INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT

INTRODUCTION

Production/Operations Management is the process, which combines and transforms various

resources used in the production/operations subsystem of the organization into value added
product/services in a controlled manner as per the policies of the organization. Therefore, it is
the part of an organization, which is concerned with the transformation of a range of inputs into
the required (product/service) having the requisite quality level.

The set of interrelated management activities, which are involved in manufacturing certain
products, is called as production management. If the same concept is extended to services
management, then the corresponding set of management activities is as called as operations
management.

HISTORICAL EVOLUTION OF PRODUCTION AND OPERATIONS MANAGEMENT

The traditional view of manufacturing management began in eighteenth century when Adam
Smith recognised the economic benefits of specialization of labour. He recommended breaking
of jobs down into subtasks and recognizes workers to specialized tasks in which they would
become highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented
Smith’s theories and developed scientific management.

Production management becomes the acceptable term from 1930’s to 1950’s. As F.W. Taylor’s
works become more widely known, managers developed techniques that focused on economic
efficiency in manufacturing.

With 1970s emerge two distinct changes in our views. The most obvious of these, reflected in
the new name operations management was shift in the service and manufacturing sectors of
the economy. As service sector became more prominent, the change from ‘production’ to
‘operations’ emphasized the broadening of our field to service organizations. The second, more
suitable change was the beginning of an emphasis on synthesis, rather than just analysis, in
management practices.

CONCEPT OF PRODUCTION

Production function is that part of an organization, which is concerned with the transformation
of a range of inputs into the required outputs (products) having the requisite quality level.

Production is defined as:

 a. 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 product to the
user.
b. Production is a value addition process. At each stage of processing, there will be value
addition.
c. A process by which goods and services are created.

Examples of production:

a. Manufacturing Custom-Made Products (boilers with a specific capacity, constructing

flats, some structural fabrication works for selected
customers, etc.)
b. Manufacturing Standardized Products (car, bus, motor cycle, radio, television etc.)

Inputs: Transformation Process: Outputs:

Men Product Design Products
Materials Process Planning Services
Machines Production Control
Information Maintenance
Capital

Continuous:
Inventory
Quality
Cost

Environment Feedback Information

Fig. 1.1 Schematic Production System

PRODUCTION SYSTEM

The production system of an organization is that part, which produces products of an

organization. It is that activity 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. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve
system performance.
CLASSIFICATION OF PRODUCTION SYSTEM

Production systems can be classified as Job-Shop, Batch, Mass and Continuous Production
systems.

Production/
Continuous
Operations
Production
Volume
Mass Production

Batch
Production
Job-Shop
Production

Output/Product Variety

Fig 1.2 Classifications of Production Systems

JOB-SHOP PRODUCTION

Job-shop Production are characterized by manufacturing of one or few quantity of products

designed and produced as per the specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of products.

A job-shop compromises of general purpose machines arranged into different departments.

Each job demands unique technological requirements, demands processing on machines in a
certain sequence.

Characteristics

1. High variety of products and low volume.

2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product,
capacities for each work centre and order priorities.
Advantages

1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for creative method and innovative ideas.

Limitations

1. Higher cost due to frequent set up changes.

2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Large space requirement.

BATCH PRODUCTION

Batch Production is defined by American Production and Inventory Control Society (APICS) as a
form of manufacturing in which the job passes through the functional departments in lots or
batches and each lot may have a different routing. It is characterized by the manufacture of
limited number of products produced at regular intervals and stocked awaiting sales.

Characteristics

1. When there is shorter production runs.

2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and
change of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.

Advantages

1. Better utilization of plant and machinery.

2. Promotes functional specialization.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.

Limitations
 1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.

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

1. Standardization of product and process sequence.

2. Dedicated special purpose machines having higher production capacities and output
rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.

Advantages

1. Higher rate of production with reduced cycle time.

2. Higher capacity utilization due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.

Limitations

1. Breakdown of one machine will stop an entire production line.

2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest production.

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

1. Dedicated plant and equipment with zero flexibility.

2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Components material cannot be readily identified with final product.
5. Planning and scheduling is a routine action.

Advantages

1. Standardization of product and process sequence.

2. Higher rate of production with reduced cycle time.
3. Higher capacity utilization due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on production line.
6. Unit cost is lower due to high volume production.

