(i)

PRODUCTION AND
TOTAL QUALITY
MANAGEMENT
(As Per the Revised Syllabus of Mumbai University for
S.Y. BMS, Semester IV, 2015-16)

Prof. K. SHRIDHARA BHAT

B.E. (Mech), PG DIM, M.B.A. F.I.I.M.M.
Managing Director
Akshaya Management Consultancy Services
Bangalore - 560 085
Karnataka, India

• MUMBAI • NEW DELHI • NAGPUR • BENGALURU • HYDERABAD • CHENNAI • PUNE

• LUCKNOW • AHMEDABAD • ERNAKULAM • BHUBANESHWAR • INDORE • KOLKATTA • GUWAHATI
 (ii)

© Author
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording and/or otherwise without the prior written permission of the publisher.

First Edition : 2016

9
Third Edition : 2014

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,
“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.
Phone: 2386 01 70/2386 38 63, Fax: 022-2387 71 78
Email: himpub@vsnl.com Website: www.himpub.com
Branch Offices
New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj,
New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286
Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018.
Phone: 0712-2738731, 3296733; Telefax: 0712-2721215
Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar,
Race Course Road, Bengaluru - 560 001.
Phone: 080-32919385; Telefax: 080-22286611
Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham,
Kachiguda, Hyderabad - 500 027.
Phone: 040-27560041, 27550139; Mobile: 09848130433
Chennai : New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai - 600 017.
Mobile: 9380460419
Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth, (Near Prabhat
Theatre), Pune - 411 030. Phone: 020-24496323/24496333. Mobile: 09370579333
Lucknow : House No. 731, Shekhupura Colony, Near B.D. Convent School, Aliganj
Lucknow - 226 022. Mobile: 09307501549
Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,
Ahmedabad - 380 009. Phone: 079-26560126;
Mobile: 09377088847
Ernakulam : 39/176 (New No. 60/251), 1st Floor, Karikkamuri Road, Ernakulam, Kochi - 622011,
Phone: 0484-2378012, 2378016; Mobile: 09344199799
Bhubaneswar : 5 Station Square, Bhubaneswar - 751 001 (Odisha).
Phone: 0674-2532129, Mobile: 09861046007
Indore : Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302, IIIrd Floor,
Near Humpty Dumpty School, Indore - 452 007 (M.P.). Mobile: 09301386468
Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,
Kolkata - 700 010, Phone: 033-32449649, Mobile: 09883055590, 07439040301
Guwahati : House No. 15, Behind Pragjyotish College, Near Sharma Printing Press,
P.O. Bharalumukh, Guwahati - 781009 (Assam). Mobile: 09883055590, 09883055536
Typeset by : Page Designers, Bengaluru
Printed at : Rose Fine Arts, Mumbai. On behalf of HPH.
 (iii)

PREFACE

Production Management has increased its importance in recent years, because the produc-
tion function is considered as the heart of any business. Production managers in charge of
manufacturing are responsible for ensuring superior quality, cutting unnecessary costs, meet-
ing tight delivery schedules demanded by customers and providing them better customer ser-
vices so as to maintain the competitiveness of their firms both in the domestic and international
markets.
Productivity, Materials Management and Total Quality Management are major areas of
importance in Production Management. Materials Management is crucial for the success of
most organsiations because the cost of purchasing, storing, processing, moving and shipping
materials, account for more than half of the product’s cost. Improving productivity in a major
factor in facing the challenge of competition and this involves driving down the cost of all
aspects of business activities, especially in the area of materials. Efficient and effective man-
agement of materials has became the key to achieve higher productivity levels, especially in
manufacturing organisations producing tangible goods, both consumer and individual goods.
Managing quality and offering value to the customer is still a major concern for many
firms all over the world. Quality has become the most important factor in the long-term profit-
ability and success of any business organisation. Quality management is concerned with the
understanding of the principles of total quality. Total quality is an approach to doing business
that attempts to maximise the competitiveness of an organisation through the continual im-
provement of the quality of its products, service, people, processes and environment.
Total Quality Management (TQM) is a philosophy that involves everyone in the
organisations in a continual improvement of quality and achieve customer satisfaction.
This book has been organised into three units viz., (1) Production Management,
(2) Materials Management and (3) Basics of Productivity and TQM, comprising ten chapters in
all. This book is specifically written to meet the requirements of the BMS degree program
(Semester IV) of Mumbai University.
I have immense pleasure to express my sincere gratitude to Sri Niraj Pandey and Sri
Anuj Pandey of Himalaya Publishing House, Pvt. Ltd., for their keen interest and effort to
publish this book. I am also grateful to Sri Vijay Pandey for his interest and effort in
printing and promoting this book.
 (iv)

I thank Sri B.S.Madhu and Smt. Divya of M/S Page Designers for their excellent DTP
work. I also thank Smt. Nimisha and staff of HPH production unit for their effort in designing
the cover page and printing this book
I also thank my family members, friends and well-wishers for their constant support
and encouragement for this endeavor.
I invite readers to offer their valuable suggestions as feedback to me to enable me to
improve the book in its future editions.

K. SHRIDHARA BHAT
No.680, ‘Akshaya’, 1 ‘C’ Main,
Kempegowda Layout, 3rd Block,
3rd Phase, Banashankari III Stage
Bangalore - 560 085.
Phone : (080) 26694761
Email : sbhat680@yahoo.com
 (v)

SYLLABUS
Production and Total Quality Management
[60 Lectures : 3 Credit]
Learning Objectives:
1. To acquaint learners with the basic management decisions with respect to production and quality
management.
2. To make the learners understand the designing aspect of production systems.
3. To enable the learners apply what they have learnt theoretically.

Unit Name of the Topic No. of Lectures

Unit 1 Production Management

1. Objectives, Components – Manufacturing Systems: Intermittent and
Continuous Production Systems.
2. Product Development, Classification and Product Design.
3. Plant Location and Plant Layout Objectives, Principles of Good Product
Layout, Types of Layout.
4. Importance of Purchase Management. 14
Unit 2 Materials Management
Concept, Objectives and Importance of Materials Management, Various Types
of Material Handling Systems.
Inventory Management
Importance – Inventory Control Techniques – ABC, VED, FSN, GOLF,
XYZ, SOS and HML.
EOQ: Assumptions Limitations and Advantages of Economic Order Quantity,
Simple Numerical on EOQ, Lead Time, Reorder Level, Safety Stock. 16
Unit 3 Basics of Productivity and TQM
Concepts of Productivity, Modes of Calculating Productivity. Importance of
Quality Management, Factors Affecting Quality; TQM – Concept and Importance,
Cost of Quality, Philosophies and Approaches to Quality: Edward Deming,
J. Juran, Kaizen, P. Crosby’s Philosophy.
Product and Service Quality Dimensions, SERVQUAL
Characteristics of Quality, Quality Assurance, Quality Circle: Objectives of
Quality Circles, Ishikawa Fish Bone, Applications in Organizations
Simple Numerical on Productivity. 16
Unit 4 Quality Improvement Strategies and Certifications
Lean Thinking, Kepner-Tregor Methodology of Problem Solving, Six Sigma
Features, Enablers, Goals, DMAIC/DMADV.
Taguchi’s Quality Engineering, ISO 9000, ISO 1400, QS 9000. Malcolm
Baldrige National Quality Award (MBNQA), Deming’s Application Prize. 14
 (vi)

Paper Pattern
Maximum Marks: 75
Time: 2.5 Hours

Note: 1. All questions are compulsory subject to internal choice.

