Production and Operations

Management (POM):
 Production: Production is any process or
procedure developed to transform a set of
input elements like men, materials, capital,
information and energy into a specified set
of output elements like finished products
and services in proper quantity and
quality, thus achieving the objectives of an
enterprise.
Production and Operations
Management (POM): contd.,
 Production/Operations management is the
process which combines and transforms various
resources used in the Production/Operations
subsystem of the organisation into value added
products/services in a controlled manner as per
the policies of the organization.
 Production/Operations function, therefore, is
that part of an organisation which is concerned
with the transformation of a range of inputs into
the required outputs having the requisite quality
level.
Production and Operations
Management (POM): contd.,
 Production Management: The set of interrelated
management activities which are involved in
manufacturing certain products is called as
production management.
 Operations Management: If the same concept
is extended to services management, then the
corresponding set of activities is called as
operations management.
 The concept of manufacturing
products/providing services is called as
production/operations management.
Historical Milestone in POM or The
Evolution of POM
 A number of historical developments have impacted the
evolution of POM.
 To gain insights into the background of this field, we will
examine several of these developments:
 The Industrial Revolution
 The Post-Civil War Period,
 Scientific Management
 Human relations and behavioralism
 Operations research
 The service revolution
 The computer revolution
The Industrial Revolution
 The industrial revolution developed in England
in the 1700s.
 The steam engine, invented by James Watt in
1764,largely replaced human and water power
for factories.
 The publication of Adam Smith’s The Wealth of
Nations in 1776 touted the economic benefits of
the division of labour, also referred to as the
specialization of labour.
The Industrial Revolution
 Thus the factories of the late 1700s had developed not only
production machinery but also ways of planning and controlling the
work of production workers.
 The industrial revolution spread from England to other European
countries and to the United States.
 In 1790 Eli Whitney, an American inventor, developed the concept
of interchangeable parts.
 The first great industry in the United States was the textile industry.
 The Industrial revolution was advanced further by the development
of the gasoline engine and electricity in the 1800s.
 By the mid – 1800s, the old cottage system of production had been
replaced by the factory system.
Post- Civil War Period
 During the post-Civil war period great expansion
of production capacity occurred.
 By post – Civil War the following developments
set the stage for the great production explosion
of the 20th century:
- increased capital and production capacity
- the expanded urban workforce
- new Western Markets
- an effective national transportation system.
Scientific Management
 F.W.Taylor is known as the father of scientific
management. His shop system employed these steps:
- Each worker’s skill, strength, and learning ability were
determined.
- Stopwatch studies were conducted to precisely set
standard output per worker on each task.
- Material specifications, work methods, and routing
sequences were used to organise the shop.
- supervisors were carefully selected and trained
- incentive pay system were initiated.
Scientific Management
 In the 1920s, Ford Motor Company’s operations
embodied the key elements of Scientific
Management:
- Standarised product design
- Mass production
- Low manufacturing cost
- mechanized assembly lines
- Specialisation of labour
- interchangeable parts
Human Relations and
Behavioralism
 In the 1927-1932 period, researchers in
the Hawthorne Studies realized that
human factors were affecting production.
 Researchers and Managers alike were
recognising that psychological and
sociological factors affected production.
 From the work of behaviouralists came a
gradual change in the way managers
thought about and treated workers.
Operations Research (OR)
 During the World War II, enormous quantities of
resources (Personnel, supplies, equipments,..)
had to be deployed.
 Military Operations research (OR) teams were
formed to deal with the complexity of the
deployment.
 After the war, operations researchers found
their way back to universities, industry,
Government and consulting firms.
 OR helps operations managers make decisions
when problems are complex and wrong
decisions are costly.
The Service Revolution
 The creation of service organisations
accelerated sharply after World War II
 Today, more than two-thirds of the US
workforce is employed in services.
 About two-thirds of U.S. GDP is from services.
 There is a huge trade surplus in services.
 Investment per office workers now exceeds the
investment per factory worker.
 Thus, there is a growing need for service
operations management.
The Computer Revolution
 Computers and software have had a significant impact
on the ways organizations manage their operations.
 Today many operations decisions are made more
quickly because of easy access to information and the
availability of more information.
 Many operations activities can be performed more
quickly because of advances in computer technologies
and software applications. Example Enterprise
Resource Planning (ERP) software such as SAP,
PeopleSoft and Oracle.
 The widespread use of e-mail today allows employees
to quickly and cheaply communicate with vendors and
customers as well as coworkers.
Factors affecting operations
Management Today
 Reality of global competition
 Quality, customer service, and cost
challenge
 Rapid expansion of advanced
technologies
 Continued growth of the service sector
 Scarcity of operations resources
 Social-responsibility issues
System concept of production
 System is a collection of interrelated entities.
 Operations management is the management of
transformation systems which convert inputs into goods
and services.
 The inputs to the system are material, labour,
equipments and capital.
 These inputs are combined and converted into goods
and services by a suitable process technology.
 In product manufacturing, the major inputs are capital,
machines, equipments and tools, and labour is required
to operate and maintain the equipments.
System concept of production
contd.,
 The figure explains the systems aspect of
production/operations function of an
organization.
 The organisation receives several inputs as
indicated on the left hand side and converts
them into useful products and services using its
facilities.
 In the process of conversion, definitely, there
will be some deviations in the product’s
attributes like quality, size, shape and number of
units produced.
System concept of production
contd.,
 To cope up with the predetermined plans and
policies, it is highly essential to communicate
these deviations to the input stage in the form of
feedback for making necessary corrections.
 Based on the feedback, the system once again
tries to produce the product or service with
modified parameters, in order to meet the
specifications.
 The feedback mechanism is a continuous
exercise to monitor the status of the system.
System concept of production
contd.,
 The system has to take feedback from its
environment and adjust its parameters
accordingly.
 the top management may be treated as the
internal environment and its instructions and
expectations will form internal feedback.
 The environment outside the firm may change
in terms of legal, political, social or economic
conditions, thereby necessitating the
corresponding change in the environment of
production or operations.
Types of Production System
 The production system of a company
mainly uses facilities, equipments, and
operating methods to produce goods that
satisfy customer’s demand.
 The classification of production system is
summarized in the below table.
Types of Production System contd.,
Basis Classification Examples
Type of output Products Consumer goods like TV, Radio,
furniture, etc. Producer goods like,
lathe, milling machine, etc.

