Unit 1 Introduction to Production/

Operation Management
 Production Defined

Production can simply be defined as the activity of

transforming raw materials or components into
finished products

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 Production/ Operations Management
Definition

Production/ Operations management is defined as the

process which combines and transforms various resources
used in Production/ Operations subsystem of an org. into value
added products/ services in a controlled manner as per the
policies of the org.
Operations Management is a multidisciplinary field that investigates the design,
management, and improvement of processes aimed at the development, production,
delivery, and distribution of products and services

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 Functional subsystems of org.

All Functions are interlinked and cannot work in isolation

Marketing Promote products for sales orders
Production meets the demand generated by Marketing (planning, forecasting,
production)
Finance authorization and control on monetary resources so as to be used
effectively
Personnel Manpower requirement, training etc

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 Operations managers: responsible for the transformation process from
inputs to outputs. The Plan, Direct and coordinate within the operations of
the organization

Production Mgmt. - Set of interrelated management activities involved

in manufacturing certain products
Operation Mgmt. - Set of interrelated management activities involved in
providing services
Operations management seeks to increase the quality, efficiency, and
responsiveness of the firm.
Seeks to provide a competitive advantage.

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Functions of POM/ Role of Managers
Capacity
Location
Layout
Planning Projects
Products and services
Make or buy
Scheduling

Degree of centralization
Organizing Subcontracting
Hiring/laying off
Staffing Use of overtime
Incentive plans
Directing Issuance of work orders
Job assignments

Inventory control
Quality control
Controlling Work-in process control
Process control
Emerging Role of the Production & Operations Manager in India
today

To act as internal quality To take part in strategic

auditors in certification To implement total
decision making of the productive maintenance
programmes like organization
ISO 9000 (TPM) programme

Increased attention to
technology management To take part in the
in view of JVs of MNCs implementation & use of
with domestic companies ERP software in the
organization
New Responsibilities
To act as supply chain of Operations To automate the processes
managers in forging Managers according to the
long-term strategic requirements of the
relationships with organization
suppliers
To enhance the R & D effort
of the organization for
To act as a member of becoming self-reliant in
the concurrent developing new
engineering team in technologies
new product design

To implement the To oversee timely To take care of issues

environmental and implementation of projects relating to services
To take decisions
pollution norms (like commissioning of facilities, operations management
regarding outsourcing/ off-
established by the launching of new products/
shoring of business
government from time services, etc.) in view of the
processes
to time increased competition
Why Study POM?
It is one of the 3 critical parts of any organization:
Marketing generates demand
Operations creates the product
Finance/accounting tracks organizational performance,
pays bills, collects money
It shows us how goods and services are produced
It shows us what POM managers do
It is the most costly part of any organization
 Why Study Operations Management?
Systematic Approach
to Org. Processes

Operations
Business Education/ Increase Competitive
Career Opportunities Management Advantage/Survival

Cross-Functional
Applications

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 Types of Management Decisions

No. of decisions
taken increase

Strategic decisions Goals policies etc

Tactical decisions acquisitions of resources, NPD
Operational Decisions usage of facilities etc
What does OM do? - Adds value to raw materials
Expenses direct expenses & Overheads
Competitive Markets Reverse Pricing
Non competitive markets All costs+ Profit = Final Price
Decisions taken in POM/ POM
Managers
Quality management
Who is responsible for quality?
How do we define quality?
Service and product design
What product or service should we offer?
How should we design these products and services?
Process and capacity design
What processes will these products require and in what order?
What equipment and technology is necessary for these processes?
Location
Where should we put the facility
On what criteria should we base this location decision?
Layout design
How should we arrange the facility?
How large a facility is required?
Decisions taken in POM/ POM
Managers
Human resources and job design
How do we provide a reasonable work environment?
How much can we expect our employees to produce?
Supply chain management
Should we make or buy this item?
Who are our good suppliers and how many should we have?
Inventory, material requirements planning,
How much inventory of each item should we have?
When do we re-order?
Intermediate, short term, and project scheduling
Is subcontracting production a good idea?
Are we better off keeping people on the payroll during slowdowns?
Maintenance
Who is responsible for maintenance?
When do we do maintenance?
 Some Current Issues
Implementing/sustaining Quality Management initiatives
Consolidating operations resulting from mergers
Speeding up the time to get new products to market
Developing flexible production systems to enable mass
customization of products and services
Developing and integrating new technologies
Managing global supplier, production and distribution
networks
Outsourcing