2. Figures to right indicate full marks.

Q.1. Attempt any 2 questions (15 Mks)

(a) (7.5 Mks)
(b) (7.5 Mks)
(c) (7.5 Mks)
Q.2. Attempt any 2 questions (15 Mks)
(a) (7.5 Mks)
(b) (7.5 Mks)
(c) (7.5 Mks)
Q.3. Attempt any 2 questions (15 Mks)
(a) (7.5 Mks)
(b) (7.5 Mks)
(c) (7.5 Mks)
Q.4. Attempt any 2 questions (15 Mks)
(a) (7.5 Mks)
(b) (7.5 Mks)
(c) (7.5 Mks)
Q.5. Case Study (15 Mks)
 (vii)

CONTNETS

UNIT 1 : PRODUCTION MANAGEMENT

CHAPTER 1 : AN OVERVIEW OF PRODUCTION MANAGEMENT 1 - 21

1.0 INTRODUCTION 1
1.1 WHAT IS PRODUCTION MANAGEMENT? 1
1.2 NATURE OF PRODUCTION 2
1.3 MANAGING A PRODUCTION SYSTEM 5
1.4 DECISION-MAKING IN PRODUCTION /OPERATIONS MANAGEMENT 7
1.5 FUNCTIONS OF PRODUCTION MANAGERS 11
1.6 PROBLEMS OF PRODUCTION MANAGEMENT 11
1.7 COMPONENTS OR SUB-FUNCTIONAL AREAS OF PRODUCTION/OPERATIONS
MANAGEMENT 12
1.8 PRODUCTION SYSTEMS 15
1.9 REVIEW QUESTIONS 21

CHAPTER 2 : PRODUCT PLANNING AND DEVELOPMENT 22 - 33

2.0 INTRODUCTION 22
2.1 WHAT IS A PRODUCT? 22
2.2 NEED FOR PRODUCT PLANNING AND DEVELOPMENT 24
2.3 OBJECTIVES OF PRODUCT PLANNING AND DEVELOPMENT 25
2.4 NEW PRODUCT DEVELOPMENT PROCESS 25
2.5 FACTORS TO BE CONSIDERED IN PRODUCT DEVELOPMENT 27
2.6 PRODUCT DESIGN 28
2.7 IMPORTANCE OF PRODUCT DESIGN 29
2.8 OBJECTIVES OF PRODUCT DESIGN 29
2.9 FACTORS INFLUENCING PRODUCT DESIGN 29
2.10 THE PRODUCT DESIGN PROCESS AS A PART OF PRODUCT
DEVELOPMENT PROCESS 30
2.11 STAGES IN PRODUCT DESIGN 31
2.12 DESIGN DOCUMENTS FOR PRODUCTION 32
2.13 EFFECT OF PRODUCT DESIGN ON PRODUCT COST 32
2.14 REVIEW QUESTIONS 33

CHAPTER 3 : PLANT LOCATION AND PLANT LAYOUT 34 - 49

3.0 INTRODUCTION 34
3.1 THE NEED FOR LOCATION DECISIONS 34
3.2 THE NATURE OF LOCATION DECISIONS 35
 (viii)

3.3 FACTORS AFFECTING LOCATION DECISIONS 36

3.4 PLANT LAYOUT 39
3.5 SIGNIFICANCE OF LAYOUT CHOICES 40
3.6 FACTORS INFLUENCING LAYOUT CHOICES 41
3.7 PRINCIPLES OF PLANT LAYOUT 42
3.8 TYPES OF LAYOUT 42
3.9 REVIEW QUESTIONS 48

CHAPTER 4 : PURCHASING MANAGEMENT 50 - 65

4.0 INTRODUCTION 50
4.1 FUNCTIONS OF PURCHASING DEPARTMENT 50
4.2 IMPORTANCE OF PURCHASING 51
4.3 OBJECTIVES OF PURCHASING 52
4.4 PURCHASE PARAMETERS 53
4.5 PURCHASING MANAGEMENT 55
4.6 MAJOR DEVELOPMENTS IN SUPPLY MANAGEMENT 56
4.7 PURCHASING SYSTEMS 58
4.8 PURCHASING METHODS 60
4.9 PURCHASING MANAGEMENT PROCESS 63
4.10 REVIEW QUESTIONS 65

UNIT 2 : MATERIALS MANAGEMENT

CHAPTER 5 : OVERVIEW OF MATERIALS MANAGEMENT 66 - 82
5.0 INTRODUCTION 66
5.1 IMPORTANCE OF MATERIALS MANAGEMENT 67
5.2 DEFINITIONS OF MATERIALS MANAGEMENT 67
5.3 OBJECTIVES OF MATERIALS MANAGEMENT 68
5.4 MATERIALS MANAGEMENT CONCEPTS 71
5.5 FUNCTIONS OF MATERIALS MANAGEMENT 72
5.6 MATERIALS HANDLING 74
5.7 TYPES OF MATERIALS HANDLING SYSTEMS 76
5.8 SELECTION AND DESIGN OF HANDLING SYSTEM 76
5.9 TYPES OF MATERIALS HANDLING EQUIPMENTS 77
5.10 EVALUATION OF MATERIALS HANDLING PERFORMANCE 80
5.11 EFFICIENCY IN HANDLING MATERIALS 80
5.12 SAFETY IN MATERIALS HANDLING 82
5.13 REVIEW QUESTIONS 82

CHAPTER 6 : INVENTORY MANAGEMENT 83 - 108

6.0 INTRODUCTION 83
6.1 NATURE AND IMPORTANCE OF INVENTORY 83
 (ix)

6.2 CLASSIFICATION OF INVENTORIES 84

6.3 FUNCTIONS OF INVENTORY 85
6.4 INVENTORY COSTS 85
6.5 INVENTORY DECISIONS 86
6.6 IMPORTANCE OF INVENTORY MANAGEMENT 92
6.7 INVENTORY CONTROL SYSTEMS 93
6.8 SELECTIVE INVENTORY CONTROL 96
6.9 SOLVED PROBLEMS 101
6.10 REVIEW QUESTIONS 108

UNIT 3 : BASICS OF PRODUCTIVITY AND TQM

CHAPTER 7 : CONCEPTS OF QUALITY AND PRODUCTIVITY 109 - 128
7.0 INTRODUCTION 109
7.1 MEANING OF TERMS ‘QUALITY’ AND ‘QUALITY CONTROL’ 109
7.2 IMPORTANCE OF QUALITY 113
7.3 FACTORS AFFECTING QUALITY 115
7.4 PRODUCTIVITY 115
7.5 SOLVED PROBLEMS IN PRODUCTIVITY 118
7.6 TOTAL QUALITY MANAGEMENT (TQM) 121
7.7 PRINCIPLES OF TQM 122
7.8 ELEMENTS OF TOTAL QUALITY MANAGEMENT CONCEPT 125
7.9 REVIEW QUESTIONS 128

CHAPTER 8 : PHILOSOPHICAL FRAMEWORK TO TQM 129 - 150

8.0 INTRODUCTION 129
8.1 THE DEMING PHILOSOPHY 129
8.2 THE JURAN PHILOSOPHY 135
8.3 THE CROSBY PHILOSOPHY 141
8.4 THE KAIZEN PHILOSOPHY 147
8.5 REVIEW QUESTIONS 149

CHAPTER 9 : PRODUCT AND SERVICE QUALITY DIMENSIONS 151 - 164

9.0 CHARACTERISTICS OF QUALITY 151
9.1 DIMENSIONS OF QUALITY 151
9.2 QUALITY ASSURANCE 153
9.3 QUALITY CIRCLES 154
9.4 CAUSE-AND-EFFECT-DIAGRAM 158
9.5 SERVICE QUALITY 161
9.6 MEASURING SERVICE QUALITY 162
9.7 REVIEW QUESTIONS 164
 (x)

