20MBA21- Operations

Management

Module - I
 Production
Meaning:
Production is defined as step by step
conversion of one form of material in to
another form through chemical or mechanical
process to create or enhance the utility of the
product to the user.
For example, the iron ore exists in the nature.
It will be converted into steel by a chemical
process, which is put to various uses like
making bars, pipes, angles etc.
 Production Management
Definition:
Edwood Buffa defines production
management as follows:
Production management deals with decision-
making related to production processes so
that the resulting goods or services are
produced according to specifications, in the
amounts and by the schedule demanded and
at minimum cost.
 Operations Management
Definition:
Operations management is the management
of an organization’s productive resources or
its production system, which converts inputs
into the organization’s products and services.
Production (Vs) Operation
 “The transformation process of inputs into the
form of output, thereby adding value to some
entity”.
 Output may be a product or service. If it is a
product centric that is known as production, If
it is a service centric then that is known as
operation.
 Production as a system

 ‘A production system is the collection of

people, equipment, and procedures organized
to accomplish the manufacturing operations
of a company (or other organization).’
Production as a system
Production/operations
management
 It is concerned with the production of goods
and services, and involves the responsibility
of ensuring that business operations are
efficient and effective.
 It is also the management of resources, the
distribution of goods and services to
customers.
 Difference between Goods and
Services
Goods Services
 Tangible  Intangible
 Goods can be  Services cannot be
inventoried inventoried
 Little customer  Extensive customer
contact contact
 Long lead times  Short lead times
 Capital intensive.  Labor intensive.
Objectives of Production
Management
 Right Quality
 Right Quantity
 Manufacturing Costs
 Manufacturing Schedule
 Right Quality

 The quality of the product is established based

upon the customers needs.
 Customer’s needs are translated into product
specifications by the design or engineering
department.
 The manufacturing department translates these
specifications in to measurable objectives.
 Thus the cost quality trade off decides the final
quality of the product.
 Thus a proper balance should be obtained such
that the product quality offered to the customers
should be within the pre-established cost.
 Right Quantity
 The manufacturing organizations should
produce the products at the right number.
 If the products produced are in excess of its
demand the capital will block up in the form
of inventory.
 If the products are produced in short of
demand, there will be shortages of the
product.
 Thus a decision is to be taken regarding how
much to produce (Right Quantity).
 Manufacturing Costs
 Manufacturing costs are established already
before the product is actually manufactured.
 The manufacturing department has to
manufacture the products at the pre-
established cost.
 In any case, any variation between the actual
costs and the pre-established cost should be
kept minimum.
 Manufacturing Schedule
 Timeliness of delivery is one of the important
parameter to judge the effectiveness of
production department.
 There are many reasons like non-availability
of raw materials at the right time,
absenteeism, machine break down etc, which
affects the timely production of products.
 So the manufacturing department should
organize its activities in such a way that the
products will be manufactured as per
schedule.
Functions of Production Department

 Forecasting the demand for the products and

using the forecast to determine the
requirements of various factors of production.
 Arranging for the procurement of required
factors of production.
 Arranging for the services such as
maintenance, store keeping, material handling,
inspection and quality control etc that would
be required to attain the targeted level of
production.
 Effective utilization of factors of production.
Scope of Production Management
 The strategic level decisions are:
 New product identification and design.
 Process design and planning.
 Facilities location and layout planning.
 Design of material handling system.
 Capacity planning.
Scope of Production Management
 The operational level decisions are:
 Production Planning.
 Production Control.
 Other Activities.
The strategic level decisions are:

 New Product Identification and Design:

