Production and Operations Management

Production and Operations Management (POM): Production: Production is any process or

procedure developed to transform a set of input elements like men, materials, capital, information and energy into a specified set of output elements like finished products and services in proper quantity and quality, thus achieving the objectives of an enterprise.

Production and Operations Management (POM): contd., Production/Operations management is the

process which combines and transforms various resources used in the Production/Operations subsystem of the organisation into value added products/services in a controlled manner as per the policies of the organization.

Production/Operations function, therefore, is that part of an organisation which is concerned with the transformation of a range of inputs into the required outputs having the requisite quality level.

Production and Operations Management (POM): contd., Production Management: The set of interrelated

management activities which are involved in manufacturing certain products is called as production management.

Operations Management: If the same concept is extended to services management, then the corresponding set of activities is called as operations management.

The concept of manufacturing products/providing services is called as production/operations management.

Historical Milestone in POM or The Evolution of POM A number of historical developments have impacted the

evolution of POM. To gain insights into the background of this field, we will

examine several of these developments: The Industrial Revolution The Post-Civil War Period, Scientific Management Human relations and behavioralism Operations research The service revolution The computer revolution

The Industrial Revolution

The industrial revolution developed in England in the 1700s.

The steam engine, invented by James Watt in 1764,largely replaced human and water power for factories.

The publication of Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the division of labour, also referred to as the specialization of labour.

The Industrial Revolution Thus the factories of the late 1700s had developed not only

production machinery but also ways of planning and controlling the work of production workers.

The industrial revolution spread from England to other European countries and to the United States.

In 1790 Eli Whitney, an American inventor, developed the concept of interchangeable parts.

The first great industry in the United States was the textile industry. The Industrial revolution was advanced further by the development

of the gasoline engine and electricity in the 1800s. By the mid – 1800s, the old cottage system of production had been

replaced by the factory system.

Post- Civil War Period

During the post-Civil war period great expansion of production capacity occurred.

By post – Civil War the following developments set the stage for the great production explosion of the 20th century:

- increased capital and production capacity

- the expanded urban workforce

- new Western Markets

- an effective national transportation system.

Scientific Management

F.W.Taylor is known as the father of scientific management. His shop system employed these steps:

- Each worker’s skill, strength, and learning ability were determined.

- Stopwatch studies were conducted to precisely set standard output per worker on each task.

- Material specifications, work methods, and routing sequences were used to organise the shop.

- supervisors were carefully selected and trained- incentive pay system were initiated.

Scientific Management

In the 1920s, Ford Motor Company’s operations embodied the key elements of Scientific Management:

- Standarised product design- Mass production- Low manufacturing cost- mechanized assembly lines- Specialisation of labour- interchangeable parts

Human Relations and Behavioralism In the 1927-1932 period, researchers in

the Hawthorne Studies realized that human factors were affecting production.

Researchers and Managers alike were recognising that psychological and sociological factors affected production.

From the work of behaviouralists came a gradual change in the way managers thought about and treated workers.

Operations Research (OR)

During the World War II, enormous quantities of resources (Personnel, supplies, equipments,..) had to be deployed.

Military Operations research (OR) teams were formed to deal with the complexity of the deployment.

After the war, operations researchers found their way back to universities, industry, Government and consulting firms.

OR helps operations managers make decisions when problems are complex and wrong decisions are costly.

The Service Revolution

The creation of service organisations accelerated sharply after World War II

Today, more than two-thirds of the US workforce is employed in services.

About two-thirds of U.S. GDP is from services. There is a huge trade surplus in services. Investment per office workers now exceeds the

investment per factory worker. Thus, there is a growing need for service

operations management.

The Computer Revolution Computers and software have had a significant impact

on the ways organizations manage their operations. Today many operations decisions are made more

quickly because of easy access to information and the availability of more information.

Many operations activities can be performed more quickly because of advances in computer technologies and software applications. Example Enterprise Resource Planning (ERP) software such as SAP, PeopleSoft and Oracle.

The widespread use of e-mail today allows employees to quickly and cheaply communicate with vendors and customers as well as coworkers.