CHAPTER 10 : QUALITY IMPROVEMENT STRATEGIES

AND CERTIFICATIONS 165 - 188
10.1 LEAN THINKING 165
10.2 KEPNER-TREGOE METHODOLOGY FOR PROBLEM SOLVING AND
DECISION MAKING 167
10.3 SIX-SIGMA QUALITY 169
10.4 TAGUCHI’S QUALITY ENGINEERING 173
10.5 QUALITY MANAGEMENT SYSTEM 174
10.6 QUALITY AWARDS 180
10.7 REVIEW QUESTIONS 187

ANNEXURES 189 - 196

INDEX 197 - 200

 UNIT 1 : PRODUCTION MANAGEMENT

Chapter 1

An Overview of
Production Management
1.0 INTRODUCTION
Today’s business organisations producing goods and/or services demanded by customers present
greater challenges to the people who manage them, more than ever before. Managers who are in charge
of manufacturing goods or creating services have the direct responsibility of getting the job done and they
have clear line management responsibilities. They are responsible for producing the goods and/or services
both efficiently and effectively so that the organisation can achieve maximum customer satisfaction and
at the same time reasonable return on investments. Hence, there is a need for production managers to be
involved in planning, organising, executing and controlling of all activities that create goods and/or
services to satisfy the needs of customers. Of all the functional areas of management in any business
organisation (especially manufacturing organisation) production management is considered to be crucial
because it is responsible for converting raw materials into finished goods assuming that the objectives
regarding volume of production (quantity), quality of outputs, cost of production (i.e., productivity), the
timeliness of production, (i.e., delivery schedules to meet customer demand) and customer service are
met, ultimately to achieve the objective of achieving maximum customer satisfaction and thereby remaining
competitive in the market.

1.1 WHAT IS PRODUCTION MANAGEMENT?

The term “Production management” was earlier used to refer to the management of an organisation’s
productive resources or its production system which converts inputs into tangible outputs, (i.e., physical
products) needed by the customers of the organisation. But many organisations create both goods and
services through the transformation of inputs into outputs. Since the importance of services (either along with
tangible goods or as pure services) is gaining ground, the term production management has
been changed to “Production and Operations Management” as many business organisations produce both
goods and services as their outputs. However, there are many organisations that do not create physical
products (or goods) and the production function in such organisations may be less obvious. Often when
services are performed, no tangible goods are produced (for example, educational, medical and transport
services). But, regardless of whether the end product is a good or a service, the production activities that go
on in the organisations are often referred to as operations and function of planning, directing and controlling
the processes that transform inputs into finished goods and/or services is termed as “Operations
Management”. However, all these three terms, viz., “Production Management”, “Production and
Operations Management” and “Operations Management” are used interchangeably. Today, this discipline
is generally referred to as “Operations Management” even though it includes both the management of

1
2 Production and Total Quality Management

activities for producing goods and management of activities concerned with providing services to the
customers.
Why Study Production/Operations Management?
Five reasons are:
(i) Production/operations management is one of the four major functions of any organisation, the other
three being marketing management, financial management, and human resource management
(ii) To know how goods and services are produced
(iii) To understand what production managers do, so that one can develop the skills necessary to become
such a manager.
(iv) Production management function spends a large percentage of a firm’s revenue and offers great
scope for cost reduction.
(v) Production management provides a major opportunity for an organisation to improve its profitability
and enhance its service to the society.
Meaning of “Production”
Production implies the creation of goods and services to satisfy human needs. It involves conversion
of inputs (resources) into outputs (products). It is a process by which, raw materials and other inputs are
converted into finished products. Earlier the word "manufacturing" was used synonymously with the word
"production", but nowadays, we use the term "manufacturing" to refer to the process of producing only
tangible goods whereas the word "production" (or operation) is used to refer to the process of creating both
goods (which are tangibles) as well as services (which are intangibles).
Any process which involves the conversion of raw materials and bought-out components into finished
products for sale is known as production. Such conversion of inputs adds to the value or utility of the
products produced by the conversion or transformation process. The utility or added value is the difference
between the value of outputs and the value of inputs. The value addition to inputs is brought about by
alteration, transportation, storage or preservation and quality assurance.

1.2 NATURE OF PRODUCTION

The nature of production can be better understood by viewing the manufacturing function as discussed
in the following section:
Production as a System
This view is also known as "systems concept of production". A system is defined as the collection
of interrelated entities. The systems approach views any organisation or entity as an arrangement of inter-
related parts that interact in ways that can be specified and to some extent predicted. Production is viewed
as a system which converts a set of inputs into a set of desired outputs. A production system has the
following elements or parts: (i) Inputs, (ii) Conversion process or transformation process,
(iii) Outputs (iv) Transportation subsystem, (v) Communication subsystem, and (vi) Control or decision-
making subsystem.
Exhibit 1.1 illustrates the systems view of production function.
An Overview of Production Management 3

Exhibit 1.1 : Systems View of Production Function

External Environment
Inputs
Customer/Client Participation
• Materials
• Labour
• Equipment
• Capital Conversion/ Output
• Energy Transformation
Process • Goods and/or
• Money
Services of
• Management Utility
• Information

Control Subsystem
.
Feedback Decision-maker Feedback
(Production
Management)

External Environment

Production as an Organisational Function

To create goods and services, all organisations whether manufacturing goods or providing
services perform four basic functions. They are: (i) Marketing function (ii) Production or Operations
function. (iii) Finance function, and (iv) Human Resource function. Production is considered as a crucial
function which creates goods and services, whereas marketing function generates demand for products or
obtains customers’ orders, finance function keeps track of how well the organisation performs and takes care
of all cash inflows and cash outflows, and human resources function looks into the people aspect of the
organisation and the best utilisation of people in the organisation. Production function plays a central role in
achieving the objectives of any business organisation.

Production as a Conversion/Transformation Process

The conversion or transformation sub-system is the core of a production system because it consists of
processes or activities wherein workers, materials, machines and equipments are used to convert inputs into
outputs, i.e.,

Conversion Process
Inputs Outputs
(A simple production system)

The conversion process may include manufacturing processes such as cutting, drilling, machining,
welding, painting, etc., and other processes such as packing, selling, etc.
Any conversion process consists of several small activities referred to as "operations" which are
some steps in the overall process of producing a product or service that leads to the final output.
Table 1.1 illustrates some examples of conversion processes used in the production systems.
4 Production and Total Quality Management

Table 1.1 : Examples of Conversion Processes used in Production Systems

Production Conversion
Inputs Outputs
System Process

Steel Plant Iron ore, coal/coke limestone, Smelting, rolling Steel sections,
labour, machinery sheets
Restaurant Hungry customers, chefs, Cooking and Satisfied
services, equipments serving food customers
Automobile Raw materials and components, Fabrication of parts and Automobile
Plant machinery, labour assembly of automobiles
Oil Refinery Crude oil, equipments, Chemical processes Petroleum
labour (fractional distillation) Products
Supermarkets Customers with needs, Selling/retailing Satisfied
salespersons customers
College or High school students, Teaching (Imparting Graduates
University teachers knowledge and skills) (Educated persons)
Airline Aeroplanes, pilots, engineers, Air transportation Satisfied
flight attendants customers to
their destinations