 The success of an organization depends upon
the product mix that it offers to the
customers.
 There exists a demands for products which
has
good market acceptability.
 The products should be designed in such a
way
as to meet the expectation of the customer.
 The tools like value analysis should be
 Process design and planning:
 This involves the appropriate technology for
conversion of raw materials in to finished
goods.
 The choice of technology depends upon
several factors such as demand, investment
capability, labour availability and the degree
of automation required.
 This is followed by selection of the process of
conversion and determining the work stations
and the flow of work. At this stage macro
level process planning is done.
 Facilities Location and Layout Planning:
 The facilities location is a strategic decision
and facilities once located will not be altered
in the near future.
 So due considerations should be given to all
the factors that affect the location decisions.
 Proper layout should be planned in order to
avoid backward movement of materials,
frequent accidents etc.
 Design of Material Handling System:
 As per the principle of material handling, the
handling should be kept at minimum though it
is not possible to avoid handling.
 The selection of particular flow pattern and
material handling equipment is dependent on
the distance between work stations, intensity
of flow and traffic and size, shape and nature
of materials to be handled.
 Capacity Planning:
 This decision is concerned with the
procurement of fixed assets like plant and
machineries.
 The decision regarding the size of the plant,
output etc are decided at this stage.
 The capacity planning activity is again a
function of volume of demand.
The operational level decisions are:
 Production Planning:
 It is concerned with determining the future
course of action regarding production to
achieve the organizational objectives.
 Production Control:
 It is a management technique, which aims to
see that the activities are carried out as per
the plan.
 Production control activity is concerned with
comparing the actual output with standard
output and to take corrective action if there is
 Other Activities:
 Inventory control.
 Maintenance and Replacement.
 Cost Reduction and Cost Control.
Evolution of Operations Management (or)
Historical Milestones in POM
 The Industrial Revolution
 Post-Civil War Period
 Scientific Management
 Human Relations and Behaviorlism
 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.
 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
 The industrial revolution spread from England to
other European countries and to the United
States.
 In 1790 an American Inventor, Eli Whitney,
developed the concept of interchangeable parts.
 The first great industry in the US was the textile
industry.
 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.
 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 US 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 organize the
shop.
 Supervisors were carefully selected and
 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
 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
 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, operation 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 services organizations
accelerated sharply after World War II.
 Today, more than two-thirds of the US
workforce is employed in services.
 About two-thirds of the US GDP is from
services.
 There is a huge trade surplus in services.
 Investment per office worker now exceeds the
investment per factory worker.
 Thus there is a growing need for service
operations management.
 The Computer Revolution
 Explosive growth of computer and
communication technologies
 Easy access to information and the
availability of more information
 Advances in software applications such as
Enterprise Resource Planning (ERP) software
 Widespread use of email
 More and more firms becoming involved in E-
Business using the Internet
 Result: faster, better decisions over greater
distances
 Classification of Production
System
These are the common types of production
systems:
1. Job Shop Production
2. Batch or Intermittent Production
3. Continuous Production system or Flow
Production
4. Mass Production
5. Cellular Production.
 Job Shop Production