Transportation, health,
Services
entertainment, banking services,
education system, etc.

Type of flow Projects Construction of bridge, dam, road,

etc.
Job shop Hospital, auto repair, machine
shop, furniture company, etc.

Flow shop High volume TV factory, auto

factory, etc.
Continuous process Postal services, telephone
company, chemical plant, etc.
Types of Production System contd.,
Basis Classifications Examples

Type of Customized Medical care,

specification legal service
under Standardized Insurance,
service type wholesale store
Types of Production System
 Flow shop: This is a conversion process in
which successive units of output undergo the
same sequence of operations, using specialized
equipments usually positioned along a
production line. Example auto assembly,
assembly of television sets, assembly of
computer key boards etc.
Extreme form of flow shop is some times treated
as a continuous process in which there is a
constant flow of materials, as in oil refining,
chemical processing in which there is no way to
identify successive units of output.
Types of Production System
 Job Shop: This is a conversion process
in which units of different types of products
follow different sequences through
different shops.
This type of system has more flexibility.
This system results into more set-up
time, more in-process inventory, complex
scheduling, varying quality, and so on.
Types of Production System
 Batch Manufacturing: A batch manufacturing
facility produces some intermediate varieties of
products with intermediate volumes.
Under this condition, a few or several products
will have to share the production resources to
balance their utilization.
 The Project: A project refers to the process of
creating a complex one-of-a kind product or
service with a set of well-defined tasks in terms
of resources required and time phasing.
Functions of Production and
operations Management
 The production and operations
management function can be broadly
divided into the following four areas:
1. Technology selection and management
2. Capacity Management
3. Scheduling/Timing/Time allocation
4. system maintenance
Technology Selection and
Management
 It is a decision that will have a significant
bearing on the management of manpower,
machinery, and materials capacity of the
operations system and also on the type of
disturbances.
 It can create within and outside the system by
generating
i. Undesirable effects of deterioration
ii. Potentially harmful waste by-products
iii. Potential risk, to the users and non-users, due
to variety of reasons.
Capacity Management
 The capacity management aspect once framed in a
long-term perspective, revolves around matching of
available capacity to demand or making certain capacity
available to meet the demand variation.
 Capacity management is very important for achieving
the organizational objectives of efficiency, customer
service and overall effectiveness.
 While lower than needed capacity results in non-
fulfillment of some of the customer service and other
objectives of the production system, a higher than
necessary capacity results in lowered utilization of the
resources.
Scheduling
 Scheduling is another decision area of
operations management which deals with the
timing of various activities-time phasing of the
filling of the demands.
 It is evident that as the span of fluctuations in
variety and volume gets wider, the scheduling
problem assumes greater importance.
 In job-shop type operations systems, the
scheduling decisions are very important which
determine the system effectiveness as well as
the system efficiency.
System Maintenance
 The fourth area of operations management is
regarding safeguards-that only desired outputs
will be produced in the ‘normal’ condition of the
physical resources, and that the condition will be
maintained normal.
 This is an important area whereby ‘vigilance’ is
maintained so that all the good work of capacity
creation, scheduling, etc. is not negated.
 Technology selection and management has
much to contribute towards this problem.
 A proper selection and management procedure
would give rise to few problems.
Types of Production/Operations
Decisions
 Operations decisions tended to fall into
three general categories:
1. Strategic decisions
2. Operating decisions
3. Control decisions
Strategic Decisions
 Decisions about products, processes, and facilities.
 These decisions are strategic importance and have
long-term significance for the organization.
 Examples of this type of planning decisions are”
 Deciding whether to launch a new-product development
project
 Deciding on the design for a production process for a
new product
 Deciding how to allocate scarce materials, utilities,
capacity, and personnel among new and existing
business opportunities
 Deciding what new facility are needed and where to
locate them.
Operating Decisions
 Decisions about planning production to meet demand.
 These decisions are necessary if the ongoing production of goods
and services is to satisfy the demands of the market and provide
profits for the company.
