Gujarat, the manufacturing facilities later moved to Uttarpara, West Bengal in 1948, where it began the production of the Ambassador cars. Premier Automobiles was founded by the visionary and entrepreneur par excellence, Walchand Hirachand Doshi, in 1944. In collaboration with the Chrysler Corporation, India’s first car rolled out of the Premier factory in 1947. In collaboration with Fiat SpA, Italy, Premier first started assembling the Fiat 500 in India. Tatas had to wait for almost six decades before their maiden car Indica was launched in 1999. Indica’s success gave confidence to Ratan Tata to go ahead with his Rs 100,000 dream car.
During early 2006, Tatas started scouting for a good location for their dream car plant. The three states initially looking lucrative for the location were—Karnataka, West Bengal, and Uttaranchal. Dharwad in Karnataka had the advantage of geographic location, being located between Bangalore and Pune (where Tatas have major facilities). The Karnataka government also offered water and power tariff sops and agreed to Tata’s proposed move to build a township near the scheduled facility.
The West Bengal government, which is currently in an industrialization drive in the state, enticed the Tatas with various subsidies and sops. It tried to convince Tatas to set up the factory in the backward district of West Midnapore near Kharagpur. In today’s competitive environment, the car Tatas would be manufacturing would be the cheapest car available in the country, and the task they have undertaken is very challenging. Hence, they have taken into consideration all aspects, including logistics. Since the price factor is so important in this project, the choice of location is very critical. Apart from the availability of proper infrastructure and skilled labour, the company has to take into consideration social infrastructure such as proximity of educational institutions for the children of its employees. Out of the six different places offered by the West Bengal government, the company found Singur, about 50 kilometres north-west of Kolkata to be the most suitable.
If a particular company wants a big chunk of land for setting up a large plant, it is not possible for it to purchase land from each and every farmer. This is particularly true in West Bengal where fragmentation of land is very high. The state government came forward to acquire the land for the project. When the opposition raised issues against it, the government gave the justification that it is for a public purpose. According to the government, industrialization means employment generation and development of society. The entire people of the state will be benefited from the new project. Therefore, the land acquisition was in public interest.
Setting a healthy precedent, the West Bengal government agreed to pay compensation to farmers for acquiring their land at a generous rate—almost 150 per cent more than the prevailing market price. This was much more than what most other state governments had ordained as the price to be paid for acquiring land from farmers for setting up industries or special economic zones. For instance, owners of single-crop land in Singur got Rs 840,000 per acre and Rs 1 .2 million an acre if the land was used for double-cropping, while in Maharashtra, farmers got only Rs 24,000 an acre. However, this comparison may not be appropriate.
The land in Singur has a greater market value as it is close to the National Highway No. 2, connecting Kolkata with Delhi, and the land in question in Maharashtra may not enjoy a similar advantage. Yet, it has to be conceded that the compensation package decided by the West Bengal government is generous and an important factor in convincing over 9,000 land-owners at Singur (over 94 per cent of the total land to be acquired). These farmers have agreed to the deal and have already received their compensation money from the state government. Land acquisition in Singur has been completed and the land has been handed over to the West Bengal Industrial Development Corporation (WBI DC). Now WBIDC is the owner of the land. Till 2 December 2006, Rs 766.4 million has been disbursed as compensation to the farmers who have lost their land. Around 9,020 farmers have received compensation for 635 acres of land. Eighty-eight recorded bargadars (sharecroppers) have already received a payment of Rs 1 .7 million and the number of persons yet to receive payment, till 2 December 2006, was around 3,000.
Another allegation by the opposition against the State government is that land acquired for a private enterprise cannot be considered a public purpose. It is further alleged that the acquisition of land has not followed the established procedure of the company making advance payment. Instead the company is being given the land at a very concessional rate payable within the next 20 years. All this is apparently being kept a secret by the government. The government, however, refutes these allegations and vouches for its transparency in following the procedures laid out for the industrialization of the state. According to government agencies, ‘If you see the zig-zag way the map for the project site has been drawn, you will understand the pains we have taken to ensure the exclusion of the most fertile tracts of land in the region as well as homestead lands. This is not an ideal map for a factory site, and it took a lot of persuasion by us for the Tatas to accept this.
