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Production
Production
Lesson 1 :
Lesson 1 Production and Operations Management (POM): An Introduction
Overview : Overview Introduction of Production/Operations (P/O) systems Some Historical Perspectives of P/O
Management Basic components of P/O systems Manufacturing versus Service systems Major issues in P/O
Management Current Trends
Definitions of P/O systems : Definitions of P/O systems Production is the creation of goods and services.
Production/operation system is any system which transforms input into output and in the mean time creates value
Introduction of P/O systems : Introduction of P/O systems In some organizations the product is a physical good
(refrigerators, bread, etc.) and the activities creating such tangible product is usually referred to as Production. In
others the product is a service (insurance, health care for elderly, etc.). The production that takes place to produce a
service is called Operations.
Operations Management : Operations Management The management of systems or processes that create goods
and/or provide services
Twin objectives of operations management : Twin objectives of operations management 1. The customer
service objective. To provide agreed/adequate levels of customer service (and hence customer satisfaction) by
providing goods or services with the right specification, at the right cost and at the right time. 2. The resource
utilization objective. To achieve adequate levels of resource utilization (or productivity) e.g., to achieve agreed levels
of utilization of material,machines and labor.
Historical Perspectives of POM :Historical Perspectives of POM The Industrial Revolution Scientific
Management Human Relations and Behaviorism Operations Research Influence of Japanese Approach
The Industrial Revolution (18th century) :The Industrial Revolution (18th century) The industrial revolution
developed in England in the 1700s. The steam engine, invented by James Watt in 1764, largely replaced human and
water power for factories. Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the
specialization of labor. Thus the late-1700s factories had not only machine power but also ways of planning and
controlling the tasks of workers.
The Industrial Revolution (18th century) :The Industrial Revolution (18th century) The industrial revolution
spread from England to other European countries and to the United Sates. In 1790 an American, Eli Whitney,
developed the concept of interchangeable parts. In the 1800s the development of the gasoline engine and electricity
further advanced the revolution. By the mid-1800s, the old cottage system of production had been replaced by the
factory system.
Scientific Management (1900s) :Scientific Management (1900s) Frederick Taylor is known as the father of
scientific management. His shop system employed these steps: Each worker’s skill, strength, and learning ability were
determined. Stopwatch studies were conducted to precisely set standard output per worker on each task. Material
specifications, work methods, and routing sequences were used to organize the shop. Supervisors were carefully
selected and trained. Incentive pay systems were initiated.
Scientific Management :Scientific Management In the 1920s, Ford Motor Company’s operation embodied the
key elements of scientific management: standardized product designs mass production low manufacturing costs
mechanized assembly lines specialization of labor interchangeable parts
Human Relations and Behavioralism :Human Relations and Behavioralism In the 1927-1932 period,
researchers in the Hawthorne Studies realized that human factors were affecting production. Researchers and
managers alike were recognizing that psychological and sociological factors affected production. From the work of
behavioralists came a gradual change in the way managers thought about and treated workers.
Operations Research (Management Science) :Operations Research (Management Science) During World
War II, enormous quantities of resources (personnel, supplies, equipment, …) had to be deployed. Military operations
research (OR) teams were formed to deal with the complexity of the deployment. After the war, operations
researchers found their way back to universities, industry, government, and consulting firms. OR helps operations
managers make decisions when problems are complex and wrong decisions are costly.
Influence of Japanese Approach :Influence of Japanese Approach Total Quality Management Just In Time
Management. Strong employees involvement
Today's Factors Affecting POM :Today's Factors Affecting POM Global Competition Quality, Customer
Service, and Cost Challenges Computers and Advanced Production Technology Growth of the Service Sector
Scarcity of Production Resources Issues of Social Responsibility
Production as a System :
Basic components of Production/ Operation Systems :
Basic components of Production/ Operation Systems Inputs: All physical and nonphysical resources coming into the
system External Legal, Economic, Social, Technological Market Competition, Customer Desires, Product Info.