Limitations

1. Flexibility to accommodate and process number of products does not exist.

2. Very high investment for setting flow lines.
3. Product differentiation is limited.

PRODUCTION MANAGEMENT

Production management is process of planning, organizing, directing and controlling the

activities of the production function. It combines and transforms various resources used in the
production subsystems of the organization into value added product in a controlled manner as
per the policies of the organization.

Production management deals with decision making related to production processes so that
resulting goods or services are produced according to specifications, in the amount and by
schedule demanded and out of minimum cost.

OBJECTIVES OF PRODUCTION MANAGEMENT

The objective of production management is to produce goods services of right quality and
quantity at the right time and at the right manufacturing cost.
 1. RIGHT QUALITY – the quality of product is established base upon the customers’ needs.
The right quality is not necessarily best quality. It is determined by the cost of the
product and the technical characteristics as suited to the specific requirements.
2. RIGHT QUANTITY – the manufacturing organization should produce the products in
right number. If they produced in excess of demand the capital will block up in the form
of inventory and if the quantity is produced in short demand, leads to shortage of
products.
3. RIGHT TIME – timeliness of delivery is one of the important parameter to judge the
effectiveness of production department. So, the production department has to make the
optimal utilization of input resources to achieve its objective.
4. RIGHT MANUFACTURING COST – manufacturing costs are established before the
product is actually manufactured. Hence, all attempts should be made to produce the
products are pre-established cost, so as to reduce the variation between actual and the
standard (pre-established) cost.

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 organization the product is a
physical good (hotels) while in others it is a service (hospital). Bus and taxi services, tailors,
hospital and builders are the example of an operating system.

An Operating system function of an organization is the part of 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.

CONCEPT OF OPERATIONS

An operation is defined in terms of the mission it serves for the organization, technology it
employs and the human and managerial processes it involves. Operations in an organization can
be categorized into manufacturing operations and service operations. Manufacturing operations
is a conversion process that includes manufacturing yields a tangible output: a product, whereas,
a conversion process that includes service yields an intangible output: a deed, a performance, an
effort.

DISTINCTION BETWEEN MANUFACTURING OPERATIONS AND SERVICE OPERATIONS

The following characteristics can be considered for distinguishing manufacturing operations

with service operations:

1. Tangible/Intangible nature of output

 2. Consumption of output
3. Nature of work (job)
4. Degree of customer contact
5. Customer participation in conversion
6. Measurement of performance
Manufacturing is characterized by tangible outputs (products), outputs that customers
consume overtime, jobs that use less labour and more equipment, little customer contact, no
customer participation in the conversion process (in production), and sophisticated methods for
measuring production activities and resource consumption as product are made.

Service is characterized by intangible outputs, outputs that customers consumes immediately,

jobs that use more labour and less equipment, direct consumer contact, frequent customer
participation in the conversion process, and elementary methods for measuring conversion
activities and resource consumption. Some services are equipment based namely rail-road
services, telephone services and some are people based namely tax consultant services, hair
styling.

OPERATIONS MANAGEMENT

Managing operations can be closed in a frame of general management function as shown in Fig.
1.3. Operations managers are concerned with planning, organizing, and controlling the activities
which affect human behaviour through models.

Planning - Activities that establishes a course of action and guide future decision-making is
planning. The operations manager defines the objectives for the operations subsystems of the
organization, and the policies, and procedures for achieving the objectives. This stage includes
clarifying the role and focus of operations in the organization’s overall strategy. It also involves
product planning, facility designing and using the conversion process.

Organizing – Activities that establishes a structure of tasks and authority. Operations managers
establish a structure of roles and the flow of information within the operations subsystem. They
determine the activities required to achieve the goals and assign authority and responsibility for
carrying them out.

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 actual outputs and comparing them to
planned operations management. Controlling costs, quality, and schedules are the important
functions here.

Behaviour

As operations managers are concerned with how their efforts to plan, organize, and control
affect human behaviour. They also want to know how the behaviour of subordinates can affect
management’s planning, organizing, and controlling actions. Their interest lies in decision-
making behaviour.

Models

As operations managers plan, organize, and control the conversion process, they encounter
many problems and must make many decisions. They can simplify their difficulties using models
like aggregate planning models for examining how best to use existing capacity in short-term,
break even analysis to identify break even volumes, linear programming and computer
simulation for capacity utilization, decision tree analysis for long-term capacity problem of
facility expansion, simple median model for determining best locations of facilities etc.
 Fig. 1.3 General model for managing operations

OBJECTIVES OF OPERATIONS MANAGEMENT

Objectives of operations management can be categorized into customer service and resource
utilization.

