CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
INTRODUCTION
- Production and Operation
Management deals with the creation of
goods and services through the
application of the business concept.
They are also vital in both service and
manufacturing firms. Production and
Operation Management has a primary
objective, which is to employ the
company’s resources to produce goods
and services fit for the market. This post
highlights the definitions, importance,
and function of management concepts.
CONCEPT OF PRODUCTION
WHY DO SOME ORGANIZATIONS
FAIL?
- Organizations fail, or perform
poorly, for a variety of reasons.
Being aware of those reasons
can help managers avoid
making similar mistakes. Among
the chief reasons are the
following:
1. Neglecting operations strategy.
2. Failing to take advantage of
strengths and opportunities,
and/or failing to recognize
competitive threats.
3. Putting too much emphasis on
short-term financial performance
at the expense of research and
development.
4. Placing too much emphasis on
product and service design and
not enough on process design
and improvement.
5. Neglecting investments in
capital and human resources.
6. Failing to establish good internal
communications and
cooperation among different
functional areas.
7. Failing to consider customer
wants and needs.
EXTERNAL FACTORS
1. ECONOMIC CONDITIONS –
general health and direction of
the economy, inflation and
deflation, interest rates, tax
laws, and tariffs.
2. POLITICAL – favorable or
unfavorable attitudes toward
business, political stability or
instability, and wars.
3. LEGAL – this includes antitrust
laws, government regulations,
trade restrictions, minimum
wage laws, product liability, laws
and recent court experience,
labor laws, and patents.
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
4. TECHNOLOGY – rate at which
product innovators are
occurring, current and future
process technology (equipment
& materials handling), and
design technology.
5. COMPETITORS – number and
strength of competitors, basis of
competition (price, quality,
special features), ease of market
entry.
6. MARKET – size, location, brand
loyalties, ease of entry, potential
for growth, long-term stability,
demographics.
INTERNAL FACTORS
1. HUMAN RESOURCES – skills
and abilities of managers and
workers, special talents
(creativity, designing, problem
solving), loyalty to the
organization, expertise,
dedication, and experience.
2. FACILITIES AND EQUIPMENT
– capacities, location, age, and
cost to maintain or replace can
have a significant impact on
operations.
3. FINANCIAL RESOURCES –
cash flow, access to additional
funding, existing debt burden,
and cost of capital are important
considerations.
4. CUSTOMERS – loyalty, existing
relationships, and understanding
of wants and needs are
important.
5. PRODUCT AND SERVICES –
these include existing products
and services, and the potential
for new products and services.
6. TECHNOLOGY – this includes
existing technologies, and the
probable impact of technology
on current and future operations.
7. SUPPLIERS – supplier
relationships, dependability of
suppliers, quality, flexibility, and
service are typical
considerations.
8. OTHER – other factors include
patents, labor relations,
company or product image,
distribution channels,
relationships with distributors,
maintenance of facilities and
equipment, access to resources,
and access to markets.
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103

PRODUCTION SYSTEM Classification of Production

- The production system of an
Systems
- Production systems can be
organization is that part, which
classified as Job-Shop, Batch,
produces products of an
Mass and Continuous
organization. It is that activity
Production systems.
whereby resources, flowing
within a defined system, are
combined and transformed in a
controlled manner to add value
in accordance with the policies
communicated by management.
A simplified system is shown
above.
- The production system has the
following characteristics: 1. Job-Shop Production
- Job-shop Production is
✔ Production is an organized
characterized by
activity, so every production manufacturing of one or
system has an objective. few quantities of
products designed and
✔ The system transforms the
produced as per the
various inputs to useful specification of
outputs. customers within
✔ It does not operate in isolation prefixed time and cost.
The distinguishing
from the other organization
feature of this is low
system.
volume and high
✔ There is feedback about the
variety of products.
activities, which is essential
- A job-shop consists of
to control and improve
general purpose
system performance.
machines arranged into
different departments.
Each job demands