Primary Resources Materials, Personnel, Capital, Utilities
Basic components of Production/ Operation Systems Outputs can be classified as: Direct Goods Services Indirect
Waste Pollution Technological Advances
Basic components of Production/ Operation Systems A pure good is a tangible product that can be stored, transported,
and purchased for later use A pure service is an intangible product which cannot be stored since it is consumed as it is
produced.
Basic components of Production/ Operation Systems Transformation/Conversion subsystem: which converts inputs
into goods or services. It consists of Concepts Procedures Non-equipment technologies Rules, Guideline, Steps, etc.
Slide 26: POM incorporates many tasks that are interdependent, but which can be grouped under five main
headings: PRODUCT, PLANT, PROCESSES, PROGRAMMES, PEOPLE. [5 P’s] PRODUCT Marketers in a
business must ensure that a business sells products that meet customer needs and wants. The role of Production and
Operations is to ensure that the business actually makes the required products in accordance with the plan. The role of
PRODUCT in POM therefore concerns areas such as: - Performance- Aesthetics- Quality- Reliability- Quantity-
Production costs- Delivery dates
Slide 27:2. PLANT To make PRODUCT, PLANT of some kind is needed. This will comprise the bulk of the fixed
assets of the business. In determining which PLANT to use, management must consider areas such as: - Future
demand (volume, timing)- Design and layout of factory, equipment, offices- Productivity and reliability of
equipment- Need for (and costs of) maintenance- Heath and safety (particularly the operation of equipment)-
Environmental issues (e.g. creation of waste products)
Slide 28:3. PROCESSES There are many different ways of producing a product. Management must choose the best
process, or series of processes. They will consider: - Available capacity- Available skills- Type of production- Layout
of plant and equipment- Safety- Production costs- Maintenance requirements
Slide 29:4. PROGRAMMES The production PROGRAMME concerns the dates and times of the products that are
to be produced and supplied to customers. The decisions made about programme will be influenced by factors such
as: - Purchasing patterns (e.g. lead time)- Cash flow- Need for / availability of storage- Transportation
Slide 30:5. PEOPLE Production depends on PEOPLE, whose skills, experience and motivation vary. Key people-
related decisions will consider the following areas: - Wages and salaries- Safety and training- Work conditions-
Leadership and motivation- Unionization- Communication
Slide 35:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation
Slide 37:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation
POM-MARKETING INTERFACE :
POM-MARKETING INTERFACE MARKETING FURNISHES DATA ON: SIZE OF MARKET VOLUME OF
PRODUCTION NEEDED TO MEET ANTICIPATED MARKET NEEDS DESIRED INVENTORIES
ANTICIPATED CHANGES IN PRODUCTION OF OTHER PRODUCTS ANTICIPATED DELIVERY
SCHEDULES: AMOUNT,LOCATION,TIMING PACKAGING NEEDS
Slide 41:
Money CASH FLOW Stock Product Process Man-Job/ Materials / Equipments Labour Materials Depreciation charge
Depreciation Reserve Physuical Plant Working Capital Surplus & Reserves Profits Taxes Money accounts
Production/Product Money, time, and the POM system Sales: product becomes money
POM-F&A INTERFACING :
POM-F&A INTERFACING IMPORTANT AREAS ACCUMULATION OF OPERATING DATA TO FORM A
STARTING POINT FOR STANDARDS ACCUMULATION OF COST DATA OF A JOB, A TIME PERIOD OR A
PROCESS ASSIGNMENT OF GENERAL COSTS TO PROFIT CENTRES
POM-F&A INTERFACING :
POM-F&A INTERFACING DETERMINATION OF PROFIT/LOSS OF PROFIT CENTRES DETERMINATION
OF VALUE OF WORK-IN-PROCESS (W-I-P) DETERMINATION OF FINANCIAL VALUE OF RAW
MATERIAL & FINISHED GOODS INVENTORIES PROVIDING STATUS OF JOBS OR W-I-P
Slide 44:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation
Slide 46:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation
POM-INFORMATION INTERFACING :
POM-INFORMATION INTERFACING INFORMATION FUNCTION INTERFACES IN RESPECT OF
INVENTORY CONTROL COST CONTROL REPORTING STATUS ON ORDERS PRODUCTION SCHEDULES
FORECASTING & SCHEDULING MATERIAL REQUIREMENT CONTROL OF W-I-P
POM-INFORMATION INTERFACING :
POM-INFORMATION INTERFACING QUALITY CONTROL PREVENTIVE MAINTENANCE PLANNING
MAKE OR BUY DECISION LABOUR EFFICIENCY RECORDS
Slide 50:
Manage- ment System Philo- sophy Policy Objectives Opportu- nity Information system General information Policy
flow Feedback Personnel R & D Engineering Purchasing Control Inf Performance information Control Information
Feedback(forecasts) Feedback (plans, budgets &a/c Control Inf Business organisation Marketing system Prod.Ops.