Factors affecting operations Management Today Reality of global competition Quality, customer service, and cost

challenge Rapid expansion of advanced

technologies Continued growth of the service sector Scarcity of operations resources Social-responsibility issues

System concept of production

System is a collection of interrelated entities. Operations management is the management of

transformation systems which convert inputs into goods and services.

The inputs to the system are material, labour, equipments and capital.

These inputs are combined and converted into goods and services by a suitable process technology.

In product manufacturing, the major inputs are capital, machines, equipments and tools, and labour is required to operate and maintain the equipments.

System concept of production contd., The figure explains the systems aspect of

production/operations function of an organization.

The organisation receives several inputs as indicated on the left hand side and converts them into useful products and services using its facilities.

In the process of conversion, definitely, there will be some deviations in the product’s attributes like quality, size, shape and number of units produced.

System concept of production contd., To cope up with the predetermined plans and

policies, it is highly essential to communicate these deviations to the input stage in the form of feedback for making necessary corrections.

Based on the feedback, the system once again tries to produce the product or service with modified parameters, in order to meet the specifications.

The feedback mechanism is a continuous exercise to monitor the status of the system.

System concept of production contd., The system has to take feedback from its

environment and adjust its parameters accordingly.

the top management may be treated as the internal environment and its instructions and expectations will form internal feedback.

The environment outside the firm may change in terms of legal, political, social or economic conditions, thereby necessitating the corresponding change in the environment of production or operations.

Types of Production System

The production system of a company mainly uses facilities, equipments, and operating methods to produce goods that satisfy customer’s demand.

The classification of production system is summarized in the below table.

Types of Production System contd.,Basis Classification ExamplesType of output

Type of flow

Products

Services

Projects

Job shop

Flow shop

Continuous process

Consumer goods like TV, Radio, furniture, etc. Producer goods like, lathe, milling machine, etc.

Transportation, health, entertainment, banking services, education system, etc.

Construction of bridge, dam, road, etc.

Hospital, auto repair, machine shop, furniture company, etc.

High volume TV factory, auto factory, etc.

Postal services, telephone company, chemical plant, etc.

Types of Production System contd.,

Basis Classifications Examples

Type of specification under service type

Customized

Standardized

Medical care, legal service

Insurance, wholesale store


Flow shop: This is a conversion process in which successive units of output undergo the same sequence of operations, using specialized equipments usually positioned along a production line. Example auto assembly, assembly of television sets, assembly of computer key boards etc.

Extreme form of flow shop is some times treated as a continuous process in which there is a constant flow of materials, as in oil refining, chemical processing in which there is no way to identify successive units of output.


Job Shop: This is a conversion process in which units of different types of products follow different sequences through different shops.

This type of system has more flexibility.

This system results into more set-up time, more in-process inventory, complex scheduling, varying quality, and so on.


Batch Manufacturing: A batch manufacturing facility produces some intermediate varieties of products with intermediate volumes.

Under this condition, a few or several products will have to share the production resources to balance their utilization.

The Project: A project refers to the process of creating a complex one-of-a kind product or service with a set of well-defined tasks in terms of resources required and time phasing.

Functions of Production and operations Management The production and operations

management function can be broadly divided into the following four areas:

1. Technology selection and management

2. Capacity Management

3. Scheduling/Timing/Time allocation

4. system maintenance

Technology Selection and Management It is a decision that will have a significant

bearing on the management of manpower, machinery, and materials capacity of the operations system and also on the type of disturbances.

It can create within and outside the system by generating

i. Undesirable effects of deteriorationii. Potentially harmful waste by-productsiii. Potential risk, to the users and non-users, due

to variety of reasons.

Capacity Management

The capacity management aspect once framed in a long-term perspective, revolves around matching of available capacity to demand or making certain capacity available to meet the demand variation.

Capacity management is very important for achieving the organizational objectives of efficiency, customer service and overall effectiveness.

While lower than needed capacity results in non-fulfillment of some of the customer service and other objectives of the production system, a higher than necessary capacity results in lowered utilization of the resources.

Scheduling

Scheduling is another decision area of operations management which deals with the timing of various activities-time phasing of the filling of the demands.