Production as a Means of Creating Utility

Production is defined as the process of adding to the value of outputs or the process of creating
utility in outputs. "Utility" is the power of satisfying human needs. During the process of converting
the raw-materials into finished goods, various types of utilities are created while adding value to the
outputs. These types of utilities are:
(i) Form utility: which is created by changing the size, shape, form, weight, colour, smell of inputs in
order to make the outputs more useful to the customers. For example, iron ore is changed to steel,
wood is changed to furnitures, etc.
(ii) Place utility: which is created by changing the places of inputs or transporting the inputs from the
source of their availability to the place of their use to be converted into outputs. For example, the
iron ore and coal are transported from the mines to the steel plant to be used in the conversion
process.
(iii) Time utility: which is created by storage or preservation of raw materials or finished goods which
are in abundance at sometime so that the same can be used at a later time when they become scarce
due to higher demand exceeding the quantity available.
(iv) Possession utility: which is created by transferring the possession or ownership of an item from
one person to another person. For example, when a firm purchases materials from a supplier, the
possession utility of the materials will increase when they are delivered to the buying firm.
(v) Service utility: which is the utility created by rendering some service to the customer. For example,
a doctor or a lawyer or an engineer creates service utility to a client/customer by rendering service
directly to the client/customer.
(vi) Knowledge utility: which is created by imparting knowledge to a person. For example, a sales
presentation or an advertisement about some product communicates some information about the
product to the customer, thereby imparting knowledge.
The activities carried out while creating the utilities discussed above are referred to as production
functions.
An Overview of Production Management 5

Production Function
Production function may be defined as the creation of useful products for sale with the help of inputs
such as materials, machines, labour, land, capital and management. The production function represents
basically a physical relationship between inputs and outputs. It may be represented as
Q = (a, b, c, d...)
Where ‘Q’ is the quantity of output and a, b, c, d, etc., represent the quantities of various inputs such
as material, machine hours, labour hours, energy, etc. The production function specifies the amount of
outputs resulting from the amount of inputs used during a specified period of time. The productive use of the
resources is described by the term productivity. Productivity is an index that measures outputs (goods and
services) relative to the inputs (materials, energy and other resources).
Output
It is usually expressed as, Productivity =
Input
Productivity is also known as productive efficiency or the efficiency of the production process. It
indicates how well a productive process is carried out to convert a set of inputs into a set of outputs of value
to the customer which also provides reasonable profits to the manufacturer or seller.
Importance of Production Function
The production is the core function of any business organisation. Production function creates goods
and services and organisations exist primarily to create goods and/or to provide services. Without production
function, there would be no need for any other function such as marketing, finance or human resource
function. Also, more than 50 per cent of employees in a business organisation have jobs in the area of
production. Moreover, the production function is responsible for a major portion of assets in most organisations.
Consumption of goods and services is an integral part of any society and production function facilitates
creation of goods and services for the benefit of people in the society.
Box 1.1 lists some of the areas in which production management can offer competitive advantage to a
firm.
Box 1.1 : Areas in which Production Management can offer Competitive Advantage

(i) Shorter new product lead time (i.e., speed to market)

(ii) Higher inventory turnover (i.e., low inventory)
(iii) Shorter manufacturing cycle time
(iv) Higher product quality, (i.e., reduced defects)
(v) Greater flexibility
(vi) Better customer-service
(vii) Reduced wastages
(viii) Higher productivity (i.e., reduced costs)

1.3 MANAGING A PRODUCTION SYSTEM

Production management refers to the application of management principles to the production function
in a production system. It consists of application of planning, organising, staffing, directing and controlling
functions in the process of converting the inputs to the desired outputs, efficiently and effectively.
Production management is the process which combines and transforms various resources (inputs) used
in a production system into value-added outputs (products/services) in a controlled manner. The term production
management is usually used for a production system which produces tangible goods, whereas, the term
operations management is more frequently used where the inputs are converted into intangible services.
However, many authors use the common term "production and operations management" to represent either
a manufacturing system or a service system.
6 Production and Total Quality Management

Objectives of Production Management

Some of the important objectives of production management are:
(i) Maximum customer satisfaction through quality, reliability, cost and delivery time.
(ii) Minimum scrap/rework resulting in better product quality.
(iii) Minimum possible inventory levels, (i.e., optimum inventory levels).
(iv) Maximum utilisation of all kinds of resources needed.
(v) Minimum cash outflow.
(vi) Maximum employee satisfaction.
(vii) Maximum possible production, (i.e., outputs).
(viii) Higher operating efficiency.
(ix) Minimum production cycle time.
(x) Maximum possible profit or return on investment.
(xi) Concern for protection of environment.
(xii) Maximum possible productivity.
Responsibilities of Production Managers
The following are the major responsibilities of production managers:
(i) Meeting requirements of quality demanded by customers.
(ii) Establishing realistic delivery or completion dates.
(iii) Producing the required volume of products to meet the demand.
(iv) Selection and application of most economic methods or processes.
(v) Controlling the cost of inputs and conversion process and thereby keeping the cost of outputs
within the desired limits.
Production managers are responsible for the amalgamation of five Ps namely Product, Plant,
Processes, Programmes and People. The product is the most obvious interface between production and
marketing. It includes characteristics such as performance, aesthetics, quality, reliability, selling price,
delivery dates and/or lead times. The plant includes buildings, equipments and machinery required to
produce the product.
The plant should have the capacities to meet the present needs as well as that of the future. The
considerations are: (i) design and layout of buildings, (ii) performance and reliability of machines and
equipments, (iii) maintenance of machines and equipments, (iv) safety of installation and operation of
machinery and equipments, and (v) environment protection.
The processes include the transformation or conversion processes which convert the inputs into
outputs. The factors to be examined in deciding upon a process are: (i) available capacity, (ii) available
labour skills, (iii) type of production, (iv) layout of plant and equipments, (v) safety requirements in
operations, and (vi) costs to be achieved.
The programmes consist of schedules or time tables which set times for delivery of products or
services to customers. These delivery schedules in turn decide the time schedules for various activities
such as design, purchase, manufacture, assembly, packing and despatch, etc.
The people aspect of production management includes the skills, knowledge, intelligence, etc., of
labour and managerial personnel which is crucial for the efficient and effective utilisation of resources for
the production of outputs.
An Overview of Production Management 7

1.4 DECISION-MAKING IN PRODUCTION /OPERATIONS MANAGEMENT

What Production/Operations Managers Do?
The production/operations managers manage all activities of the production/operations systems which
convert inputs into the desired outputs (goods and services). The production/operations managers have
the ultimate responsibility for the creation of goods or provision of services. Even though the kind of jobs
that production/operations managers oversee vary from organisation to organisation, (because of the
different products or services involved) their job is essentially managerial. They must coordinate the use
of resources through the managerial process of planning, organising, staffing, directing (or influencing)
and controlling. Box 1.2 shows some of the responsibilities of productions/operations managers.

Box 1.2 : Responsibilities of Production/Operations Managers

(i) Planning : Capacity, location, products and services, make or buy, layout, projects and
scheduling.
(ii) Organising : Degree of centralisation, subcontracting.
(iii) Staffing : Hiring/laying off of employees.
(iv) Directing : Incentive plans, issue of work orders, job assignments.
(v) Controlling : Inventory control, Quality control, Cost control.