Mgt. system Fin & A/c system Orders & Inf Raw matl Collections Disbursements Finished goods
Advt,Promotion,Sales Order flow Material flow Cash flow Relationship between POM & Rest of organisation
AUTOMATION :
AUTOMATION It means use of machine s& equipments for performing physical & mental operations in a
production process in place of human beings. It can be visualized as electronic brain with capability of taking routine
decisions like routing, scheduling & logical decisions like to make corrective actions. It can be done at following
levels of system- Over the raw materials & WIP Over the machines & tools. Over the finished goods.
Slide 52:
Advantages of automation Better quality Reduction in direct labor cost More accuracy Minimization of waste Saving
of time, more speed & output & list goes on……. Disadvantages of automation High capital investment Can create
un-employment High maintenance cost Continuous power supply Any break down leads to shutdown.
MANUFACTURING PROCESS :
MANUFACTURING PROCESS The combination of all activities & operations to produce some goods & services is
called manufacturing process. It is basically of 2 types- Intermittent continuous
Intermittent :
Intermittent Here goods are manufactured specially to fulfill orders made by customers rather than for stock. e.g.
HOSPITALS features- Items are made according to customer’s order. Production facilities are flexible enough to
handle wide variety of products & sizes. Flow of materials is Intermittent. Products are produced in small quantities.
Workload is generally unbalanced. In-process inventory is large. Requires Large capital investment. Demand can be
discontinuous. Storage is necessary at each stage of production.
CONTINOUS SYSTEM :
CONTINOUS SYSTEM Here items are produced for stocks & not for specific orders. E.g. sugar Features- Items are
produced for stocks Flow of materials is continuous Production facilities are inflexible Items are produced in large
quantities Workload is generally balanced In-process inventory is less Require less capital investment Demand is
continuous Storage is not necessary at each stage Product must be standardized.
Process analysis :
Process analysis A "business process," can be defined as "a chain of logical connected, repetitive activities that
utilizes the organization's resources to refine an object for the purpose of achieving specified and measurable results
or products for internal or external customers." Process analysis is an approach that helps managers improve the
performance of their business activities. It can be a milestone in continuous improvement.
Slide 62:
Process analysis generally involves the following tasks: Define the process boundaries that mark the entry points of
the process inputs and the exit points of the process outputs. Construct a process flow diagram that illustrates the
various process activities and their interrelationships. Determine the capacity of each step in the process. Calculate
other measures of interest. Identify the bottleneck, that is, the step having the lowest capacity. Evaluate further
limitations in order to quantify the impact of the bottleneck. Use the analysis to make operating decisions and to
improve the process.