It is evident that as the span of fluctuations in variety and volume gets wider, the scheduling problem assumes greater importance.

In job-shop type operations systems, the scheduling decisions are very important which determine the system effectiveness as well as the system efficiency.

System Maintenance

The fourth area of operations management is regarding safeguards-that only desired outputs will be produced in the ‘normal’ condition of the physical resources, and that the condition will be maintained normal.

This is an important area whereby ‘vigilance’ is maintained so that all the good work of capacity creation, scheduling, etc. is not negated.

Technology selection and management has much to contribute towards this problem.

A proper selection and management procedure would give rise to few problems.

Types of Production/Operations Decisions Operations decisions tended to fall into

three general categories:

1. Strategic decisions

2. Operating decisions

3. Control decisions

Strategic Decisions Decisions about products, processes, and facilities. These decisions are strategic importance and have

long-term significance for the organization. Examples of this type of planning decisions are” Deciding whether to launch a new-product development

project Deciding on the design for a production process for a

new product Deciding how to allocate scarce materials, utilities,

capacity, and personnel among new and existing business opportunities

Deciding what new facility are needed and where to locate them.

Operating Decisions Decisions about planning production to meet demand. These decisions are necessary if the ongoing production of goods

and services is to satisfy the demands of the market and provide profits for the company.

Examples of this type of decisions are: Deciding how much finished-goods inventory to carry for each

product Deciding what products and how much to each include in next

month’s production schedule Deciding how many temporary employees to hire next week Deciding how much to purchase from each vendor next month

Control Decisions Decisions about planning and controlling operations. These decisions concern the day-to-day activities of workers,

quality of products and services, production and overhead costs, and maintenance of equipment.

Examples of this type of decisions are: Deciding what to do about a department’s failure to meet the

planned labour cost target Developing labour cost standards for a revised product design that

is about to go into production Deciding what the new quality control acceptance criteria should be

for a product that has had a change in design deciding how often to perform preventive maintenance on a key

piece of equipment.

Operations Strategy

Operations strategy is a long-range plan for the production of a company’s products/services and provides a road map for what the production or operations functions must do if business strategies are to be achieved.

The company must consider, both internal and external factors.

It must develop operations strategies that will achieve its business strategies and corporate mission.

The following figure shows that operations strategies are derived directly from the corporate mission and business strategy.

Operations Strategy

A corporate mission is a set of long-range goals unique to each organization and including statements about the kind of business the company wants to be in, who its customers are, its basic beliefs about business, and its goals of survival, growth, and profitability.

Business strategy is a long-range plan of an organization and provides a road map of how to achieve corporate mission.

Business strategies are embodied in the company’s business plan, which includes a plan for each functional area of the business.

Operations Strategy

Distinctive competencies or weakness represent great competitive advantages or disadvantages in capturing markets. They could include things like automated production technology, a skilled and dedicated workforce, an ability to quickly bring new products into production, a talented sales force.

Operations Strategy

It includes decisions on issues as what new product or services must be developed and when they must be introduced into production, what new facilities are required and when they are needed, what new technologies and processes must be developed and when they are needed.

Competitive Priorities

Low production costs: Unit cost of each product/service, including labor, material and overhead costs

Delivery performance: Fast delivery, On-time delivery

High-quality products/services: Customer’s perception of degree of excellence exhibited by products/services

Customer service and flexibility: Ability to quickly change production to other products/services, customer responsiveness.

Elements of Operations Strategy

Positioning the production system Product/service plans Outsourcing plans Process and technology plans Strategic allocation of resources Facility plans: capacity, location and

layout

Positioning the Production System

Positioning the production system means selecting the type of product design, type of production system, and type of finished goods inventory policy for each product group in the business strategy.

The two basic types of product design are custom and standard. Custom products are designed according to the needs of individual

customers. The choice of this type of product design results in many different products, each being produced in small batches. Flexibility and on-time delivery are usually needed for this type of product. Example; Supercomputer.

The choice of standard products results in only a few product models that are typically produced either continuosly or in very large batches.

Fast delivery and low production costs are needed for this type of product. Example TV


The two classic types of production processes are product-focused and process-focused.