Thirdly, there is a perception that the Tata small car project has acquired land far in excess of what it actually requires to set up a factory of that capacity. Maruti Udyog is situated in a total land area of 300 acres and has an installed capacity of 3,50,000 cars a year. The Singur land being handed over to the Tatas is three times more than what Maruti Udyog has and that too for producing only 1,00,000 cars. The question in everyone’s mind is why the Tatas need 997 acres of land and whether there are other facilities that are being planned in that same area. Due to such issues, questions on the justification of allocating the Singur land to the Tatas will continue to be raised.
Agitations against the project started immediately after the fencing of the land was done. Singur’s uneasy peace was shattered during early February 2007 as pro-farmland forces clashed with the police in phases throughout the day. It was a grim reminder of the fact that the Tatas’ problems there are still far from over. For a group that has just tripped the mighty CSN of Brazil at the Corus sweepstakes in the United Kingdom, this small village in Hooghly continues to be a problem. It is alleged that the people of Singur offered Tata a plot of land on the other side of the village. This land is low-lying and needed to be filled up. According to the villagers, ‘But the Tatas want everything on a platter. They don’t want to spend money, so they want land which is fertile and the lifeline of the people. Why should the farmers of Singur subsidize Tata’s one-lakh rupee car?’
The state government received an unequivocal support by Ratan Tata, who has said his group will not move out of West Bengal. The company cited the example of Uttaranchal where the company was the first to set up a huge plant. Land prices in the state had gone up 25 times in the last 10 months as other automobile companies followed suit. The farmers of Uttaranchal have gained from such opportunities. The company has also approached NGOs and panchayats in Singur to provide training to locals at Ramakrishna Mission for developing technical skills in areas such as, carpentry, plumbing, electrician, simple fitting jobs, etc. According to them, if the need arises, key employees from Tata Motors plant can travel from Jamshedpur and impart training to students. This will bring to focus the skill sets required for jobs at an auto plant and how these tasks are carried out on a regular basis.
Tata Motors has also proposed a weekly forum meeting where farmers meet company executives and clear doubts. It also plans to replicate some of the programmes initiated in Pune and Jamshedpur for people in Singur. As part of other initiatives to connect with the people, the company is organizing special training programmes for women in areas such as tailoring, making, hand gloves garments, food products, and handicrafts. Tata Motors also plans to introduce technical subjects in local secondary schools by providing infrastructure support, sports facilities, career guidance, and a teachers’ training programme.
Some of the opposition parties are still not satisfied and are not restricting their agitation only to Singur. They have gone ahead to urge the people of Nandigram to be united against the government’s move to acquire multi-crop land for the proposed SEZ by the Indonesia-based Salim Group.
Questions for discussions
1. Why did Tatas prefer to locate their ‘dream car’ plant at Singur, West Bengal despite other equally good options such as Dharwad and Uttaranchal?
2. Tatas should have considered Pune and Jamshedpur, where they already had multiple facilities and several ancillary units, for locating this new plant. Do you agree with this statement?
3. Tata’s have often chosen wrong locations for their plants, such as the one at Lucknow, which is also marred with controversies. Discuss.
4. How do you think the problems at Singur can be amicably resolved by Tatas for earliest construction of their plant?
Harley-Davidson
Harley-Davidson Motorcycle Company was established in the year 1903. It soon became a leading manufacturer of motorbikes in the US and the neighboring countries. After World War II, Harley- Davidson had a monopoly in the motorbikes market due to the closure of its main rivals. It was easy, therefore, for the company to increase its market share and production, but the quality of the product became a secondary consideration. The problems for Harley-Davidson started only when Honda entered the US market and started to cut into its market share. Using the total quality management principles of Edward Deming, Honda’s products were increasingly better in terms of quality at a time when Harley-Davidson’s products were low on the quality front. By 1981, Honda almost pushed Harley Davidson to the verge of closure.