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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103

unique technological d. Opportunity exists for

requirements, creative methods and
demands processing innovative ideas.
on machines in a Limitations
certain sequence. a. Higher cost due to frequent set
Characteristics up changes.
a. High variety of products and b. Higher level of inventory at all
low volume. levels and hence higher
b. Use of general purpose inventory cost.
machines and facilities. c. Production planning is
c. Highly skilled operators who complicated.
can take up each job as a d. Large space requirement.
challenge because of
uniqueness. 2. Batch Production
d. Large inventory of materials, - Batch Production is defined by
tools, parts. American Production and
e. Detailed planning is Inventory Control Society
essential for sequencing the (APICS) as a form of
requirements of each manufacturing in which the job
product, capacities for each passes through the functional
work center and order departments in lots or
priorities. batches and each lot may
Advantages have a different routing. It is
a. Because of general purpose characterized by the
machines and facilities, a manufacture of a limited
variety of products can be number of products produced
produced. at regular intervals and
b. Operators will become more stocked awaiting sales.
skilled and competent, as
each job gives them learning Characteristics
opportunities. a. When there are shorter
c. Full potential of operators production runs.
can be utilized. b. When plants and machinery
are flexible.

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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
c. When plant and machinery
set up is used for the
production of items in a
batch and change of set up
is required for processing the
next batch.
d. When manufacturing lead
time and cost are lower as
compared to job order
production.
Advantages
a. Better utilization of plants
and machinery.
b. Promotes functional
specialization.
c. Cost per unit is lower as
compared to job order
production.
d. Lower investment in plant
and machinery.
e. Flexibility to accommodate
and process a number of
products.
f. Job satisfaction exists for
operators.
Limitations
a. Material handling is complex
because of irregular and
longer flows.
b. Production planning and
control is complex.
c. Work in process inventory is
higher compared to
continuous production.
d. Higher set up costs due to
frequent changes in set up.
3. Mass Production
- Manufacture of discrete
parts or assemblies
using a continuous
process are called mass
production. This
production is justified by
very large volume or
production. The
machines are arranged
in a line or product
layout. Product and
process
standardization exists
and all outputs follow
the same path.
Characteristics
a. Standardization of product
and process sequence.
b. Dedicated special purpose
machines having higher
production capacities and
output rates.
c. Large volume of products.
d. Shorter cycle time of
production.
e. Lower in process inventory.
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
f. Perfectly balanced
production lines.
g. Flow of materials,
components and parts is
continuous and without any
back tracking.
h. Production planning and
control is easy.
i. Material handling can be
completely automatic.
Advantages
a. Higher rate of production
with reduced cycle time.
b. Higher capacity utilization
due to line balancing.
c. Less skilled operators are
required.
d. Low process inventory.
e. Manufacturing cost per unit
is low.
Limitations
a. Breakdown of one machine will
stop an entire production line.
b. Line layout needs major change
with the changes in the product
design.
c. High investment in production
facilities.
d. The cycle time is determined by
the slowest production.
4. Continuous Production
- Production facilities are
arranged as per the sequence
of production operations from
the first operations to the
finished product. The items are
made to flow through the
sequence of operations
through material handling
devices such as conveyors,
transfer devices, etc.
Characteristics
a. Dedicated plant and
equipment with zero
flexibility.
b. Material handling is fully
automated.
c. Process follows a
predetermined sequence of
operations.
d. Components material cannot
be readily identified with the
final product.
e. Planning and scheduling is a
routine action.
Advantages
a. Standardization of product
and process sequence.
b. Higher rate of production
with reduced cycle time.
c. Higher capacity utilization
due to line balancing.
d. Manpower is not required for
material handling as it is
completely automatic.
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103