 Examples of this type of decisions are:
 Deciding how much finished-goods inventory to carry for each
product
 Deciding what products and how much to each include in next
month’s production schedule
 Deciding how many temporary employees to hire next week
 Deciding how much to purchase from each vendor next month
Control Decisions
 Decisions about planning and controlling operations.
 These decisions concern the day-to-day activities of workers,
quality of products and services, production and overhead costs,
and maintenance of equipment.
 Examples of this type of decisions are:
 Deciding what to do about a department’s failure to meet the
planned labour cost target
 Developing labour cost standards for a revised product design that
is about to go into production
 Deciding what the new quality control acceptance criteria should be
for a product that has had a change in design
 deciding how often to perform preventive maintenance on a key
piece of equipment.
Operations Strategy
 Operations strategy is a long-range plan for the
production of a company’s products/services and
provides a road map for what the production or
operations functions must do if business strategies are to
be achieved.
 The company must consider, both internal and external
factors.
 It must develop operations strategies that will achieve its
business strategies and corporate mission.
 The following figure shows that operations strategies
are derived directly from the corporate mission and
business strategy.
Operations Strategy
 A corporate mission is a set of long-range goals
unique to each organization and including
statements about the kind of business the
company wants to be in, who its customers are,
its basic beliefs about business, and its goals of
survival, growth, and profitability.
 Business strategy is a long-range plan of an
organization and provides a road map of how to
achieve corporate mission.
 Business strategies are embodied in the
company’s business plan, which includes a plan
for each functional area of the business.
Operations Strategy
 Distinctive competencies or weakness
represent great competitive advantages or
disadvantages in capturing markets. They
could include things like automated
production technology, a skilled and
dedicated workforce, an ability to quickly
bring new products into production, a
talented sales force.
Operations Strategy
 It includes decisions on issues as what
new product or services must be
developed and when they must be
introduced into production, what new
facilities are required and when they are
needed, what new technologies and
processes must be developed and when
they are needed.
Competitive Priorities
 Low production costs: Unit cost of each
product/service, including labor, material and
overhead costs
 Delivery performance: Fast delivery, On-time
delivery
 High-quality products/services: Customer’s
perception of degree of excellence exhibited by
products/services
 Customer service and flexibility: Ability to
quickly change production to other
products/services, customer responsiveness.
Elements of Operations Strategy
 Positioning the production system
 Product/service plans
 Outsourcing plans
 Process and technology plans
 Strategic allocation of resources
 Facility plans: capacity, location and
layout
Positioning the Production System
 Positioning the production system means selecting the type of
product design, type of production system, and type of finished
goods inventory policy for each product group in the business
strategy.
 The two basic types of product design are custom and standard.
 Custom products are designed according to the needs of individual
customers. The choice of this type of product design results in
many different products, each being produced in small batches.
Flexibility and on-time delivery are usually needed for this type of
product. Example; Supercomputer.
 The choice of standard products results in only a few product
models that are typically produced either continuosly or in very large
batches.
 Fast delivery and low production costs are needed for this type of
product. Example TV
Positioning the Production System
 The two classic types of production processes are
product-focused and process-focused.
 Product-focused production is also called line flow
production, production lines, and assembly lines.
In this approach, the machines and workers needed to
produce a product are grouped together. Example Auto
assembly lines can produce 30 t0 60 vehicles per hour.
 Process-focused production is usually best when
producing many unique products, each with relatively low
volume.
Each production department ordinarily performs only one
type of process, such as painting. All products that need
to be painted would be transported to the painting
department.
Positioning the Production System
 There are two basic types of finished goods
inventory policies: produce-to-stock and
produce-to order.
 In the produce-to-stock policy, products are
produced ahead of time and placed in inventory.
Then when orders for the products are received,