A better insight to how production/operations managers manage can be had by examining the decisions
in production and operations management, since all managerial functions such as planning, organising,
staffing, directing and controlling involve decision-making.
The decisions which production/operations managers make may be classified into three general
categories:
(i) Strategic Decisions: Decisions about products, processes and facilities. These decisions are strategically
important and have long-term significance for the organisation.
(ii) Operating Decisions: Decisions about planning production to meet demand.
(iii) Control Decisions: Decisions about controlling operations concerned with day-to-day activities of the
workers, quality of products and services, production costs, overhead costs and maintenance of plant
and equipment.
Some examples of strategic, operating and controlling decisions are discussed below:
Strategic Decisions: These are decisions concerning long range production/operations strategies. Some
of the examples of strategic production/operations management (POM) decisions are:
(i) Deciding about launching of a new-product development project.
(ii) Deciding on the design for a production process for a new product.
(iii) Deciding on how to allocate scarce resources such as materials, machine and labour capacities and
utilities.
(iv) Deciding about what new facilities are needed and where to locate them.
Operating Decisions: These decisions must help to resolve the issues concerned with planning production
to meet customers’ demands for products and services and to achieve customer satisfaction at reasonable
costs. Examples of operating decisions are:
(i) Deciding how much finished goods inventory to be carried for each product.
(ii) Deciding the next month’s production schedule for producing the products.
(iii) Deciding about hiring of casual (temporary) workers for the next month.
(iv) Deciding about the volume of purchase from each vendor next month.
8 Production and Total Quality Management

Control Decisions: These decisions are concerned with problems in production such as variations in
labour output (productivity), variations in product quality, breakdown of production equipments, etc.
Production/operations managers need to control poor worker performance, inferior product quality and
excessive equipment breakdowns so that the profitable operation of the productive system is not affected.
Examples of control decisions are:
(i) Deciding the course of action about a department’s failure to meet the planned labour cost target.
(ii) Developing labour cost standards for a new or modified product design which is about to be taken
up for production.
(iii) Deciding about the new quality control acceptance criteria for a product for which the design has
been changed.
(iv) Deciding about the frequency of preventive maintenance for key machinery or equipments.
Table 1.2 lists the types of production management decisions and their applications.
Table 1.2 : Production management decisions and their applications
Type of
Area of Involvement Nature of Activities
Decisions

1. Strategic (i) Manufacturing processes (i) Product design,

decisions and technology design process design
(Planning (ii) Plant location (ii) Choice of production technology
products, and plant layout
processes (iii) Long range capacity (iii) Choosing the best location
and facilities) planning (Equipment (iv) Deciding about the type of plant
and labour capacity) layout and shop layout.
(v) Deciding the installed capacity of
the plant
2. Operating (i) Production planning (i) Preparing the master production
decisions schedule
(Matching (ii) Inventory planning (ii) Planning inventory levels for raw
production materials, work-in-process and
with demand) finished goods
(iii) Resource requirement (iii) Planning for requirements of materials
planning and capacities (Labour and equipment)
(iv) Production scheduling (iv) Detailed scheduling and machine
loading charts
(v) Procurement planning (v) Vendor selection
3. Control (i) Labour productivity (i) Controlling labour output through
decisions establishment of performance
standards
(ii) Quality (ii) Controlling quality of incoming
materials, semifinished goods and
finished goods.
(iii) Projects (iii) Controlling projects (Costs and
completion dates) using PERT/CPM
techniques.
(iv) Maintenance (iv) Controlling machine down-time
and repair time by good
maintenance practices.

Box 1.3 shows ten important decision areas of production and operations management.
An Overview of Production Management 9

Box 1.3 : Ten decision areas of production/operations management

(i) Managing quality

(ii) Design of goods and services (product design)
(iii) Process strategy (process design)
(iv) Location strategies
(v) Layout strategies
(vi) Human resources strategies
(vii) Supply-chain management
(viii) Inventory management
(ix) Scheduling
(x) Maintenance

The ten decision areas in production/operations management shown in Box 1.3 are illustrated
in detail in Table 1.3 below:

Table 1.3 : Ten critical decision areas of POM and their related issues

Decision Area Related Issues

1. Quality (a) Who is responsible for quality?

management (b) How do we define the quality we want in our product or service?
2. Product and (a) What product or service should we offer?
service design (b) How should we design these products and services?
3. Process and (a) What process will these products or services require and in
capacity design what sequence?
(b) What technology and equipment is necessary for these processes?
4. Location selection (a) Where should the facility be located?
(b) On what criteria should we base the location selection decision?
5. Layout design (a) How should we arrange the facility?
(b) How large the facility be to meet our production plan?
6. Human resources (a) How do we provide a reasonable work environment?
and job design (b) How much can we expect our employees to produce?
7. Supply-chain (a) Should we make or buy a particular component?
management (b) Who are our preferred suppliers and how many suppliers should
we have?
8. Inventory (a) How much inventory of each item should be held?
management (b) When do we re-order?
9. Scheduling (a) Should we subcontract production to outside sources?
(b) Should we retain our employees on the payroll during slowdowns.
10. Maintenance (a) Who is responsible for maintenance?
(b) What should be our maintenance policy?

Organising to Produce Goods and Services

To create goods and services, all organisations, whether manufacturing goods or providing
services, perform three basic functions. They are:
10 Production and Total Quality Management

(i) Marketing: which generates the demand or takes customers’ orders for a product or service.
(ii) Production/Operations: which creates the product (goods or services).
(iii) Finance/Accounting: which keeps track of how well the organisation is performing, and takes
care of cash inflow and cash outflow.
Exhibit 1.2 illustrates organisation charts for a manufacturing and a service organisation.
Exhibit 1.2 :

(a) Organisation chart for a manufacturing organisation

Automobile
Manufacturing Firm

Production/Operations Finance/Accounting Marketing

(a) Facilities-construction (a) Disbursements/credit (a) Personal selling
and maintenance (i) Accounts receivable (b) Advertising
(b) Production and inventory (ii) Accounts payable (c) Sales promotion
control, scheduling, materials (b) Funds management (d) Market research
control (i) Money market (e) Distribution
(c) Quality control and assurance (ii) International exchange
(d) Supply-chain management (c) Capital requirements
(e) Manufacturing – (Tooling, (i) Stock issue
fabrication and assembly). (ii) Bond issue and recall
(f) Product design and development
(g) Industrial engineering
(Efficient use of resources)
(h) Process analysis and
process design.
(b) Organisation chart for a service organisation.

Commercial Bank

Operations Finance Marketing

(i) Teller scheduling (i) Investments (i) Loans (Commercial,
(ii) Check clearing (Securities, Real Estate) Industrial, Financial,
(iii) Collection (ii) Accounting Personal, Mortgage)
(iv) Transaction processing (iii) Auditing (ii) Trust department
(v) Facilities design/layout
(vi) Locker operations
(vii) Maintenance
(viii) Security

Production/operations managers need to build and maintain strong relationships both intra-
organisationally and inter-organisationally. Inter-organisational relationship exists between production/
operations department and suppliers, whereas intra-organisational relationship calls for cross-functional
coordination.
Cross-functional coordination is essential for effective production/operations management. For
example, marketing function determines the need for new products and services and the demand for existing
ones and operations managers must bring together human and capital resources to meet these demands
effectively.
An Overview of Production Management 11

Also, operations managers must consider facility location and relocations to serve new markets and the
design of layouts for service organisations must match the image that marketing seeks to project to the
customers. Operations managers must plan output rates and capacities to match the demand forecasts and
delivery promises made to the customers.
Operations managers need feedback from the accounting function to understand their current performance.
Financial measures help the operations managers to assess labour costs, the long-term benefits of new
technologies and quality improvement projects. Accounting helps in computing the production costs and in
bills payment to suppliers.

1.5 FUNCTIONS OF PRODUCTION MANAGERS

The major functions of production managers may be categorised as shown below:
(i) Production Techniques: Equipment Design, Process Design, Plant Layout and Shop Layout, Design
of Materials Handling System.
(ii) Capacity Management: Forecasting Demand, Delivery Commitment, Facility Location and Resource
Allocation.
(iii) Industrial Engineering (or Work Study): Method Study, Work Measurement.
(iv) Production Planning and Control: Estimating, Forecasting, Routing, Scheduling, Dispatching and
Progressing.
(v) Inventory Control: Purchasing, Storing and Controlling Inventory Levels and Material Issues.
(vi) Quality Control: Inspection, Quality Control, Quality Assurance and Reliability, Statistical Quality
Control and Total Quality Control.
(vii) Maintenance: Servicing, Repairing, Breakdown/Preventive Maintenance, Spare Parts Inventory
Control and Equipment Replacement.
Skills Needed for Production Managers
The production managers need the following skills or competencies:
(i) Technical Competence: (a) Basic understanding of technology with which the production system
works, and (b) Adequate knowledge of the work they have to manage.
(ii) Behavioural Competence: Interpersonal relationships, the ability to work with other people.