The management of Harley-Davidson was wondering how Honda was able to manufacture motorbikes much better in quality and at a much lesser cost compared to its products. Initially it attributed this to the cheap Japanese labour, huge advertising budgets, and dumping practices on part of Honda. Over a period of time, Harley officials found the three real reasons for Honda’s success— kaizen, Just-in-Time (JIT), and extensive use of statistical methods to measure quality. Using JlT, Honda was turning its inventory 20—30 times a year compared to Haiev-Davidson and other American companies at that time, who were turning their inventory only four times a year. Harley had by now understood how fewer inventory turns affect product cost and quality. Earlier in 1978, it had tried to implement the quality circles concept in its organization, but could not sustain it for a long time, in complete contrast to kaizen’s continuous improvement concept evolved and successfully implemented by Japanese companies.
The top management of Harley-Davidson was very conscious of employee involvement programmes having had a bad experience with quality circles. They did not want to thrust upon their workers various types of programmes for inventory reduction, quality improvement, work methods improvement, cost reduction, etc. simultaneously leading to confusion. Instead, they focused on a single most important agenda—quality. They felt that this umbrella term contained in an implicit way all the other improvement programmes. This simple goal of achieving quality in all the spheres of activity was something which every worker could relate to easily. Improving quality in everything you do gives a sense of pride and commitment. Harley-Davidson’s managers were so focused on their goal of quality that they were not opposed to making investments in order to improve the quality of their product. If new equipment could increase productivity and quality in addition to fostering a climate of continuous improvement, the company would go for it even without financial justification.
Another important decision on the part of Harley-Davison official was not to send rigid rules and regulations to their multiple facilities with diverse manufacturing environments. It was felt that doing so will kill employee participation in the quality initiative. The management provided the plant managers only with the direction in which the company was willing to go and told them the principles and concepts to be applied, but gave them the freedom to do it in their own way. This was a drastic shift from the white-collar and blue-collar discrimination existing in American companies at that time.
A typical example of this radical change in the thinking of top management can be demonstrated with an example of the company’s plant at York. The company wanted to have the paint facility enclosed at the plant to keep it cleaner and have proper lighting. The employees made the designs of the enclosures themselves and asked the management if they could choose the colour of its walls. The usual response would have been that we have to follow the standard colour scheme, but the management responded with consent to the workers’ request. This resulted in a clear demonstration of the management’s commitment to change and the workers reciprocated in the same way.
Harley-Davidson started the employee involvement group (EIG) in order to solve quality problems. It was the same quality circles programme which was a disaster earlier. This time the company gave workers the liberty to choose a suitable name for the concept. The employees at the Milwaukee engine plant opted for ‘quality circles’, while the York assembly plant workers decided to call this as ‘employee involvement groups’. Now, the company has a full-fledged employee involvement programme, in which the company formally trains employees in problem-solving, though participation is voluntary. Harley-Davidson does not quantify the cost benefits as a result of these ElGs, as it does not want to shift the company’s focus from quality to cost reduction. Harley’s turnaround has been highlighted in a big way in terms of its financial recovery and manufact-uring improvements, though what is not reported is the vision of Harley-Davidson in promoting emplo-yee involvement (Nimwegen & Kleiner 2000).
Questions for discussions
1. Is it right on the part of Harley-Davidson to focus only on quality improvement by even overlooking cost considerations?
2. Up to what extent has Harley-Davidson been successful in the international and domestic US market compared to Honda according to you?
3. Is the EIG a unique innovation of Harley- Davidson?
Presentation
The presentations will be of 10 marks and its weight age in the internal assessment will be 10 marks.
The students will be divided into groups and will be given the respective topics.
Each group will be required to speak on the respective topics for 20 - 25 minutes.
Attendance will be compulsory.
Students will also be marked on the basis of questions they ask to the other group, which requires them to be attentive throughout the presentation day.