 Job shop production is characterized by

manufacturing of one or few quantity of
products designed and produced as per the
specification of customers within prefixed
time and cost.
 The distinguishing feature of job shop is low
volume and high variety of products.
 Examples are space vehicles, aircraft, special
purpose machine, large turbo generators,
construction equipment etc.
 Characteristics of Job Shop
Production
 Low volume and high variety of products
 Use of general purpose machines and
facilities
 Highly skilled operators are required, because
of its uniqueness
 Frequently changing set ups
 Movement of material is long and
uninterrupted.
 Advantages of Job Shop
Production
 Because of general purpose machines, variety
of products can be processed
 Operators will become more skilled and
competent that each job gives them a
learning opportunity
 Utilization of full potential of operators
 Opportunity to use innovative ideas and
creative methods.
 Disadvantages of Job Shop
Production
 Higher set up and tooling up cost due to
frequent set up changes
 High inventory level of raw material and
hence higher inventory costs
 Production planning is complicated
 Highly competent and skilled manpower is
demanded
 Production cost tends to be high
 High cost of material handling and larger
space requirement.
 Batch or Intermittent
Production
 Intermittent production is defined by
APICS(American Production and Inventory
Control Society) as a form of manufacturing
in which products pass through the functional
departments in lots or batches and each lot
may have a different routing
 Batch production is characterized by the
manufacture of limited number of products
produced at regular intervals and stock
awaiting sales.
 Characteristics of Batch or
Intermittent Production
 Shorter production runs
 More number of set ups and hence higher set
up cost
 Amount of supervision required is less when
compared to job shop production
 Plant and machinery are flexible
 Higher level of work in process inventory
 Lower manufacturing cost and manufacturing
cycle time.
 Advantages of Batch or
Intermittent Production
 Better utilization of plant and machinery
 Promotes functional specialization
 Cost per unit is lower as compared to job
shop production
 Lower investment in plant and machinery
 Flexibility to accommodate and process more
number of products
 Job satisfaction exists for operators.
 Disadvantages of Batch or
Intermittent Production
 Material handling is complex because of
irregular and longer flows
 Production planning and control is complex
 Work in process inventory is higher when
compared to continuous production
 Longer production times
 Higher set up cost due to frequent changes in
set up.
Continuous Production system
or Flow Production
 Process manufacturing is defined as the
production that adds value by mixing,
separating, forming and/or performing
chemical reactions
 Process industries manufacture highly
standardized non-discrete products in
extremely large volumes
 In flow production, the production process
generally follows a specific and fixed
sequence of operations(Routing).
 High automation is possible
 Characteristics of Continuous
Production system or Flow
Production
 Dedicated plant and equipments with zero
flexibility
 Material handling is fully automated
 Shorter lead times
 Larger investment and usually capital
intensive units
 Maintenance is an important aspect
 Unit cost is lower due to high volume
 Planning and scheduling is a routine action.
 Mass Production
 Manufacture of discrete parts or assemblies
using a continuous process are called mass
production
 When the volumes are very large, a fixed
assignment of resources is used to
manufacture the product
 The machineries are arranged in a line or
product layout
 Example is Automobile assembly line.
 Characteristics of Mass
Production
 Standardization of product and process
sequence and hence line layout is
recommended
 Larger volumes of output
 Shorter cycle time of production
 Lower in-process inventory
 Production planning and control is easy
 Extent of supervision required is less
 Cost per unit is low, because of high volume.
Advantages of Mass
Production
 Higher rate of production with reduced cycle
time
 Higher capacity utilization due to line
balancing
 Less skilled operators can manage the
process
 Low in-process inventory
 Production cost per unit will come down due
to economies of scale.
Limitations of Mass Production
 Breakdown of one machine will stop an entire
production line
 High investment in production facilities
 Supervision is general rather than specific
 Work for operators is monotonous without
much challenge
 The cycle time is determined by the slowest
operation.
 Cellular Production
 The cellular system production is based on group
technology, which seeks to achieve superior
performance by exploiting similarities inherent in
the parts.
 In cellular production, groups of parts that require
similar processing requirements are grouped into
part family.
 After the parts are divided into families, a cell is
created that includes all equipments, facilities and
human skills required to produce a part family
 In cellular manufacturing, a team is completely
responsible for organizing work within each cell.
 Based on the due date, the team members will
schedule the work.
 Advantages of Cellular
Production
 Reduced material handling and transportation
 Set up times are reduced because the jobs
processed at the same cell have similar
characteristics.
 Reduction in throughput time.
 Lower in-process inventory because of more
efficient scheduling
 Less space is needed because the machines
in the cells are located close together
 Lower total investment due to higher
productivity and efficiency.
 Disadvantages of Cellular
Production
 Breakdown of a single machine, halts the
production of entire cell.
 In situations like lowering of demand for
family, breaking up the cell and redistribution
of equipments may be necessary
 Implementation of this system requires a
considerable amount of work and expertise to
characterize and classify the products and
then design appropriate work cells.
 Factors Affecting Operations
Management Today
 Reality of Global Competition
 Quality, Customer Service, and Cost
Challenges
 Rapid Expansion of Advanced Technologies
 Continued Growth of the Service Sector
 Scarcity of Operations Resources
 Social-Responsibility Issues
 Reality of Global Competition
 Changing nature of world business
 International companies
 Strategic alliances and production sharing
 Fluctuation of international financial
conditions
 Changing Nature of World
Business
 The US gross domestic product (GDP) is, at $10
trillion, the largest in the world.
 Companies all over the globe are aggressively
exporting their products/services to the US
 Many US companies are targeting foreign markets to
shore up profits.
 The global economy that interconnects the
economies of all nations has been termed the global
village.
 One of the most important new markets is China.
 International Companies
 International companies are those whose
scope of operations spans the globe as they
buy, produce, and sell.
 International firms search out opportunities
for profits relatively unencumbered by
national boundaries.
 Operations managers must coordinate
geographically dispersed operations.
 Strategic Alliances

 Strategic alliances are joint ventures among

international companies to exploit global
business opportunities.
 Alliances are often motivated by
 Product or production technology
 Market access
 Production capability
 Pooling of capital
 Production Sharing
 Production sharing means that a product
might be designed and financed in one
country, its materials produced in other
countries, assembled in another country, and
sold in yet other countries.
 The country that has the highest-quality,
lowest-cost producer for a particular activity
would perform that portion of the production
of the product.
 Fluctuation of International
financial conditions
Inflation, fluctuating currency exchange rates,
turbulent interest rates, volatility of
international stock markets, huge national
debts of many countries, and enormous trade
imbalances among international trading
partners have created complex financial
conditions for global businesses.
Quality, Customer Service, and Cost
Challenges
In the 1980s, when the quality of U.S goods
and services was thought to be inferior, many
U.S companies took a hard look at
themselves. They determined that global
competition in the 1990s and beyond would
be based primarily on product and service
quality.
The goal of adequate quality had to be
replaced with the objective of perfect product
and service quality.
Quality, Customer Service, and
Cost Challenges
To succeed in global competition in the
twenty-first century, companies must quickly
develop innovative products and respond
quickly to customers needs.
To reduce labor costs, most firms focus on
labor rates, labor productivity, and process
automation.
How do High labor cost countries compete?
 Move production to low labor cost countries.
 Negotiate lower labor rates with union
workers.
 Rapid Expansion of Advanced
Technologies
 Although the initial costs of these assets are
high, the benefits go far beyond a reduction in
labor cost.
 Increased products/service quality, reduced
scrap and material costs, faster responses to
customer needs, and faster introduction of
new products and services are a few of their
benefits.
Continued Growth of the Service
Sector
The emergence of a variety of private and
public organizations to supply services to our
growing population is one of the most
compelling facts about the U.S. economy
today.
Growing service sector does not necessarily
mean an unhealthy manufacturing sector, and
it is important to recognize the
interrelationships between manufacturing and
service sectors.
 Scarcity of Operations
Resources
The scarcity of funds, employees, and other
operational resources will always cause
headaches for operations managers. Certain
raw materials like titanium and nickel,
personnel skills, coal, natural gas, water,
petroleum products and other resources are
periodically unavailable or in short supply and
probably will become scarcer in the future.
The main challenge for the operations
manager is how to allocate these resources
among business opportunities.
 Social-Responsibility Issues