1.6 PROBLEMS OF PRODUCTION MANAGEMENT

The problems involved in production management require two major types of decisions relating to:
(i) Design of the production system and
(ii) Operation and control of the production system.
Decisions related to the design of production system are long -run decisions, whereas decisions
related to operation and control of the production system are short-run decisions.
The problems involve the relative balance of the emphasis on such factors as cost, service and reliability
of both functional and time performance, which depends on the basic purposes of the total enterprise and
on the general nature of goods and services produced. In general, manufacturing organisations emphasise
more on cost, consistent with quality and delivery commitments, whereas service organisations may emphasise
reliability and service, consistent with cost objectives (for example, hospitals).

Long-run Decisions
Long-run decisions related to the design of the production system are:
12 Production and Total Quality Management

(i) Selection and Design of Products: Product selections and designs with productive capability, (i.e.,
producibility of products) are interdependent.
(ii) Selection of Equipment and Processes: Selection of the most economic equipments and processes
among the various alternatives considered, the firm's capability to invest in capital assets and its basic
approach to production, (i.e., job, batch, mass or continuous production) must be considered.
(iii) Production Design of Parts Processed: Production design aims at selection of equipments, processes,
and tools for economic production which set limits on the cost of outputs.
(iv) Job Design: It involves basic organisation of work as well as matching workers to their jobs in order
to reduce fatigue and improve productivity.
(v) Location of the System: It is a trade-off decision since there is no one best location for a productive
system to be located. The balance of cost factors determined by various considerations is critical.
(vi) Facility Layout: This involves decisions related to design capacity, basic modes of production, shifts
of working, use of overtime and subcontracting. In addition, operations and equipments must be located
in relation to each other such that the overall material handling cost is minimised. Other factors involved
are heating, lighting and other utility requirements, the allocation of storage space, wash space and the
design of the building to house the layout.
Short-run Decisions
Short-run decisions related to the operations and control of the system are:
(i) Inventory and Production Control: Decisions made are concerned with allocation of productive capacity
consistent with demand and inventory policy. Feasible schedules must be worked out and the load on
machines and labour and the flow of production must be controlled.
(ii) Maintenance and Reliability of the System: Decisions must be made regarding the maintenance effort,
maintenance policy and practice recognising the fact that machine down time may lead to idling of
labour and production stoppage resulting in lost sales.
(iii) Quality Control: Decisions must be made to set permissible levels of risk that bad parts are produced
and shipped or the risk that good parts are scrapped due to sampling inspection. Inspection costs must
be balanced with the probable losses due to passing defective materials or products. Decisions regarding
controlling the quality of ongoing processes must be taken.
(iv) Labour Control: Labour is the major cost element in most products and services. Hence, work
measurement and wage incentive systems must be developed to control labour costs and to increase
labour productivity.
(v) Cost Control and Improvement: Day-to-day decisions which involve the balance of labour, material
and overhead costs must be made by production supervisors.
The relative importance of these problems of production management varies considerably depending
on the nature of the production system. The production manager must be able to sense the relative importance
of these various problems in a given situation and take appropriate decisions to solve these problems.

1.7 COMPONENTS OR SUB-FUNCTIONAL AREAS OF PRODUCTION/OPERATIONS

MANAGEMENT
The various subfunctional areas of production/operations management are broadly classified as:
(i) Materials Management, (ii) Maintenance Management, (iii) Quality Management, and (iv) Production
Planning and Control. These sub-functional areas of production/operations management are briefly
discussed in the following section.
An Overview of Production Management 13

(i) Materials Management

The importance of materials in organisational performance has been felt for several decades. Only
recently, however, have the production and operations managers found it necessary to develop an organised
body of knowledge on this subject. The resulting set of related disciplines is known as materials management.
Materials are any commodities used directly or indirectly in producing a product or service such as
raw materials, component parts, assemblies and supplies. In the manufacturing organisations, the important
inputs are referred to as 5 Ms viz., Men (Labour), Machines, Money, Materials and Methods. The relative
importance among these five Ms have shifted from time-to-time. In the beginning of industrialisation the
focus was on machines, men (labour) and methods, but in recent years (from 1970 onwards) the emphasis is
on materials. Material is an important and inevitable input of a production system since the cost of materials
and cost on materials (cost incurred in purchasing and storing the materials) put together account for 50 to
85% of the production cost depending on the nature of the product and the type of the production system.

(ii) Maintenance Management

Maintaining the production capability of an organisation is an important function of production and
operations management in any production system. Maintenance refers to the upkeep and protection of plant,
building, machinery, and other fixed assets of a firm which are subject to deterioration due to their use and
exposure to environmental conditions over a period of time. Maintenance encompasses all those activities
required to keep the physical facilities and equipments in good working condition and making necessary
repairs when breakdowns occur, so that the system can perform as intended.
Two categories of maintenance activities in a firm are:
(i) Maintaining buildings, parking lots, lawns, fences, services and utilities.
(ii) Maintaining equipments, machinery, material handling equipments, transport vehicles, tools,
meteorology tools, (inspection gages), test instruments, office equipments (computer, fax, xerox
machines), etc.
What is Maintenance?
Maintenance is defined as "that function of production management that is concerned with the day-to-
day problem of keeping the physical plant in good operating condition. It is an essential activity in every
manufacturing firm, because it is necessary to ensure the availability of the machines, buildings and services
needed by other parts of the organisation for the performance of their function at an optimum return on
investment in machines, materials and employees".
What is Maintenance Engineering?
Maintenance engineering is that function of production management that is concerned with the day-to-
day problems of keeping the physical plant in good operating condition.
What is Maintenance Management?
Maintenance management is concerned with the direction and organisation of resources in order to
control the availability and performance of the industrial plants to some specified level. It is a function
supporting production function and is entrusted with the task of keeping the machinery, equipment and plant
services in proper working condition. It also involves maintenance planning, maintenance scheduling, execution
of maintenance activities (repair, breakdown and preventive maintenance) and also controlling costs of
maintenance.
(iii) Quality Management
Quality is broadly defined as the ability of a product or service to consistently meet or exceed customer
expectations.
14 Production and Total Quality Management