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Today's Factors Affecting OM

Global Competition
Quality, Customer Service, and Cost Challenges
Rapid Expansion of Advanced Technologies
Continued Growth of the Service Sector
Scarcity of Operations Resources
Social-Responsibility Issues
New Challenges in OM
From To
Global focus
Just-in-time
Local or national focus
Supply chain partnering
Batch shipments
Rapid product
Low bid purchasing development
Lengthy product Strategic alliances
development cycles Mass customization
Standardized products Empowered employees
Teams
Job specialization
New Challenges in OM

Past Causes Future

Local or Low-cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just-in-time
shipments reducing investment in shipments
inventory
Low-bid Quality emphasis requires that Supply-chain
purchasing suppliers be engaged in product partners
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
New Challenges in OM

Past Causes Future

Standardized Affluence and worldwide markets; Mass
products increasingly flexible production customization
processes
Job Changing sociocultural milieu. Empowered
specialization Increasingly a knowledge and employees,
information society. teams, and lean
production
Low cost Environmental issues, ISO 14000, Environmentally
focus increasing disposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing
 Manufacturing system vs. Service System
Characteristic Manufacturing Service

Output Tangible Intangible

Customer Contact Low High

Uniformity high low

Labor content Low High

Uniformity of output High Low

Store of output Needs Space No inventory

Measurement of production Easy Difficult, Quality and demand is

variable

Common Characteristics
Entail customer satisfaction as a key measure of effectiveness

Require demand forecasting

Require design of both the product and the process

Involve purchase of materials, supplies, and services

Require equipment, tools, buildings, and skills, etc.

Operations as a System (Simple
view)

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem
Operations as a System (Detailed
Transformation view)
Operations as a System (detailed
view)
 Control systems
Tight QC on raw materials
Machine settings adjustment
Change of tools
Proper allocation of operators to machines with matching skills
Change in production plans (volume)
Rigid in-process quality program to avoid rework
Environment
Internal(top management) and external(legal, political & Socio
Economic conditions) environment system takes feedback from
the environment
 Types of Production system
Output type Products and services (customized and
standardized services)
Type of flow
Projects complex one of a kind product or service eg. Dam etc
Job shop units of different type of products flow through diff.
sequence and diff. shops. Eg. Hospital, auto repair. Requires more set
up time, more inventory, varying quality etc
Flow shop successive units of output go through the same sequence of
operations using specialized equipments positioned on a production line
eg. TV production
Batch Process jobs passes through functions in batches each having a
different routing. Shorter production runs, flexible machinery.
Continuous process extreme flow of input in a flow shop is sometimes
treated as a continuous process in which there is constant flow of
materials eg. Oil refining, Chemical processing
 Transformations/ Conversion sub
systems
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Other Private Services Healthcare, Insurance, Finance etc
Govt. Services Local, State, Central
5 Ps of Transformation:
Product what to produce, Technology reqd. to produce, R&D prototype to Manufactured
product, Value engineering
Plant Location, capacity, equipments reqd., Maintenance and operation
Processes Type of Manufacturing process, customization, product flexibility, process
time
Programs Forecasting, Integration (process planning, design, manufacture, systems
dev), Production coordination (MRP, JIT etc)
People who?, skills?, location?, numbers?, deployment?, Motivations?, Legal rights? 5
 Examples of Production Systems
System Inputs Conversion Output
(desired)
Hospital Patients Health Care Healthy
MDs, Nurses Individuals
Medical Supplies
Equipment
Restaurant Hungry Customers Prepare Food Satisfied
Food, Chef Serve Food Customers
Servers
Atmosphere
Automobile Sheet Steel Fabrication High Quality
Plant Engine Parts and Assembly Automobiles
Tools, Equipment of Cars
Workers
University High School Grads Transferring Educated
Teachers, Books of Knowledge Individuals
Classroom and Skills