Topics for the presentation :
• Flexible Manufacturing System
• Value Engineering
• Import substitution
• Corporate governance
• Benchmarking
• Export promotion
• Customer satisfaction
• Kaizen issues
• Cost reduction
• Waste Management
• Market Forecasting
• Work Design
• Quality Control and Quality Assurance
• Modern Material Management
• New Opportunities and challenges for Modern Production Managers
• 5 Virtual companies
• CRM
• Manufacturing outsourcing (Levi’s, Lee)
• Special Economic Zones
• Supply Chain Management
Class-BBA-3rd Semester
Course instructor-SSB
Topic: Production & Operation Management
Assignments: 3 External assessment:60
Case Studies: 2 Internal:40
Presentation :1 Mid Semester exams: 15 marks
Presentation: 5 marks
Assignment : 5 marks
Case Study : 5 marks
Hourly Test : 10 marks(5marks each)
Introduction
• This is a module in Production Operations and Management. It will cover Production management and its relationship to marketing, finance and accounting. This course will cover the topics like production planning , inventory management , maintenance management , supply chain management which are part of our day to day to life. Other topics discussed include: quality control, product and process design, facility location and layout, productivity improvement.
Objectives
Upon completion of the course, the student will have a basic understanding about the field of production and operations management and also how it is related to other functions like marketing etc .
Upon completion of the course, the student will have a basic understanding about the factors which are considered essential for locating a facility and how important is capacity planning and layout planning in an organization.
Upon completion of the course, the student will be familiar with the role of supply chain management in our day to day life . Also it will also help the students to know about how the cost price of the product can be reduced by using supply chain management.
LECTURE PROGRRAME:
Sr. No. Topics Date Case study Test Assignment
1
Introductory Session
Brief description about the course.
2
Production and Operations Management: concepts, functions
Production management deals with that part of the organization which deals with actual transformation of materials into finished goods or services.
Operations Mgt is design , Operation and improvement of Production mgt.
3
Relation of Production and Operations management with other functional areas
Production as a core of the organization
Assignment 1
4 Types of Production Systems
>Intermittent
When the production is for a particular order and not for the stock
Types
Job Shop
Batch
5
Types of Production Systems
>Continuous
When the production is for the stock and not for a particular order .
Types
Mass Production
Process Production
6 Facility location analysis, , features
Measures for the selection of location
Analysis based upon quantitative factors
Comparisons of qualitative factors
Selection of site
7
Facility location importance ,
Facility location decision
Facility location for already established company
8
Factors affecting facility location
Facility location decision depends upon
Availability of raw material
Nearness to the potential market
Nearness to operating requirements
Supply of labour
Transport and communication facility
Suitability of Land and capital
Safety requirements
9
Techniques for selecting a Plant Location
10
Case Study – Tata’s Dream Car Plant Location 1
11
Facility Layout (Features, Importance)
Layout identically involves the allocation of space and arrangement of equipment in such a manner that overall operating costs are minimised.
Importance to workers and costs reduction
12 Factors affecting plant layout, layout decisions
Nature of the product
Size of output
Nature of manufacturing systems
Localization of plant
Machines or equipments
13
Types of layout
14 1st Hourly Test 1
15 Productivity: calculation
Is measure of how much input is required to produce a given output.
16 Productivity linked incentives
17 Inventory Management
Importance and features
18 Functions of inventory, Types of inventory, Inventory costs, Various methods of inventory control
19 ABC analysis
20 EOQ analysis
Calculation of EOQ
21
Capacity Planning
Concept & Features
22
Capacity Planning Decisions
How to calculate capacity
23
Production Planning & Control (PPC) Concepts, Objectives
Functions
24 Assignment 2
25 Assembly Line Balancing
26
Work Study -Branches
Is the analysis of work by dividing it into smaller parts followed by rearrangement of these parts
27 Method Study: Its Calculation
Is the examination of work performance and its rearrangement to produce same result with less effort
28 Time Study
Its calculation
work simplification, work measurement
29 Motion study
Concept and its working
30 2nd hourly Test 2
31
Materials Management
Concept :Is planning, directing, controlling and co-coordinating those activities which are concerned with materials and inventory management.
Objectives: Material selection and Low cost
Functions
32 Case Study – Harley Davidson 2
33
Supply chain management
Concept of SCM
Functions of supply chain management
34
Supply chain strategies 1
35 Supply chain strategies 2
Vendor Selection
36
Maintenance management
Concept
Is concerned with planning and controlling Routine, planned and preventive maintenance activities of an organization.