Quality is one of the objectives of production/operations. In order to meet the quality objective, it is
important to manage and control all aspects of quality.
The management of quality should encompass all aspects of quality from design of the product or
service through production and use. All quality efforts should be guided by a corporate policy on quality and
a planning and control system which ensures a quality product. This system should involve all individuals in
the firm and stress the prevention of errors in all operation areas of the firm.
Managing quality involves managerial functions such as planning, organising, staffing, directing and
controlling the activities — all focussed towards establishing a total quality system which ensures integration
of all processes and functional units to meet the objective and/or goals of the organisation. Quality management
is concerned with prevention of nonconformities and to design, manufacture and maintain the product or
service at the least possible cost while still meeting all customer requirements. Quality management is mainly
concerned with Quality planning, Quality control and Quality improvement.
Quality Planning: Involves quality mission and objectives, quality strategies and quality policies.
Organising for Quality: Involves creating an organisational structure to establish the lines of authority
and responsibility to improve communication, quality and productivity. It defines quality-related activities
and the interrelationships between them, assigning responsibility for each of the tasks and subdividing tasks
down to the worker level.
Staffing for Quality: Involves placing personnel with the appropriate training in statistical quality
control techniques in key positions to facilitate the implementation of quality programmes. The employees
of the organisation must be committed to the quality philosophy for the success of a company wide quality
programme. Every employee must develop a quality culture so as to develop a sense of ownership in the
production of quality outputs.
Directing for Quality: Involves measures to ensure that the item produced conform to the design
specifications. Conforming to the quality specified in the product or service design depends on the quality
of purchased raw materials and components and hence it is necessary to closely monitor the vendors for
quality. Statistical quality control measures must be used and documented by the vendors. Long-term
relationships with vendors promote a more uniform and acceptable quality level of incoming goods.
Controlling for Quality: Involves monitoring and controlling activities during the production and post
production stages. The objective is to determine out of control process conditions and product nonconformance
as early in the production stage as possible. Two statistical techniques namely “Statistical Process Control”
(SPC) and “Acceptance Sampling” are used for controlling quality. It is also necessary to control the costs
of quality such as costs of prevention, appraisal, internal failure and external failure.
A modern approach to quality management is known as “Total Quality Management” (TQM)
which involves such key elements as:
(i) Top management commitment to quality
(ii) Customer involvement and focus
(iii) Employee involvement and focus
(iv) Leadership and strategic planning for quality
(v) Companywide quality culture
(vi) Continuous improvement (known as Kaizen in Japan), and
(vii) Customer satisfaction and customer delight.
(iv) Production Planning and Control
Production planning and control functions can be classified as under:
(i) Production planning or operations planning, and
(ii) Production control or operations control.
An Overview of Production Management 15

Production Planning: Production planning involves the organisation of an overall manufacturing or

service system to produce a product (good or service).
The various activities involved in production/operations planning are:
(i) Designing the product (good or service)
(ii) Determining the kind of equipment or machinery required to carryout the conversion process (facility
planning)
(iii) Determining the process and operations required to be carried out and also the kind of tools required
to facilitate the operations (process planning and tools planning)
(iv) Determining the capacity requirements (capacity planning)
(v) Designing the layout of physical facilities and materials handling system.
(vi) Determining the sequence of operations and path of materials flow (routing)
(vii) Determining the time required to carryout each operation (standard time or allowed time), and
(viii) Specifying the production quantity and quality levels. (planning for quantity and quality)
Objective of production planning is to provide a physical system together with a set of operating
guidelines for efficient conversion of raw materials, human skills and other inputs into finished products.
Production Control: Production control function involves:
(i) Providing for the production of parts, assemblies and products of required quality and quantity at the
required time.
(ii) Co-ordinating, monitoring and providing feedback to production management the results of production
activities, analysing and interpreting their significance and taking corrective action if necessary.
(iii) Providing for optimum utilisation of all kinds of resources.
(iv) Achieving the broad objectives of low cost production and reliable customer-service.
The various areas of production control are:
(i) Control of quality and quantity of output
(ii) Control of inventory
(iii) Control of labour output, and
(iv) Control of cost of production.
Production planning and control is a management tool employed for the direction of manufacturing
operations and their coordination with other activities of the firm. It is considered as the nerve centre of the
production system. It coordinates with various departments such as marketing, product design, purchase,
stores, industrial engineering, quality control, maintenance, manufacturing (fabrication and assembly), testing,
packing and despatching departments in the production system. It is responsible for coordinating various
activities concerned with production management, right from design to despatch of the products to customers.

1.8 PRODUCTION SYSTEMS

In the previous section we discussed production as a system which is also called as "systems
concept of production". We also discussed simple production model having elements such as inputs,
conversion process, outputs, transportation subsystem, communication subsystem and control subsystem.
In this section we discuss production system in greater detail and also the various types of production,
the types of production systems and the differentiating features of production systems.
Designing and Operating Production Systems
As already mentioned in the previous section, the production manager is responsible for the creation
of goods and services. This involves acquisition of resources and the conversion of these inputs into
16 Production and Total Quality Management

outputs using one or more suitable transformation processes. The transformation process involves
managerial functions such as planning, coordinating and controlling the elements of the process including
workers, equipments, facilities, allocation of resources and work methods. One of the major decisions that
are made by production managers is the product design and/or service design which is taken in conjunction
with marketing. Marketing people can be a source of ideas for new products and services and also for
improvements to existing ones. Production people can also be a source of new ideas for improvements in
the processes and product designs. Product and process designs are crucial for any organisation that wants
to remain competitive in the marketplace. Production managers make decisions to guide the production
system. Some decisions affect the design of the system and others affect the operation of the system.

System Design and Systems Operation

System design involves decisions relating to the capacity of the production system, the geographic
location of facilities, arrangement of departments (plant layout) and placement of machines and equipments
(shop layout) within the physical structures (buildings), product planning and acquisition of equipments
and machinery.
Systems operation involves management of people, inventory planning and control, production
scheduling, project planning and control and quality assurance. Production managers are also involved in
day-to-day operating decisions. However, production managers have greater concern for system design
because system design essentially determines many parameters of systems operation such as costs, space,
capacities, and quality that are affected by design decisions.
A Production System Model
A production system receives inputs in the form of materials, personnel, capital, utilities and
information, which are then changed in a conversion subsystem into desired product/services, (called as
outputs), A control subsystem monitors the quantity, cost and quality of outputs. The control subsystem
ensures system performance by providing feedback to enable managers to take appropriate corrective
action if and when necessary. Exhibit 1.3 illustrate a production system model and Box 1.4 shows how
production systems are classified.
Box 1.4 : Classification of Production Systems

Job shop production

(i) Intermittent production system
Batch production

Mass Production
(ii) Continuous or Analytical
flow shop Process production
production Synthetic
system Assembly line production
An Overview of Production Management 17

Exhibit 1.3 : A Production System Model

Conversion
Inputs Outputs
subsystem

External Physical Direct

Legal/Political, Manufacturing, Outputs
Social, Mining Product,
technological and Locational services Services
economical (Transportation) Indirect
Exchange services Outputs
Market
(Wholesaling / Taxes, wages,
Competition, Retailing) salaries,
Product
Storage services Technological
information,
(Warehousing) developments,
customer desires
Other Services Environmental
Primary Insurance, Finance, impact,
Resources Banking, Real employee
Materials and Estate, Health and impact,
Personal Services, Societal
Supplies,
Government impact
Personnel, Capital
assets, Utilities, Services
Money

Feedback
Control information
Subsystem

Inputs: Three general categories of inputs are:

(i) External Inputs: Usually informational in character and tend to provide production managers knowledge
about conditions of the external environment of the system. Examples of external inputs are legal or
political inputs, social, economic and technological inputs. The production managers must operate
within the constraints imposed by the legal/political inputs (rules and regulations of government and
business laws). Social and economic inputs indicate the trends (customers’ likes and dislikes, changes
in lifestyle and buying power) that may affect the system. Technological inputs enable production
managers to improve the physical facilities, materials, methods, tools, processes, etc.
(ii) Market Inputs: Market inputs also tend to be informational. It provides information about competition,
product design, customer needs and desires, and other aspects of the market which are essential for the
production managers to operate the system so as to respond to the market needs.
(iii) Primary Resources: These are inputs which directly support the production and delivery of outputs.
For example, materials and supplies, personnel, capital and capital assets and utilities such as water, gas,
coal, electricity, steam, compressed air, etc.
Outputs: Outputs are categorised as: (i) direct out puts, and (ii) indirect outputs.
The direct outputs are usually either tangible or intangible. The tangible goods are outputs of production
systems, whereas the intangible services are outputs of service systems. However, there are some indirect
18 Production and Total Quality Management

outputs in both production and service systems. They are taxes, wages and salaries, technological
advancements, waste effluents, pollution, and impact on employees (health and safety) and on society/
community.
Conversion Subsystem: It is the core of the production system. It consists of workers, materials, and
machines used to convert inputs into outputs. All organisations have the conversion or transformation in
some form or the other and it varies greatly among organisations.
Control Subsystem: This consists of the decisions making groups which is known as Production
Management. The production managers manage all activities of the production system. They obtain feed-
back information from the conversion subsystem and outputs to identify variations in performance if any and
take decisions to carryout appropriate corrective actions as and when necessary.
Production System Diversity
All organisations have at least one production system. A wide variety of these systems exist,
several examples of which are given in Table 1.4.