Slide 63:
Process Flow Diagram The process boundaries are defined by the entry and exit points of inputs and outputs of the
process. Once the boundaries are defined, the process flow diagram (or process flowchart) is a valuable tool for
understanding the process using graphic elements to represent tasks, flows, and storage. The following is a flow
diagram for a simple process having three sequential activities: Process Flow Diagram The symbols in a process flow
diagram are defined as follows: Rectangles: represent tasks Arrows: represent flows. Flows include the flow of
material and the flow of information. Inverted triangles: represent storage (inventory). RAW ,WIP,FINISHED
Circles: represent storage of information
Slide 65:
4. Flow time (also known as throughput time or lead time) - the average time that a unit requires to flow through the
process from the entry point to the exit point. 5. Cycle time - the time between successive units as they are output
from the process. Cycle time for the process is equal to the inverse of the throughput rate. Cycle time can be thought
of as the time required for a task to repeat itself. 6. Process time - the average time that a unit is worked on. Process
time is flow time less idle time. 7. Idle time - time when no activity is being performed. 8. Work In process - the
amount of inventory in the process. 9. Set-up time - the time required to prepare the equipment to perform an activity
on a batch of units . 10. Direct labor content - the amount of labor (in units of time) actually contained in the product.
11. Direct labor utilization - the fraction of labor capacity that actually is utilized as direct labor.
Little's Law :
Little's Law The inventory in the process is related to the throughput rate and throughput time by the following
equation: W.I.P. Inventory = Throughput Rate x Flow Time This relation is known as Little's Law . Since the
throughput rate is equal to 1 / cycle time, Little's Law can be written as: Flow Time = W.I.P. Inventory x Cycle
Time
Process Improvement :
Process Improvement Improvements in cost, quality, flexibility, and speed are commonly sought. The following lists
some of the ways that processes can be improved: Reduce work-in-process inventory - reduces lead time. Add
additional resources to increase capacity of the bottleneck. For example, an additional machine can be added in
parallel to increase the capacity. Improve the efficiency of the bottleneck activity - increases process capacity. Move
work away from bottleneck resources where possible - increases process capacity. Increase availability of bottleneck
resources, for example, by adding an additional shift - increases process capacity.
Slide 69:
6. Minimize non-value adding activities - decreases cost, reduces lead time. Non-value adding activities include
transport, rework, waiting, testing and inspecting, and support activities. 7. Redesign the product for better
manufacturability - can improve several or all process performance measures. 8. Flexibility can be improved by
outsourcing certain activities. Flexibility also can be enhanced by postponement, which shifts customizing activities
to the end of the process. In some cases, dramatic improvements can be made at minimal cost when the bottleneck
activity is severely limiting the process capacity. A cost-benefit analysis should be performed to determine if a
process change is worth the investment. Ultimately, net present value will determine whether a process
"improvement" really is an improvement.
Plant location :
Plant location Meaning-the establishment of an industry at a particular place. It is of 2 types- Localization
/centralization-means concentration of similar type of industries at some particular place. E.g. textile in Mumbai.
Delocalization /Decentralization-means spreading of similar type of industries at different places. E.g. banking
industries.
Slide 83:
The total cost is represented by the height of column for each location. we select a location for which total cost is
minimum. The cost summary chart has advantage of clarity in presentation. but analysis is restricted to certain
specified factors only. Least cost centre analysis- Here transportation cost associated with various location alternatives
is considered. Limitation of these techniques- 1.Choice of plant location assumed to be entirely dependent upon
minimization of operational costs. 2.Operational costs are assumed to be linearly related to distance involved.
Dimensional analysis :
Dimensional analysis It involves calculation of the relative merits or cost ratios for each of the factors, giving each of
the cost factor an appropriate weightage by means of an index to which the cost ratio is raised & multiplying these
weighted ratios in order to arrive at a figure on the relative merits of alternative sites.
Slide 85:
Let Cm1,Cm2,Cm3,…..Cmz are the costs associated with site M for various cost factors. Cn1,Cn2,Cn3,…….Cnz are
of site N.W1,W2,W3,…….Wz are weightage for various factors. Merit of location M=(Cm1)W1*(Cm2)W2*…
(Cmz)Wz Merit of location N=(Cn1)W1*(Cn2)W2*…(Cnz)Wz Relative merits of sites M & N are- merit of M merit
of N If this value is > 1, then select site M & vice-versa. Advantages- it compares both subjective & objective factors
& gives a quantitative figure.
Slide 88:
Advantages &disadvantages of urban, rural & sub-urban sites for a plant-