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 Key OM Concepts
Efficiency - Doing something at the lowest possible cost

Effectiveness - Doing the right things to create the most

value for the organization

Value - Quality divided by price

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 The Transformation Process
For a Service Organization (An MBA Institute)

Random disturbances
Strikes of students, Quality of
Quality of inputs teachers or staff outputs
monitored Undue interference of monitored
Raw minds the government in the
(students) working of institutions
Teachers
Class rooms Enlightened students with:
Transformation Good communication skills
Computer lab Process Pleasant personalities
Library Leadership qualities
Good analytical ability
Projectors
Team spirit
(OHP, LCD etc)
Decision making abilities
Administrative Computer skills
Feedback Mechanisms
staff
Success at placement interviews
Grades obtained in examinations OUTPUTS
INPUTS
Rising career graph of alumni in the industry
Number of applications for admission
in the institute
Ratings of surveys
 The Transformation Process For a Hybrid Service &
Manufacturing Organization
(A Restaurant)
Random disturbances
High turnover of chefs, Quality of
Customers Quality of inputs waiters, etc. outputs
Building monitored Inflation monitored
Chef Governments taxation
Vegetables policy
Furniture
Customers satisfied with:
Mutton, Transformation Good preparation of the
chicken, Process food
pork, etc. Pleasant behavior and
Cooking oil, personality of the waiter
Spices, etc. Genuine prices charged
Waiters
Manager
Feedback Mechanisms
Rising Revenues OUTPUTS
INPUTS Repeat Customers
Appreciation of customers
 The Transformation Process For a Purely Manufacturing
Organization
(A Refrigerator Manufacturer)
Random disturbances
High turnover of workers Quality of
Machines & Quality of inputs and managers outputs
Equipments monitored Recession monitored
Building Governments taxation
Components, policy
parts, sub- Strikes instigated by trade
assemblies, etc. unions Customers satisfied with:
Transformation Good cooling performance
Workers Less consumption with
Process
Office infrastructure electricity
(computers, Good after-sales service
furniture, etc.) New advanced features

Packaging
material Feedback Mechanisms
Capital Rising sales volume
Managers Lesser customer complaints
Positive response of customers in
INPUTS the feedback forms OUTPUTS
 Productivity
Outputs
Productivi ty =
Inputs
Partial measures
output/(single input)
Multi-factor measures
output/(multiple inputs)
Total measure
output/(total inputs)
Ways to increase Productivity
Increased Output eg. altering the layout design to improve output
Decreased input for same output eg. Finding out a substitute material
Proportionate increase in o/p> increase in i/p eg. introducing 1 more
product in portfolio
Proportionate decrease in o/p< decrease in i/p eg. dropping 1 unprofitable
product
Increase in o/p with dec in i/p introduction of advanced techniques
 Example
10,000 Units Produced

Sold for $10/unit

500 labor hours

What is the
Labor rate: $9/hr labor productivity?

Cost of raw material: $5,000

Cost of purchased material: $25,000

 Example--Labor Productivity

10,000 units/500hrs = 20 units/hour ...