Table 1.4 : Some Typical Production Systems

Production Primary Conversion Outputs

System Inputs Subsystem

Automobile Purchased parts, raw Transforms raw materials Automobiles

Factory materials, supplies, paints,
tools, equipment, personnel,
buildings and utilities
Department Buildings, displays, shopping
Store carts, machines, stock goods,
personnel, supplies, utilities,
and customers.
College or Students, books, supplies,
University personnel, buildings, utilities
into automobiles
through fabrication and
assembly operations
Attracts customers, Marketed goods and
stores goods, sells goods, satisfied customers
(exchange)
Transmits information and Educated
develops skills and persons
knowledge

Having discussed the concepts of the production system, it is necessary to know about the types of
production systems and their features.
Types of Production Systems
Broadly production systems can be classified as:
(a) Manufacturing systems and service systems.
(b) Series and parallel production systems.
(c) Continuous flow and intermittent production systems.
These production systems are discussed in detail in the following paragraphs:
1. Manufacturing Systems Versus Service Systems
Production systems that produce goods are often referred to as manufacturing systems and the
production of tangible goods is called manufacturing. Some common examples of manufactured goods
are chemicals, steel, cement, automobiles, aeroplanes, beverages, packaged food and furnitures.
Production systems that produce services are referred to as service systems. Services are intangible
products that satisfy some need of a consumer including the enhancement of tangible goods. Examples of
services systems are: health care services, legal assistance, financial services, accounting services,
educational services, transportation services and warehousing services.
An Overview of Production Management 19

Products can also be combination of goods and services. Restaurants produce the tangible products
along with the intangible services of delivery, cleaning of dishes and providing pleasant environment to the
customers.
2. Series and Parallel Production Systems
Production systems may exist in series; for example, when completed products are shipped from the
factory to a warehouse, they are leaving the factory system only to arrive at a second production system,
called a warehouse. The factory and the warehouse are two production systems which are in series.
Production system may also exist in parallel, such as when a number of factories produce similar
products and supply several market areas. These factories may be considered as one large production
system, (i.e., an industry) For example, several factories producing automobile spare parts are treated as
part of larger system known as automobile spare parts industry.
3. Continuous Flow Versus Intermittent Production Systems
Continuous Flow Production Systems are those where the facilities are standardised as to routings
and flow. A standard set of processes and sequence of processes can be adopted. Continuous flow production
systems are represented by production and assembly lines, large scale office operations and chemical
processes.
Intermittent Production Systems are those where facilities must be flexible enough to handle a
wide variety of products and sizes. In situations such as this no single sequence of operations is appropriate.
Transportation facilities between operations must be flexible to accommodate a wide variety of routes
that the inputs may require. Considerable storage between operations is required so that individual operations
can be carried on somewhat independently, resulting in ease of scheduling and better utilisation of men
and machines. Intermittent production is represented by custom or job-order machine shops, hospitals and
batch chemical processes.
The production system model shown in Exhibit 1.3 can be made to fit both the intermittent and
continuous-flow situations by the specification of some of the detailed characteristics. Exhibit 1.4 represents
the intermittent production system.

Exhibit 1.12 : An Intermittent Production System

Information
Decision
Production and control
system maker
system
boundary
System inputs
Materials
Parts Receipt
Paperwork forms operation
Customers a
Patients

operation operation
Storage b e

operation operation
Finished
c f
goods
store
System outputs
Completed parts
Shipping Products
operation operation operation Completed paperwork
d g n Serviced customers
Serviced patients
20 Production and Total Quality Management

In the intermittent production system, inputs may be processed in any specified sequence of operations
and are transported between operations. The number of operations may vary from one to any finite
number. Storage occurs between all operations and the time in storage may vary from essentially negligible
to any finite amount. It should be noted that in Exhibit 1.4, there are interconnections between all
operations b through f, although only those originating at b are shown. The information and control
system interconnects all activities and provides the basis for management decisions.
Exhibit 1.5 represents a continuous flow production system.
Exhibit 1.5 : A Continuous Production System

In the continuous flow production system the input-output characteristics are standardised, allowing
standardisation of operations and their sequence. Minor storage of input occurs after receipt. Once on the
transportation system, any storage between operations is combined with transportation (for example,
conveyorised assembly line operations). In the ideal situation the operations are also combined with
transportation so that inputs are processed while they are being moved (for example, painting of jobs which
are being moved by means of a conveyor).
Having understood the meaning of production as a function of a production system it is necessary to
understand the nature of various types of production.
The process by which goods and services are produced can be categorised on the basis of the
following classifications.
(a) Job Shop Production: In this type of production a wide variety of customised products are made by
a highly skilled workforce using general purpose equipments. It is also known as unit-production, one-
off production, custom-built or tailor-made production. Ship-building, furnace manufacture, tool making
and printing orders are some of the examples of job-shop production.
(b) Intermittent Flow or Batch Production: In this type of production, a mixture of general purpose and
special purpose equipment is used to produce small to large batch of products. Batch production is one
form of intermittent flow production. It is used to produce moderate volumes of similar products. For
An Overview of Production Management 21

example, ready-made garments and book manufacturers adopt batch production. Ice cream manufacturers
produce a batch of ice creams of different flavour such as vanilla and strawberry.
(c) Repetitive Flow or Mass Production: In this type of production several standardised products follow
a predetermined flow through sequentially dependent work centres. Workers typically are assigned to
a narrow range of tasks and work with highly specialised equipment. Examples are automobile and
computer assembly lines.
(d) Continuous Flow or Flow Shop Production: Continuous processing or continuous production is
employed when a highly standardised product or service is produced or rendered. Processing of chemicals,
oil refineries, sugar and cement production are some of the examples of continuous flow production.
Industries that use continuous processing involving chemical or metallurgical processes are sometimes
referred to as process industries and the type of production adopted is known as process production.
Production processes are usually performed round-the-clock in process industries to avoid costly shut
down.

1.9 REVIEW QUESTIONS

1. Define the terms "Production", "Production system" and "Production Management".
2. Discuss the following views of the nature of production:
(i) Production as a system.
(ii) Production as an organisational function.
(iii) Production as a conversion process.
(iv) Production as a means of creating utility.
3. What is "Production function"? State its importance.
4. State the objectives of production management.
5. Discuss the major responsibilities of production managers.
6. Describe the various decisions made by production managers under three categories, viz., strategic,
operational and control decision areas of production management.
7. Discuss the ten decision areas in production and operations management.
8. Explain what is meant by "organising to produce goods and services". Draw a typical organisational
chart for a manufacturing and for a service organisation.
9. Discuss the major functions of production managers and the skills needed for them.
10. Discuss the problems that may arise in production management and the decisions production managers
have to take to solve these problems.
11. Discuss the components or sub-functional areas of production/operations management.
12. Distinguish between system design and system operation.
13. Discuss a “production system model’ with a diagram. Describe its elements such as inputs, conversion
and control subsystems and outputs.
14. Discuss the various types of production system.
15. Discuss the various types of production giving examples for each.