Foundation of Business

Lecture -7
Productions and operations Management
 Learning Objectives
• Describe the evolution from production to operations management.
• Identify various production processes, and describe techniques that
improve productivity, including computer-aided design and manufacturing,
flexible manufacturing, lean manufacturing, mass customization, robotics,
and 3D printing.
• Describe operations management planning issues including facility
location, facility layout, materials requirement planning, purchasing, just
in- time inventory control, and quality control.
• Explain the use of PERT and Gantt charts to control manufacturing
processes.
 Production to Operations Management
Production is the creation of finished goods and services using the factors of
production: land, labor, capital, entrepreneurship, and knowledge.
Production has historically meant manufacturing, and the term production
management has described the activities that helped firms create goods.
Operations management is a term that is used in both manufacturing and
service organizations.
Operations management is a specialized area in management that converts or
transforms resources, including human resources like technical skills and
innovation, into goods and services.
It includes inventory management, quality control, production scheduling,
follow-up services, and more. In an automobile plant, operations management
transforms raw materials, human resources, parts, supplies, paints, tools, and
other resources into automobiles
 Operations Management in the Service
Sector
Operations management in the service industry is all about creating a
good experience for those who use the service. In a Hilton hotel, for
example, operations management includes smooth-running elevators,
fine restaurants, comfortable beds, and a front desk that processes
people quickly.
 Production Processes
The production process consists of taking the factors of production
(land, etc.) and using those inputs to produce goods, services, and ideas.
Planning, routing, scheduling, and the other activities are the means to
accomplish the objective—output.
• Production adds value, or utility, to materials or processes.
• Form utility is the value producers add to materials in the creation of
finished goods and services, such as by transforming silicon into
computer chips or putting services together to create a vacation
package.
Production Processes
 Production Process
• Process manufacturing physically or chemically changes materials. For
example, boiling physically changes an egg. Similarly, process
manufacturing turns sand into glass or computer chips.
• The assembly process puts together components (eggs, toast, and coffee)
to make a product (breakfast). Cars are made through an assembly process
that puts together the frame, engine, and other parts.
• A continuous process is one in which long production runs turn out
finished goods over time. A chemical plant, for example, is run on a
continuous process.
• In intermittent process, production run is short and the producer adjusts
machines frequently to make different products (like the oven in a bakery
or the toaster in a diner). Manufacturers of custom-designed furniture
would use an intermittent process.
 The Need to Improve Production
Techniques and Cut Costs
The ultimate goal of operations management is to provide high quality
goods and services instantaneously in response to customer demand.
Companies have had to make a wide variety of high-quality
custom-designed products at low cost. Clearly, something had to
change on the production floor to make that possible. The following
techniques can be used for achieving these purposes……
1) Computer-aided design (CAD): The use of computers in the design
of products.
2) Computer-aided manufacturing (CAM): The use of computers in
the manufacturing of products.
 The Need to Improve Production
Techniques and Cut Costs
3) Computer-integrated manufacturing (CIM): The uniting of computer
aided design with computer aided manufacturing.
4) Flexible manufacturing: Designing machines to do multiple tasks so
that they can produce a variety of products.
5) Lean manufacturing: The production of goods using less of
everything compared to mass production.
6) Mass customization: Tailoring products to meet the needs of a large
number of individual customers.
 Operations Management Planning
Operations management planning helps solve many of the problems in
the service and manufacturing sectors. These include the following
functions…….
Facility location: The process of selecting a geographic location for a
company’s operations.
Facility Layout: Facility layout is the physical arrangement of resources,
including people, to most efficiently produce goods and provide
services for customers.
 Operations Management Planning
Materials Requirement Planning (MRP) is a computer-based operations
management system that uses sales forecasts to make sure needed parts and
materials are available at the right time and place. Enterprise resource
planning (ERP), a newer version of MRP, combines the computerized
functions of all the divisions and subsidiaries of the firm—such as finance,
human resources, and order fulfillment—into a single integrated software
program that uses a single database.

Purchasing: The function in a firm that searches for quality material

resources, finds the best suppliers, and negotiates the best price for goods
and services.
 Operations Management Planning
Inventory Control: One major cost of production is the expense of
holding parts, motors, and other items in storage for later use. Storage not
only subjects items to obsolescence, theft, and damage but also requires
construction and maintenance of costly warehouses. To cut such costs,
many companies have implemented a concept called just-in-time (JIT)
inventory control. JIT systems keep a minimum of inventory on the
premises—and deliver parts, supplies, and other needs just in time to go
on the assembly line.
 Operations Management Planning
Quality Control: Maintaining quality means consistently producing what the
customer wants while reducing errors before and after delivery.
Companies have turned to the use of modern quality-control standards such as Six
Sigma.
Six Sigma quality, which sets a benchmark of just 3.4 defects per million
opportunities, detects potential problems to prevent their occurrence. That’s
important to a company that makes 4 million transactions a day, like some banks.
Statistical quality control (SQC) is the process some managers use to
continually monitor all phases of the production process and ensure quality is
being built into the product from the beginning.
Statistical process control (SPC) is the process of testing statistical samples of
product components at each stage of production and plotting the test results on a
graph.
Managers can thus see and correct any deviation from quality standards
 Production Control Procedures: PERT
and Gantt Charts
• One popular technique for monitoring the progress of production was developed in
the 1950s for constructing nuclear submarines: the program evaluation and review
technique (PERT).
Program evaluation and review technique (PERT): A method for analyzing the
tasks involved in completing a given project, estimating the time needed to complete
each task, and identifying the minimum time needed to complete the total project. The
steps used in PERT are…….
(1) analyzing and sequencing tasks that need to be done,
(2) estimating the time needed to complete each task,
(3) drawing a PERT network illustrating the information from steps 1 and 2, and
(4) identifying the critical path.
The critical path is the sequence of tasks that takes the longest time to complete.
 Production Control Procedures: PERT
and Gantt Charts
Another, more basic strategy manufacturers use for measuring
production progress is a Gantt chart. A Gantt chart (named for its
developer, Henry L. Gantt) is a bar graph, now also prepared by
computer, that clearly shows what projects are being worked on and
how much has been completed at any given time.
Gantt Charts