Importance
Types of maintenance
Preventive maintenance, importance
37 Assignment 3
38
Statistical Quality control, its calculation
Testing the response time taken to the query
39
Accepting Sampling, its parts
40
Services, Importance, nature
41
Nature & Design of Services
Concept of JIT: Its working
42
TQM : Features, Importance
43
Quality Control
Inspection and its types
44
ISO quality systems
45 CAM
Books referred
Production & Operation Management : Adam & Ebert
Operations Management : William Stevenson
Operations Management : B.S.Goel
Assignments
The students will be given the topic for the assignment on the scheduled date and will be required to submit the same after 4 days. Late submissions will not be accepted.
The students are required to keep a record of all the assignments given so that at the time of giving the assessment no confusion is created.
1st - After 4th Lectures : Innovation
Assignment Description : Students in groups will have to find out two products in which there has been changes made by the manufacturing company in the past years.
Assignment Utility : Importance of innovation in product design
2nd -After 15th Lectures:--> Facility Location
Assignment Description : During your visit to any hospital , restaurant , coffee shop ets in your city , meet their concerned operations manager/ owner . Ask him/her about the factors considered by him in location of the site ?
Assignment Utility : Factors affecting facility location
3rd - After 38th Lectures:--> Capacity Planning
Assignment Description : Visit a restaurant/disco near you and find out the capacity it has so far for the customers. Ask them about the rates of the restaurant/disco and about the seasonal factors which influence the rate. If the occupancy is low , suggest measures to improve it.
Assignment Utility : Capacity Planning Decisions
Activity
1st Activity - Students will be divided in groups and then the group has to visit any production company and they have to shoot their production process and the same has to be discussed in the class.
2nd Activity - Students will be divided in groups and then the group will be allowed to select any one department which exist in an organization( like Production , Marketing ,Human resource , Strategic , Finance , etc. ) without which the organization cannot survive in the market.
CASE STUDIES
Tata’s ‘Dream Car’ Plant Location
The ‘dream car’ project of Ratan Tata, the Chairman of one of India’s largest and most respected business conglomerates is located in West Bengal. In 2005-06 the group had revenues of US$21.9 billion—the equivalent of about 2.8 per cent of the country’s GDP—and a market capitalization of US$46.9 billion. Tata dreams to create a car to be sold in the Indian markets with a price tag of Rs 100,000. The car will have a Euro IV compliant 700 cc petrol engine, a suspension, and a steering system designed for its size. Targeting the burgeoning middle-class, Tata Motors plans to roll out its car in the next three years by using a low-cost assembly operation. The car will be smaller compared to most existing cars on the road and will be produced in larger volumes, with all the high-volume parts manufactured in one plant. The other cost-cutting measures relate to intensive use of plastics on the body of the car and eliminating dealer margin. The group is looking at a very low-cost assembly operation and the use of modern-day adhesives instead of welding. There are some issues concerning safety, mainly because of the car’s modest size, but Tatas are determined to resolve them before the car reaches the market. In view of the socio-economic dimension in manufacturing the car, the company is looking at small satellite units, with very low break- even points, where the cars would be assembled, sold, and serviced. Tatas are planning to encourage local entrepreneurs to invest in these units, and to train these entrepreneurs to assemble the fully knocked-down or semi-knocked-down components that Tatas would send. These entrepreneurs would also sell and service the assembled vehicles. This approach would replace the dealer, and, therefore, the dealer’s margin. It will lead to an assembly-cum-retail operation that would be combined with very low-cost service facilities.
Tatas always wanted to have a car manufacturing facility, but during the early 1940s, they lost the race to B.M. Birla and Walchund Hirachand, who secured the British Government’s permission to establish their car factories in India. Hindustan Motors Limited (HML), India’s pioneering automobile manufacturing company was established just before Indian independence, in 1942 by B.M. Birla. Commencing operations in a small assembly plant in Port Okha near Gujarat, the manufacturing facilities later moved to Uttarpara, West Bengal in 1948, where it began the production of the Ambassador cars. Premier Automobiles was founded by the visionary and entrepreneur par excellence, Walchand Hirachand Doshi, in 1944. In collaboration with the Chrysler Corporation, India’s first car rolled out of the Premier factory in 1947. In collaboration with Fiat SpA, Italy, Premier first started assembling the Fiat 500 in India. Tatas had to wait for almost six decades before their maiden car Indica was launched in 1999. Indica’s success gave confidence to Ratan Tata to go ahead with his Rs 100,000 dream car.