the products are shipped immediately from the
inventory.
 In the produce-to-order policy, operations
manager wait until they have the customer’s
orders in hand before they produce the
products.
Product/Service Plans
 An important part of business strategy is to plan for new
products and services to be designed, developed, and
introduced.
 Operations strategy is directly influenced by
product/service plans for these reasons:
 As products are designed, all the detailed
characteristics of each product are established.
 Each product characteristic directly affects how the
product can be made or produced.
 How the product is made determines the design of the
production system, and the design of the production
system is the heart of operations strategy.
 Concepts of Product Life Cycle (PLC): Stages of PLC
Product/Service Plans
 There is a trend towards shortened product life cycles,
particularly in industries such as computers and
consumer goods.
 Shortened PLC have three important effects:
1. The amount of spending on product design and
development is increased.
2. Production system continuously changing product
models. This creates the need for flexible production
systems that can be easily changed to other products.
3. Computer-aided design (CAD) and Computer-aided
manufacturing (CAM) is allowing some companies to
respond faster to designing and redesigning products
and launching them into production quickly.
Outsourcing Plans
 Outsourcing refers to hiring out or subcontracting some
of the work that a company needs to do.
 It has many advantages and disadvantages, and
companies try to determine best level of outsourcing to
achieve their operations and business goals.
 At one extreme, a company could design a new product,
purchase all the basic raw materials, and then process
all of the subcomponents, subassemblies, major
assemblies and finished products.
 This would require the company to have more
equipment, more employees, and a larger facility to do
all the work itself, but the company would have more
control over quality and other production issues.
Outsourcing Plans
 At the other extreme, a company could design a new
product, outsource all the production of the product to
one or more subcontractors, and then distribute the
product under its own brand name.
 The company could even outsource the technical design
work and the distribution function.
 Many companies today even outsource some service
functions such as payroll, billing, order processing,
developing and maintaining a web site, finding and
interviewing potential employees, facility maintenance
and computer maintenance.
Process and technology Plans
 an essential part of operations strategy is the
determination of how products and services will
be produced.
 This involves planning every detail of production
process and facilities.
 The range of technologies available to produce
both products and services is great and is
continuously increasing.
 Automated technology is an important strength
to be used as companies strive capture shares
of global markets.
Strategic Allocation of Resources
 All companies today have limited resources
available for operations.
 Cash and capital funds, capacity, research labs,
workers, engineers, machines and materials and
other resources are scarce in varying degrees
for each firm.
 These resources must be divided among, or
allocated to, products, business units, projects,
or profit opportunities in ways that maximize the
achievement of the objectives of operations.
Facility plans: Capacity, Location,
and Layout
 Enormous capital investment is required
to make production capacity available.
 Land may need to be purchased,
specialized technologies may have to be
developed, new equipment may need to
be made or purchased and installed, and
new facilities may need to be located and
built.
Operations Strategy in Services
 The elements of operations strategy
applies equally well to both manufacturing
and services.
 But there are some differences.
Characteristics of Services and
Manufactures Products
Services Manufactured Products
Intangible outputs Tangible products
Outputs cannot be Products can be
inventoried inventoried
Extensive customer Little customer contact
contact
Short lead times Long lead times
Labor intensive Capital intensive
Service quality Product quality objectively
subjectively determined determined
Competitive Priorities for Services
 All the priorities for firms are also available to
service firms.
 service companies can seldom provide all the
priorities must be chosen that will provide the
greatest market advantage.
 A small retailer that emphasizes close personal
contact with customers may have high-quality
services, but its cost may be higher than the
cost of its high-volume discount competitors.
Positioning Strategies for Services
 Type of service design, with several
interesting dimensions-standard or custom
services, amount of customer contact, and
the mix of physical goods and intangible
services.
 Type of production process-quasi-
manufacturing; customer-as-participant;
and customer-as-product.