Planning
Planning Conversion System
Operations strategies
Forecasting
Product and process choices Organizing
Operations capacity Organizing for Conversion
Facility location planning Job design, production/operations
Layout planning Project management
Scheduling Conversion System
Scheduling system and aggregate
planning
Operations scheduling

Conversion Process

Models Behaviour

Controlling
Material Control
Inventory control
Material requirement planning
Managing for World-class
Competition
Japanese manufacturing
Managing for quality
Quality analysis and control

CUSTOMER SERVICE
The first objective of operating systems is the customer service to the satisfaction of customer
wants. Therefore, customer service is a key objective of operations management. The operating
system must provide something to a specification which can satisfy the customer in terms of
cost and timing. Thus, primary objective can be satisfied by providing the right thing at a right
price at the right time.

The aspect of customer service –specification, cost and timing –described for four functions.
They are the principal sources of customer satisfaction and must, therefore, be the principal
dimension of the customer service objective for operations managers.

Aspects of Customer Service

1. Manufacture
- Goods of a given, requested or acceptable specification.
- Cost i.e., purchase price or cost of obtaining goods.
- Timing i.e., delivery delay from order or request to receipt of goods.
2. Transport
- Management of a given, requested or acceptable specification.
- Cost i.e., cost of movement.
- Timing i.e., duration or time to move; waits or delays from requesting to its
commencement.
3. Supply
- Goods of a given, requested or acceptable specification.
- Cost i.e., purchase price or cost of obtaining goods.
- Timing i.e., delivery delay from order or request to receipt of goods.
4. Service
- Treatment of a given, requested or acceptable specification.
- Cost i.e., cost of movements.
- Timing i.e., duration or time required for treatment; wait or delay from requesting
treatment to its commencement.

Generally an organization will aim reliably and consistently to achieve certain standards and
operations manager will be influential in attempting to achieve these standards. Hence, this
objective will influence the operations manager’s decisions to achieve the required customer
service.

RESOURCE UTILIZATION

Another major objective of operating systems is to utilize resources for the satisfaction of
customer wants effectively, i.e., customer service must be provided with the achievement of
effective operations through efficient use of resources. Inefficient use of resources or inadequate
customer service leads to a commercial failure of an operating system.
Operation management is concerned essentially with the utilization of resources, i.e., obtaining
maximum effect from resources or minimizing their loss, under utilization or waste. The extent of
the utilization of the resources’ potential might be expressed in terms of the proportion of
available time used or occupied, space utilization, levels of activity, etc. Each measure indicates
the extent to which the potential or capacity of such resources is utilized. This is referred as the
objective of resource utilization.

Operations management is also concerned with the achievement of both satisfactory customer
service and resource utilization. An improvement in one will often give rise to deterioration in
the other. Often both cannot be maximized, and hence a satisfactory performance must be
achieved on both objectives. All the activities of operations management must be tackled with
these two objectives in mind, and many of the problems will be faced by the operations
manager because of this conflict. Hence, operation managers must attempt to balance these
basic objectives.

Below are the summaries of the twin objectives of operations management. The type of balance
established both between and within these basic objectives will be influenced by market
consideration, competitions, the strengths and weakness of the organization, etc. Hence, the
operations managers should make a contribution when these objectives are set.

The twin objectives of Operations Management:

1. The Customer Service Objective

- To provide agreed/adequate levels of customer service (and hence customer satisfaction)
by providing goods or services with the right specification, at the right cost at the right
time.
2. The Resource Utilization Objective
- To achieve adequate levels of resource utilization (or productivity) e.g., to achieve agreed
levels of utilization of materials, machines and labour.

MANAGING GLOBAL OPERATIONS

The term ‘globalization’ describes businesses’ deployment of facilities and operations around
the world. Globalization can be defined as a process in which geographic distance becomes a
factor of diminishing importance in the establishment and maintenance of cross border
economic, political and socio-cultural relations. It can also be defined as worldwide drive toward
a globalized economic system dominated by supranational corporate trade and banking
institutions that are not accountable to democratic processes or national governments.