During early 2006, Tatas started scouting for a good location for their dream car plant. The three states initially looking lucrative for the location were—Karnataka, West Bengal, and Uttaranchal. Dharwad in Karnataka had the advantage of geographic location, being located between Bangalore and Pune (where Tatas have major facilities). The Karnataka government also offered water and power tariff sops and agreed to Tata’s proposed move to build a township near the scheduled facility.
The West Bengal government, which is currently in an industrialization drive in the state, enticed the Tatas with various subsidies and sops. It tried to convince Tatas to set up the factory in the backward district of West Midnapore near Kharagpur. In today’s competitive environment, the car Tatas would be manufacturing would be the cheapest car available in the country, and the task they have undertaken is very challenging. Hence, they have taken into consideration all aspects, including logistics. Since the price factor is so important in this project, the choice of location is very critical. Apart from the availability of proper infrastructure and skilled labour, the company has to take into consideration social infrastructure such as proximity of educational institutions for the children of its employees. Out of the six different places offered by the West Bengal government, the company found Singur, about 50 kilometres north-west of Kolkata to be the most suitable.
If a particular company wants a big chunk of land for setting up a large plant, it is not possible for it to purchase land from each and every farmer. This is particularly true in West Bengal where fragmentation of land is very high. The state government came forward to acquire the land for the project. When the opposition raised issues against it, the government gave the justification that it is for a public purpose. According to the government, industrialization means employment generation and development of society. The entire people of the state will be benefited from the new project. Therefore, the land acquisition was in public interest.
Setting a healthy precedent, the West Bengal government agreed to pay compensation to farmers for acquiring their land at a generous rate—almost 150 per cent more than the prevailing market price. This was much more than what most other state governments had ordained as the price to be paid for acquiring land from farmers for setting up industries or special economic zones. For instance, owners of single-crop land in Singur got Rs 840,000 per acre and Rs 1 .2 million an acre if the land was used for double-cropping, while in Maharashtra, farmers got only Rs 24,000 an acre. However, this comparison may not be appropriate.
The land in Singur has a greater market value as it is close to the National Highway No. 2, connecting Kolkata with Delhi, and the land in question in Maharashtra may not enjoy a similar advantage. Yet, it has to be conceded that the compensation package decided by the West Bengal government is generous and an important factor in convincing over 9,000 land-owners at Singur (over 94 per cent of the total land to be acquired). These farmers have agreed to the deal and have already received their compensation money from the state government. Land acquisition in Singur has been completed and the land has been handed over to the West Bengal Industrial Development Corporation (WBI DC). Now WBIDC is the owner of the land. Till 2 December 2006, Rs 766.4 million has been disbursed as compensation to the farmers who have lost their land. Around 9,020 farmers have received compensation for 635 acres of land. Eighty-eight recorded bargadars (sharecroppers) have already received a payment of Rs 1 .7 million and the number of persons yet to receive payment, till 2 December 2006, was around 3,000.
Another allegation by the opposition against the State government is that land acquired for a private enterprise cannot be considered a public purpose. It is further alleged that the acquisition of land has not followed the established procedure of the company making advance payment. Instead the company is being given the land at a very concessional rate payable within the next 20 years. All this is apparently being kept a secret by the government. The government, however, refutes these allegations and vouches for its transparency in following the procedures laid out for the industrialization of the state. According to government agencies, ‘If you see the zig-zag way the map for the project site has been drawn, you will understand the pains we have taken to ensure the exclusion of the most fertile tracts of land in the region as well as homestead lands. This is not an ideal map for a factory site, and it took a lot of persuasion by us for the Tatas to accept this.