e. People with limited skills can

✔ Production is a value addition
be used on the production
line. process. At each stage of
f. Unit cost is lower due to high processing, there will be value
volume production. addition.
Limitations ✔ A process by which goods and
a. Flexibility to accommodate
services are created.
and process a number of
products does not exist.
Examples of production:
b. Very high investment for
✔ Manufacturing Custom-Made
setting flow lines.
Products (boilers with a specific
c. Product differentiation is
capacity, constructing flats,
limited.
some structural fabrication
works for selected customers,
PRODUCTION FUNCTION etc.)
- Production function is that part ✔ Manufacturing Standardized
of an organization, which is Products (car, bus, motorcycle,
concerned with the radio, television etc.)
transformation of a range of
inputs into the required Figure 2.1 Schematic Production
outputs (products) having the System
requisite quality level.

Production is defined as:

✔ The “step-by-step” conversion
of one form or material into
another form through chemical
or mechanical process to create
or enhance the utility of the CONCEPT OF OPERATIONS
product to the user.
- An operation is defined in terms
of the mission it serves for the
organization, technology it

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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
employs and the human and
managerial processes it
involves. Operations in an
organization can be categorized
into manufacturing operations
and service operations.
OPERATING SYSTEM
- Operating system converts
inputs in order to provide
outputs which are required by a
customer. It converts physical
resources into outputs, the
function of which is to satisfy
customer wants i.e., to provide
some utility for the customer. In
some of the organizations the
product is a physical good
(hotels) while in others it is a
service (hospital). Bus and taxi
services, tailors, hospitals and
builders are examples of an
operating system. An Operating
system function of an
organization is the part of the
organization that produces the
organization’s physical goods
and services. An Operating
system is a configuration of
resources combined for the
provision of goods and
services.
DIFFERENCE BETWEEN
MANUFACTURING OPERATIONS
AND SERVICE OPERATIONS
- Manufacturing operations and
service operations are often
different in terms of what is done
but quite similar in terms of how
it is done. Consider these points
of comparison:
a. Degree of customer contact.
Many services involve a high
degree of customer contact,
although services such as
Internet providers, utilities, and
mail service do not. When there
is a high degree of contact, the
interaction between server and
customer becomes a “moment
of truth” that will be judged by
the customer every time the
service occurs.
b. Labor content of jobs.
Services often have a higher
degree of labor content than
manufacturing jobs do, although
automated services are an
exception. Uniformity of
inputs. Service operations are
often subject to a higher degree
of variability of inputs. Each
client, patient, customer, repair
job, and so on presents a
somewhat unique situation that
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
requires assessment and
flexibility. Conversely,
manufacturing operations
often have a greater ability to
control the variability of
inputs, which leads to
more-uniform job requirements.
Measurement of productivity.
c. Measurement of productivity
can be more difficult for
service jobs due largely to the
high variations of inputs.
Thus, one doctor might have a
higher level of routine cases to
deal with, while another might
have more-difficult cases.
Unless a careful analysis is
conducted, it may appear that
the doctor with the difficult cases
has a much lower productivity
than the one with the routine
cases.
d. Quality assurance. Quality
assurance is usually more
challenging for services due
to the higher variation in
input, and because delivery
and consumption occur at the
same time. Unlike
manufacturing, which typically
occurs away from the customer
and allows mistakes that are
identified to be corrected,
services have less opportunity to
avoid exposing the customer to
mistakes.
e. Inventory. Many services tend
to involve less use of inventory
than manufacturing operations,
so the costs of having inventory
on hand are lower than they are
for manufacturing. However,
unlike manufactured goods,
services cannot be stored.
Instead, they must be provided
“on demand.”
f. Wages. Manufacturing jobs
are often well paid, and have
less wage variation than
service jobs, which can range
from highly paid professional
services to minimum-wage
workers.
g. Ability to patent. Product
designs are often easier to
patent than service designs,
and some services cannot be
patented, making them easier
for competitors to copy.
OPERATION FUNCTIONS
- Managing operations can be
closed in a frame of general
management function.
Operations managers are
concerned with planning,
organizing, and controlling the
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103