Product-focused production is also called line flow production, production lines, and assembly lines.

In this approach, the machines and workers needed to produce a product are grouped together. Example Auto assembly lines can produce 30 t0 60 vehicles per hour.

Process-focused production is usually best when producing many unique products, each with relatively low volume.

Each production department ordinarily performs only one type of process, such as painting. All products that need to be painted would be transported to the painting department.


There are two basic types of finished goods inventory policies: produce-to-stock and produce-to order.

In the produce-to-stock policy, products are produced ahead of time and placed in inventory. Then when orders for the products are received, the products are shipped immediately from the inventory.

In the produce-to-order policy, operations manager wait until they have the customer’s orders in hand before they produce the products.

Product/Service Plans An important part of business strategy is to plan for new

products and services to be designed, developed, and introduced.

Operations strategy is directly influenced by product/service plans for these reasons:

As products are designed, all the detailed characteristics of each product are established.

Each product characteristic directly affects how the product can be made or produced.

How the product is made determines the design of the production system, and the design of the production system is the heart of operations strategy.

Concepts of Product Life Cycle (PLC): Stages of PLC

Product/Service Plans There is a trend towards shortened product life cycles,

particularly in industries such as computers and consumer goods.

Shortened PLC have three important effects:1. The amount of spending on product design and

development is increased.2. Production system continuously changing product

models. This creates the need for flexible production systems that can be easily changed to other products.

3. Computer-aided design (CAD) and Computer-aided manufacturing (CAM) is allowing some companies to respond faster to designing and redesigning products and launching them into production quickly.

Outsourcing Plans Outsourcing refers to hiring out or subcontracting some

of the work that a company needs to do. It has many advantages and disadvantages, and

companies try to determine best level of outsourcing to achieve their operations and business goals.

At one extreme, a company could design a new product, purchase all the basic raw materials, and then process all of the subcomponents, subassemblies, major assemblies and finished products.

This would require the company to have more equipment, more employees, and a larger facility to do all the work itself, but the company would have more control over quality and other production issues.

Outsourcing Plans

At the other extreme, a company could design a new product, outsource all the production of the product to one or more subcontractors, and then distribute the product under its own brand name.

The company could even outsource the technical design work and the distribution function.

Many companies today even outsource some service functions such as payroll, billing, order processing, developing and maintaining a web site, finding and interviewing potential employees, facility maintenance and computer maintenance.

Process and technology Plans

an essential part of operations strategy is the determination of how products and services will be produced.

This involves planning every detail of production process and facilities.

The range of technologies available to produce both products and services is great and is continuously increasing.

Automated technology is an important strength to be used as companies strive capture shares of global markets.

Strategic Allocation of Resources

All companies today have limited resources available for operations.

Cash and capital funds, capacity, research labs, workers, engineers, machines and materials and other resources are scarce in varying degrees for each firm.

These resources must be divided among, or allocated to, products, business units, projects, or profit opportunities in ways that maximize the achievement of the objectives of operations.

Facility plans: Capacity, Location, and Layout Enormous capital investment is required

to make production capacity available. Land may need to be purchased,

specialized technologies may have to be developed, new equipment may need to be made or purchased and installed, and new facilities may need to be located and built.

Operations Strategy in Services

The elements of operations strategy applies equally well to both manufacturing and services.

But there are some differences.

Characteristics of Services and Manufactures ProductsServices Manufactured Products

Intangible outputs

Outputs cannot be inventoried

Extensive customer contact

Short lead times

Labor intensive

Service quality subjectively determined

Tangible products

Products can be inventoried

Little customer contact

Long lead times

Capital intensive

Product quality objectively determined

Competitive Priorities for Services

All the priorities for firms are also available to service firms.

service companies can seldom provide all the priorities must be chosen that will provide the greatest market advantage.

A small retailer that emphasizes close personal contact with customers may have high-quality services, but its cost may be higher than the cost of its high-volume discount competitors.

Positioning Strategies for Services

Type of service design, with several interesting dimensions-standard or custom services, amount of customer contact, and the mix of physical goods and intangible services.

Type of production process-quasi-manufacturing; customer-as-participant; and customer-as-product.