... or we can arrive at a unitless figure

(10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22

 Example:
Productivity Measurement

You have just determined that your service employees

have used a total of 2400 hours of labor this week to
process 560 insurance forms. Last week the same
crew used only 2000 hours of labor to process 480
forms.
Is productivity increasing or decreasing?
 History of POM
Date Contribution/concept and Tools Originator
1776 Division of labor Adam Smith
1790 Interchangeable parts Eli Whitney
Scientific management principles
Frederick W. Taylor
Standard ,Time study, methods analysis, Planning
Motion studies, method, Therbligs
Frank B. Gilbreth
Construction contracting
Fatigue study
1910s Human factor in work Lillian M. Gilbreth
Employee selection and training
Gantt charts, Incentive pay systems Henry L. Gantt
Moving assemble line Henry Ford
EOQ mathematical model F. W. Harris
1930 Hawthorne studies Elton Mayo
1935 Statistical procedures for sampling and quality control Dodge, Romig,Shewhatt
1940-1947 Operation research, Linear programming OR groups, George Dantzig
1960s Extensive development of quantitative tools (CPM/PERT)
Inventory control, Material requirement planing (MRP)
1970s
Mass production in service
Emphasis on manufacturing strategy W. Skinner
Just in Time (JIT), Total quality control (TQC) Japanese
1980s
Optimized production Technology (OPT), CAD/CAM Japanese
Flexible manufacturing system (FMS) Goldratt
TQM/ISO9000, Agile manufacturing (AM), Lean Production (LP)
LAF, Business process reengineering (BPR)
1990s Concurrent Engineering (CE)
Virtual manufacturing (VM)
World Class Manufacturing (WCM)
Historical Milestones in OM

The Industrial Revolution

Post-Civil War Period
Scientific Management
Human Relations and Behaviorism
Operations Research
The Service Revolution
The Industrial Revolution

The industrial revolution developed in England in the

1700s.
The steam engine, invented by James Watt in 1764,
largely replaced human and water power for factories.
Adam Smiths The Wealth of Nations in 1776 touted the
economic benefits of the specialization of labor.
Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.
 The Industrial Revolution
The industrial revolution spread from England to other European
countries and to the United Sates.
In 1790 an American, Eli Whitney, developed the concept of
interchangeable parts.
The first great industry in the US was the textile industry.
In the 1800s the development of the gasoline engine and electricity
further advanced the revolution.
By the mid-1800s, the old cottage system of production had been
replaced by the factory system.
. . . more
Post-Civil War Period

During the post-Civil War period great expansion

of production capacity occurred.
By post-Civil War the following developments set
the stage for the great production explosion of
the 20th century:
increased capital and production capacity
the expanded urban workforce
new Western US markets
an effective national transportation system
Scientific Management
Frederick Taylor is known as the father of scientific
management. His shop system employed these steps:
Each workers skill, strength, and learning ability were determined.
Stopwatch studies were conducted to precisely set standard output per
worker on each task.
Material specifications, work methods, and routing sequences were used
to organize the shop.
Supervisors were carefully selected and trained.
Incentive pay systems were initiated.
In the 1920s, Ford Motor Companys operation embodied the key
elements of scientific management:
standardized product designs
mass production
low manufacturing costs
mechanized assembly lines
specialization of labor
interchangeable parts
Human Relations and Behavioralism

In the 1927-1932 period, researchers in the

Hawthorne Studies realized that human factors
were affecting production.
Researchers and managers alike were
recognizing that psychological and sociological
factors affected production.
From the work of behavioralists came a gradual
change in the way managers thought about and
treated workers.
 Operations Research
During World War II, enormous quantities of resources
(personnel, supplies, equipment, ) had to be deployed.
Military operations research (OR) teams were formed to deal
with the complexity of the deployment.
After the war, 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 & Computer Revolution
The creation of services organizations accelerated sharply after World War II.
Today, more than two-thirds of the US workforce is employed in services.
About two-thirds of the US GDP is from services.
There is a huge trade surplus in services.
Investment per office worker now exceeds the investment per factory worker.
Thus there is a growing need for service operations management.

The Computer Revolution

Explosive growth of computer and communication technologies

Easy access to information and the availability of more information

Advances in software applications such as Enterprise Resource Planning (ERP)

software
Widespread use of email

More and more firms becoming involved in E-Business using the Internet

Result: faster, better decisions over greater distances