Page 265 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes The keyword in figure is ‘optimally’. Market demands are moreover known or are forecasted,
but we do know them, and the production capacities are also recognized. But how these two are
matched will produce different cost structures and utility (e.g. time) structures. Optimization of
the cost or other utilities is the anxiety of production planning.
The market demands (actual and forecasted) will not typically be level and steady over time. At
different points of time the market will demand differently. It is, not for all time possible for the
production department to chase the market fluctuations as and when they arise (or even if they
are known in advance) and very frequently it is not ‘optimal’ (economical cost wise) to do so.
Therefore, the production plan will many a time, look very dissimilar from the marketing or
sales plan, although the total production figures will be more or less in agreement by way of the
market requirements.

Self Assessment

Fill in the blanks:
11. Production planning as it is usually understood is really the ………………and ………………
range plan.
12. It is necessary to plan future work so that the ……………… and available capacity can be
matched.



Caselet Reliance Industries Ltd.

eliance Industries Ltd. (RIL) has emerged as the largest private sector company in
the country. It has grown at a Compound Annual Growth Rate (CAGR) of over
R26 per cent in the last 25 years. It’s sales income increased at a CAGR of 26.61 per
cent from 1976-77 to 2001-02. Net profit soared over 2200 times or at a CAGR of 36.05 per
cent. Reliance’s total assets shot up from ` 328.90 million in 1976-77 to ` 298,750 million in
2000-01. It’s net worth moved up from ` 95.40 million to Rs. 147,650 million in this period.
From a tiny market capitalization of ` 780 million in 1979-80, Reliance’s market cap
jumped to ` 298,700 million in 2000-01.
RIL was built on a step-by-step process of backward integration from textiles and fibers to
fiber intermediates and feedstocks and, finally, all the way to oil refining and exploration.
The company used its proven competencies in mobilizing large amounts of capital, in
creating large new markets and in managing mega-projects to attain its position in the
Indian business world.
In 1981, RIL secured a licence for manufacturing 10,000 Mega Tonnes (MT) of Polyester
Fibre Yarn (PFY) and obtained technology from DuPont for setting up the facility. For
installing this facility, the company acquired a massive 300-acre plot of land in Patalganga,
near Mumbai. In implementing this project, the company adopted three strategies that it
has since repeated over and again to drive its phenomenal growth.
First, the size of Reliance’s facility represented “world scale” capacity that would meet the
cost and quality standards on a global basis. This was a major departure from the normal
practice of the time of creating a “safe” capacity based on reasonable projection of demand.
Dhirubhai Ambani, the founder of RIL, created capacity ahead of actual demand and on
the basis of the latent demand. Then, he would go about systematically removing the
barriers that were constraining the demand.
Contd...

260 LOVELY PROFESSIONAL UNIVERSITY