activities which affect human managers establish a structure

behavior through models. of roles and the flow of
Figure 2.3 General Model of Operations information within the operations
Management subsystem. They determine the
activities required to achieve the
goals and assign authority and
responsibility for carrying them
out.
c. Controlling – Activities that
assure the actual performance
in accordance with planned
performance. To ensure that the
plans for the operations
subsystems are accomplished,
the operation manager must
exercise control by measuring
a. Planning - Activities that actual outputs and comparing
establish a course of action and them to planned operations
guide future decision-making is management. Controlling costs,
planning. The operations quality, and schedules are the
manager defines the objectives important functions here.
for the operations subsystems of
the organization, and the
SCOPE OF PRODUCTION AND
policies, and procedures for
OPERATIONS MANAGEMENT
achieving the objectives. This
stage includes clarifying the role Figure 2.4 Scope of POM
and focus of operations in the
organization’s overall strategy. It
also involves product planning,
facility designing and using the
conversion process.
b. Organizing – Activities that
establish a structure of tasks
and authority. Operations

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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103

LOCATION OF FACILITIES PLANT LAYOUT AND MATERIAL

HANDLING
- Location of facilities for
operations is a long-term - Plant layout refers to the
capacity decision which involves physical arrangement of
a long term commitment about facilities. It is the configuration
the geographically static factors of departments, work centers
that affect a business and equipment in the
organization. It is an important conversion process. The
strategic level decision-making overall objective of the plant
for an organization. It deals with layout is to design a physical
the question such as ‘where our arrangement that meets the
main operations should be required output quality and
based?’ quantity most economically.
- The selection of location is a Plant layout is a plan of an
key-decision as large optimum arrangement of
investments are made in facilities including personnel,
building plants and machinery. operating equipment, storage
An improper location of a plant space, material handling
may lead to waste of all the equipment and all other
investments made in plant and supporting services along with
machinery equipment. Hence, the design of the best structure
location of plants should be to contain all these facilities.
based on the company’s
expansion plan and policy, Figure 2.5 Sample Plant Layout
diversification for the
products, changing sources
of raw materials and many
other factors. The purpose of
the location study is to find the
optimal location that will
result in the greatest
advantage to the organization.

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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103

- Material Handling refers to the organizations. The entire

moving of materials from the process of need identification to
store room to the machine physical manufacturers of
and from one machine to the products involves three
next during the process of functions: marketing, product
manufacture. It is also defined development, and
as the art and science of manufacturing. Product
moving, packing and storing development translates the
of products in any form. It is a needs of customers given by
specialized activity for a modern marketing into technical
manufacturing concern, with 50 specifications and designing the
to 75% of the cost of various features into the product
production. This cost can be to these specifications.
reduced by proper section, Manufacturing has the
operation and maintenance of responsibility of selecting the
material handling devices. processes by which the
Material handling devices product can be manufactured.
increase the output, improves Product design and
quality, speeds up the development provides a link
deliveries and decreases the between marketing, customer
cost of production. needs and expectations and
the activities required to
manufacture the product.
PRODUCT DESIGN
- Product design deals with
PROCESS DESIGN
conversion of ideas into
reality. Every business - Process design is a
organization has to design, macroscopic decision-making
develop and introduce new of an overall process route for
products as a survival and converting the raw material into
growth strategy. Developing the finished goods. These decisions
new products and launching encompass the selection of a
them in the market is the biggest process, choice of
challenge faced by the technology, process flow