Thirdly, there is a perception that the Tata small car project has acquired land far in excess of what it actually requires to set up a factory of that capacity. Maruti Udyog is situated in a total land area of 300 acres and has an installed capacity of 3,50,000 cars a year. The Singur land being handed over to the Tatas is three times more than what Maruti Udyog has and that too for producing only 1,00,000 cars. The question in everyone’s mind is why the Tatas need 997 acres of land and whether there are other facilities that are being planned in that same area. Due to such issues, questions on the justification of allocating the Singur land to the Tatas will continue to be raised.
Agitations against the project started immediately after the fencing of the land was done. Singur’s uneasy peace was shattered during early February 2007 as pro-farmland forces clashed with the police in phases throughout the day. It was a grim reminder of the fact that the Tatas’ problems there are still far from over. For a group that has just tripped the mighty CSN of Brazil at the Corus sweepstakes in the United Kingdom, this small village in Hooghly continues to be a problem. It is alleged that the people of Singur offered Tata a plot of land on the other side of the village. This land is low-lying and needed to be filled up. According to the villagers, ‘But the Tatas want everything on a platter. They don’t want to spend money, so they want land which is fertile and the lifeline of the people. Why should the farmers of Singur subsidize Tata’s one-lakh rupee car?’
The state government received an unequivocal support by Ratan Tata, who has said his group will not move out of West Bengal. The company cited the example of Uttaranchal where the company was the first to set up a huge plant. Land prices in the state had gone up 25 times in the last 10 months as other automobile companies followed suit. The farmers of Uttaranchal have gained from such opportunities. The company has also approached NGOs and panchayats in Singur to provide training to locals at Ramakrishna Mission for developing technical skills in areas such as, carpentry, plumbing, electrician, simple fitting jobs, etc. According to them, if the need arises, key employees from Tata Motors plant can travel from Jamshedpur and impart training to students. This will bring to focus the skill sets required for jobs at an auto plant and how these tasks are carried out on a regular basis.
Tata Motors has also proposed a weekly forum meeting where farmers meet company executives and clear doubts. It also plans to replicate some of the programmes initiated in Pune and Jamshedpur for people in Singur. As part of other initiatives to connect with the people, the company is organizing special training programmes for women in areas such as tailoring, making, hand gloves garments, food products, and handicrafts. Tata Motors also plans to introduce technical subjects in local secondary schools by providing infrastructure support, sports facilities, career guidance, and a teachers’ training programme.
Some of the opposition parties are still not satisfied and are not restricting their agitation only to Singur. They have gone ahead to urge the people of Nandigram to be united against the government’s move to acquire multi-crop land for the proposed SEZ by the Indonesia-based Salim Group.
Questions for discussions
1. Why did Tatas prefer to locate their ‘dream car’ plant at Singur, West Bengal despite other equally good options such as Dharwad and Uttaranchal?
2. Tatas should have considered Pune and Jamshedpur, where they already had multiple facilities and several ancillary units, for locating this new plant. Do you agree with this statement?
3. Tata’s have often chosen wrong locations for their plants, such as the one at Lucknow, which is also marred with controversies. Discuss.
4. How do you think the problems at Singur can be amicably resolved by Tatas for earliest construction of their plant?
Harley-Davidson
Harley-Davidson Motorcycle Company was established in the year 1903. It soon became a leading manufacturer of motorbikes in the US and the neighboring countries. After World War II, Harley- Davidson had a monopoly in the motorbikes market due to the closure of its main rivals. It was easy, therefore, for the company to increase its market share and production, but the quality of the product became a secondary consideration. The problems for Harley-Davidson started only when Honda entered the US market and started to cut into its market share. Using the total quality management principles of Edward Deming, Honda’s products were increasingly better in terms of quality at a time when Harley-Davidson’s products were low on the quality front. By 1981, Honda almost pushed Harley Davidson to the verge of closure.