 Environmental impact
 Safety impact
 Employee impact.
Recent Trends in Production and
Operations Management

 Global Market Place

 Production / Operations Strategy
 Total Quality Management
 Flexibility
 Time Reduction
 Technology
 Worker Involvement
 Re-engineering
 Environmental Issues
 Recent Trends in Production
and Operations Management
 Corporate Downsizing
 Supply Chain Management
 Lean Production.
Recent Trends in Production and
Operations Management
 Global Market Place:
 Globalization of business has compelled
many manufacturing firms to have operations
in many countries where they have certain
economic advantage.
 This has resulted in steep increase in the level
of competition among manufacturing firms
throughout the world.
Recent Trends in Production and
Operations Management
 Production/Operations Strategy:
More and more firms are recognizing the
importance of production/operation strategy
for the overall success of their business and
the necessity for relating it to their overall
business strategy.
 Total Quality Management:
TQM approach has been adopted by many
firms to achieve customer satisfaction by a
never-ending quest for improving the quality
of goods and services.
Recent Trends in Production and
Operations Management
 Flexibility:
 The ability to adopt quickly to changes in
volume of demand, in the product mix
demanded, and in product design or in
delivery schedules has become a major
competitive strategy and a competitive
advantage to the firms.
 This is sometimes called as Agile
Manufacturing.
Recent Trends in Production and
Operations Management
 Time Reduction:
 Reduction of manufacturing cycle time and
speed to market for a new product provide
competitive edge to a firm over other firms.
 When companies can provide products at the
same price and quality, quicker delivery(short
lead times) provide one firm competitive
advantage over the other.
Recent Trends in Production and
Operations Management
 Technology:
 Advances in technology have led to a vast
array of new products, new processes and
new materials and components.
 Automation, computerization, information
and communication technologies have
revolutionized the way companies operate.
 Technological changes in product and
processes can have great impact on
competitiveness and quality, if the advanced
technology is carefully integrated into the
existing system.
Recent Trends in Production and
Operations Management
 Worker Involvement:
 The recent trends is to assign responsibility
for decision making and problem solving to
the lower levels in the organization
 This is known as employee involvement and
empowerment
 Examples of worker involvement are quality
circles and use of work teams or quality
improvement teams.
Recent Trends in Production and
Operations Management
 Re-engineering:
 This involves drastic measures or break-
through improvements to improve the
performance of a firm.
 It involves the concept of clean-slate
approach or starting from scratch in
redesigning the business processes.
Recent Trends in Production and
Operations Management
 Environmental Issues:
 Today’s production managers are concerned
more and more with pollution control and
waste disposal which are key issues in
protection of environment and social
responsibility.
 There is increasing emphasis on reducing
waste, recycling waste, using less-toxic
chemicals and using biodegradable materials
for packaging.
Recent Trends in Production and
Operations Management
 Corporate Downsizing(or Right Sizing):
 Downsizing or right sizing has been forced on
firms to shed their obesity.
 This has become necessary due to
competition, lowering productivity, need for
improved profit and for higher dividend
payment to share holders.
Recent Trends in Production and
Operations Management
 Supply-Chain Management:
Management of supply-chain, from suppliers
to final customers reduces the cost of
transportation, warehousing and distribution
throughout the supply chain.
Recent Trends in Production and
Operations Management
 Lean Production:
 Production systems have become lean
production which use minimal amounts of
resources to produce a high volume of high
quality goods with some variety.
 These systems use flexible manufacturing
systems and multi-skilled workforce to have
advantages of both mass production and job
production.