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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
analysis and layout of the
facilities. Hence, the important
decisions in process design are
to analyze the workflow for
converting raw material into
finished product and to select
the workstation for each
included in the workflow.
Figure 2.6 Sample Process Layout
PRODUCTION PLANNING AND
CONTROL
- Production planning and
control can be defined as the
process of planning the
production in advance, setting
the exact route of each item,
fixing the starting and
finishing dates for each time,
to give production orders to
shops and to follow up the
progress of products according
to orders.
- The principle of production
planning and control lies in the
statement ‘First Plan Your
Work and then Work on Your
Plan’. Main functions of
production planning and control
includes planning, routing,
scheduling, dispatching and
follow-up.
a. Planning is deciding in advance
what to do, how to do it, when
to do it and who to do it and
who is to do it. Planning
bridges the gap from where we
are, to where we want to go. It
makes possible for things to
occur which would not otherwise
happen.
b. Routing may be defined as the
selection of path which each
part of the product will follow,
which are transformed from raw
materials to finished products.
Routing determines the most
advantageous path to be
followed from department to
department and machine to
machine till raw materials gets
its final shape.
c. Scheduling determines the
program for the operations.
Scheduling may be defined as
‘the fixation of time and date
for each operation’ as well as it
determines the sequence of
operations to be followed.
d. Dispatching is concerned with
starting the processes. It gives
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
authority so as to start a
particular work, which has
already been planned under the
‘Routing’ and ‘Scheduling’.
Therefore, dispatching is
‘release of orders and
instruction for the starting of
production for any item in
acceptance with the route
sheet and schedule charts’.
e. Follow-up, this has the function
of reporting the daily progress
of work in each shop in a
prescribed preformat and to
investigate the causes of
deviations from the planned
performance.
QUALITY CONTROL
- Quality Control (QC) may be
defined as ‘a system that is
used to maintain a desired
level of quality in a product or
service’. It is a systematic
control of various factors that
affect the quality of the
product. Quality control aims at
prevention of defects at the
source, relies on an effective
feedback system and corrective
action procedure. Quality
control can also be defined as
‘that industrial management
technique by means of which
product of uniform acceptable
quality is manufactured’. It is
the entire collection of activities
which ensure that the operation
will produce the optimum quality
products at minimum costs.
The main objectives of quality
control are:
● To improve the companies’
income by making the
production more acceptable to
the customer i.e., by providing
long life, greater usefulness,
maintainability, etc.
● To reduce companies’ cost
through reduction of losses due
to defects.
● To achieve interchangeability of
manufacture in large scale
production.
● To produce optimal quality at a
reduced price.
● To ensure satisfaction of
customers with products or
services or high quality level, to
build customer goodwill,
confidence and reputation of the
manufacturer.
● To make inspection prompts to
ensure quality control.
● To check the variation during
manufacturing.
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CHAPTER 2: CONCEPTS OF PRODUCTION
MANAGEMENT AND OPERATIONS
MANAGEMENT
Operations Management (TQM)
BS in Accountancy 1-B ︳Prof. Rozen Alfonso ︳CBME 103
MATERIAL MANAGEMENT
- Materials management is that
aspect of management function
which is primarily concerned
with the acquisition, control
and use of materials needed
and flow of goods and services
connected with the production
process having some
predetermined objectives in
view.
The main objectives of materials
management are:
● To minimize material cost.
● To purchase, receive, transport
and store materials efficiently
and to reduce the related cost.
● To cut down costs through
simplification, standardization,
value analysis, import
substitution, etc.
● To trace new sources of supply
and to develop cordial relations
with them in order to ensure
continuous supply at reasonable
rates.
● To reduce investment tied up in
the inventories for use in other
productive purposes and to
develop high inventory turnover
ratios.
MAINTENANCE MANAGEMENT
- In modern industry, equipment
and machinery are a very
important part of the total
productive effort. Therefore,
their idleness or downtime
becomes very expensive.
Hence, it is very important that
the plant's machinery should be
properly maintained.
The main objectives of maintenance
management are:
1. To achieve minimum breakdown
and to keep the plant in good
working condition at the lowest
possible cost.
2. To keep the machines and other
facilities in such a condition that
permits them to be used at their
optimal capacity without
interruption.
3. To ensure the availability of the
machines, buildings and
services required by other
sections of the factory for the
performance of their functions at
optimal return on investment.
15