The management of Harley-Davidson was wondering how Honda was able to manufacture motorbikes much better in quality and at a much lesser cost compared to its products. Initially it attributed this to the cheap Japanese labour, huge advertising budgets, and dumping practices on part of Honda. Over a period of time, Harley officials found the three real reasons for Honda’s success— kaizen, Just-in-Time (JIT), and extensive use of statistical methods to measure quality. Using JlT, Honda was turning its inventory 20—30 times a year compared to Haiev-Davidson and other American companies at that time, who were turning their inventory only four times a year. Harley had by now understood how fewer inventory turns affect product cost and quality. Earlier in 1978, it had tried to implement the quality circles concept in its organization, but could not sustain it for a long time, in complete contrast to kaizen’s continuous improvement concept evolved and successfully implemented by Japanese companies.
The top management of Harley-Davidson was very conscious of employee involvement programmes having had a bad experience with quality circles. They did not want to thrust upon their workers various types of programmes for inventory reduction, quality improvement, work methods improvement, cost reduction, etc. simultaneously leading to confusion. Instead, they focused on a single most important agenda—quality. They felt that this umbrella term contained in an implicit way all the other improvement programmes. This simple goal of achieving quality in all the spheres of activity was something which every worker could relate to easily. Improving quality in everything you do gives a sense of pride and commitment. Harley-Davidson’s managers were so focused on their goal of quality that they were not opposed to making investments in order to improve the quality of their product. If new equipment could increase productivity and quality in addition to fostering a climate of continuous improvement, the company would go for it even without financial justification.
Another important decision on the part of Harley-Davison official was not to send rigid rules and regulations to their multiple facilities with diverse manufacturing environments. It was felt that doing so will kill employee participation in the quality initiative. The management provided the plant managers only with the direction in which the company was willing to go and told them the principles and concepts to be applied, but gave them the freedom to do it in their own way. This was a drastic shift from the white-collar and blue-collar discrimination existing in American companies at that time.
A typical example of this radical change in the thinking of top management can be demonstrated with an example of the company’s plant at York. The company wanted to have the paint facility enclosed at the plant to keep it cleaner and have proper lighting. The employees made the designs of the enclosures themselves and asked the management if they could choose the colour of its walls. The usual response would have been that we have to follow the standard colour scheme, but the management responded with consent to the workers’ request. This resulted in a clear demonstration of the management’s commitment to change and the workers reciprocated in the same way.
Harley-Davidson started the employee involvement group (EIG) in order to solve quality problems. It was the same quality circles programme which was a disaster earlier. This time the company gave workers the liberty to choose a suitable name for the concept. The employees at the Milwaukee engine plant opted for ‘quality circles’, while the York assembly plant workers decided to call this as ‘employee involvement groups’. Now, the company has a full-fledged employee involvement programme, in which the company formally trains employees in problem-solving, though participation is voluntary. Harley-Davidson does not quantify the cost benefits as a result of these ElGs, as it does not want to shift the company’s focus from quality to cost reduction. Harley’s turnaround has been highlighted in a big way in terms of its financial recovery and manufact-uring improvements, though what is not reported is the vision of Harley-Davidson in promoting emplo-yee involvement (Nimwegen & Kleiner 2000).
Questions for discussions
1. Is it right on the part of Harley-Davidson to focus only on quality improvement by even overlooking cost considerations?
2. Up to what extent has Harley-Davidson been successful in the international and domestic US market compared to Honda according to you?
3. Is the EIG a unique innovation of Harley- Davidson?
Presentation
The presentations will be of 10 marks and its weight age in the internal assessment will be 10 marks.
The students will be divided into groups and will be given the respective topics.
Each group will be required to speak on the respective topics for 20 - 25 minutes.
Attendance will be compulsory.
Students will also be marked on the basis of questions they ask to the other group, which requires them to be attentive throughout the presentation day.
Topics for the presentation :
• Flexible Manufacturing System
• Value Engineering
• Import substitution
• Corporate governance
• Benchmarking
• Export promotion
• Customer satisfaction
• Kaizen issues
• Cost reduction
• Waste Management
• Market Forecasting
• Work Design
• Quality Control and Quality Assurance
• Modern Material Management
• New Opportunities and challenges for Modern Production Managers
• 5 Virtual companies
• CRM
• Manufacturing outsourcing (Levi’s, Lee)
• Special Economic Zones
• Supply Chain Management
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