There are four developments, which have spurred the trend toward globalization. These are:

1. Improved transportation and communications technologies;

2. Opened financial systems;
3. Increased demands for imports; and
 4. Reduced import quotas and other trade barriers.

When a firm sets up facilities abroad it involves some added complexities in its operation. Global
markets impose new standards on quality and time. Managers should not think about domestic
markets first and then global markets later, rather it could be think globally and act locally. Also,
they must have a good understanding of their competitors. Some other important challenges of
managing multinational operations include other languages and customs, different
management style, unfamiliar laws and regulations, and different costs.

Managing global operations would focus on the following key issues:

 To acquire and properly utilize the following concepts and those related to global
operations, supply chain, logistics, etc.
 To associate global historical events to key drivers in global operations from different
perspectives.
 To develop criteria for conceptualization and evaluation of different global operations.
 To associate success and failure cases of global operations to political, social, economical
and technological environments.
 To envision trends in global operations.
 To develop an understanding of the world vision regardless of their country of origin,
residence or studies in a respectful way of perspectives of people from different races,
studies, preferences, religion, politic affiliation, place of origin, etc.

SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT

Production and operations management concern with the conversion of inputs into outputs,
using physical resources, so as to provide the desired utilities to the customer while meeting the
other organizational objectives of effectiveness, efficiency and adoptability. It distinguishes itself
from other functions such as human resources, marketing, finance, etc., by its primary concern
for ‘conversion by using physical resources’. Following are the activities which are listed under
production and operations management functions:

1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management

LOCATION OF FACILITIES
Location of facilities for operations is a long-term capacity decision which involves a long term
commitment about the geographically static factors that affect a business organization. It is an
important strategic level decision-making for an organization. It deals with the question such as
‘where our main operations should be based?’

The selection of location is a key-decision as large investment is made in building plant and
machinery. An improper location of plant may lead to waste of all the investments made in plant
and machinery equipments. Hence, location of plants should be based on the company’s
expansion plan and policy, 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 results in the greatest advantage to the organization.

PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration of

departments, work centres and equipment in the conversion process. The overall objective of
the plant layout is to design a physical arrangement that meets the required output quality and
quantity most economically.

Plant layout is a plan of an optimum arrangement of facilities including personnel, operating

equipment, storage space, material handling equipments and all other supporting services along
with the design of best structure to contain all these facilities.

Material Handling refers to the moving of materials from the store room to the machine and
from one machine to the next during the process of manufacture. It is also defined as the art
and science of moving, packing and storing of products in any form. It is a specialized activity
for a modern manufacturing concern, with 50 to 75% of the cost of production. This cost can be
reduced by proper section, operation and maintenance of material handling devices. Material
handling devices increases the output, improves quality, speeds up the deliveries and decreases
the cost of production. Hence, material handling is a prime consideration in the designing new
plant and several existing plants.

PRODUCT DESIGN

Product design deals with conversion of ideas into reality. Every business organization has to
design, develop and introduce new products as a survival and growth strategy. Developing the
new products and launching them in market is the biggest challenge faced by the organizations.
The entire process of need identification to physical manufacturers of product involves three
functions: marketing, product development, and manufacturing. Product development translates
the needs of customers given by marketing into technical specifications and designing the
various features into the product to these specifications. Manufacturing has the responsibility of
selecting the processes by which the product can be manufactured. Product design and
development provides link between marketing, customer needs and expectations and the
activities required to manufacture the product.
PROCESS DESIGN

Process design is a macroscopic decision-making of an overall process route for converting the
raw material into finished goods. These decisions encompass the selection of a process, choice
of technology, process flow 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.

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.

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.

Routing may be defined as the selection of path which each part of the product will follow,
which being 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.

Scheduling determines the programme 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.
 Location
Of
Facilities
Plant Layout
Maintenanc &
e Material
Managemen Handling
t

Production/
Material Operations Product
Managemen Managemen Design
t t

Quality Process
Control Design
Production
Planning
and Control

Fig. 1.4 Scope of production and operations management

Dispatching is concerned with starting the processes. It gives 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’.

Follow-up, this has function of reporting the daily progress of work in each shop in a prescribed
proforma 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 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 collections 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 reduced price.
 To ensure satisfaction of customers with productions or services or high quality level, to
build customer goodwill, confidence and reputation of manufacturer.
 To make inspection prompt to ensure quality control.
 To check the variation during manufacturing.

MATERIALS 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 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 are very expensive. Hence, it is very
important that the plants 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.