ABM-510

PRODUCTION AND OPERATIONS MANAGEMENT

Introduction Production is the creation of goods and services. The production activity is

nothing but the step by step conversion of one form of material into another either chemically

or mechanically. This is done in factories which have manufacturing processes. The basic

inputs of production process are men, machines, plant, services and methods. The finished

products of one manufacturing process may not become finished product for consumption it

may become the raw material for other manufacturing process. Production involves the step by

step conversion of one form of materials into another through processing to create or enhance

the utility of the products or services.

Meaning of Production

Production refers to the use of any process which is designed to transform a set of input

elements into set an output elements.

It involves the step by step conversion of one form of material into another to create or enhance

the utility of the products or services.

Definition of Production

According to Elwood Butta, “Production is a process by which goods or services are created.”

Ways of Production

Production by disintegration i.e., by separating the contents the desired product is

produced. Ex: Crude oil, fuel oils etc.,

Production by Integration i.e., production by assembling various components of the

products to get desired product. Ex: 2 wheelers, 4wheelers etc.,

 Production by services i.e., production is based on chemical and mechanical properties of

materials without physical change. Ex: heat treatment of metals etc.,

Production management

Meaning

It refers to the job of coordinating and controlling the activities required for making a product,

which involves control of schedule, cost, and performance, quality and waste requirements.

Production/operations management is the process, which mingles and transforms various

resources used in the production/operations subsystem of the organization into value added

product/services in a control led manner as per the policies of the organization. Therefore, it is

that part of an organization, which is concerned with the transformation of a range of inputs

into the required (products/services) having the requisite quality level.

The set of interrelated management activities, which are involved in manufacturing certain

products, is called as production management. I f the same concept is extended to services

management, then the corresponding set of management activities is called as operations

management.

It means planning, organizing, directing and controlling of production activities. It deals with

decision making regarding the quality, quantity, cost etc. It applies management principles for

production. It deals with converting raw materials into finished goods or products.

Definition

According to H.A.Harding, “Production management is concerned with those processes which

convert the inputs into outputs. The inputs are various resources like raw materials, men,

machines, methods etc., and outputs are goods and services” According to A.W.Field,

“Production management is the process of planning and regulating the operations of that part
of an enterprise which is responsible for actual transformation of materials into finished

products.”

ORIGIN OF PRODUCTION AND OPERATIONS MANAGEMENT

For over two centuries operations and product ion management has been recognized as an

important factor in a country’s economic growth. The traditional view of manufacturing

management began in eighteenth century when Adam Smith recognized the economic benefits

of specialization of labour. He recommended breaking of jobs down into subtasks and

recognizes workers to special ized 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. From then ti ll 1930, many techniques were developed

prevailing the traditional view. Brief information about the contribut ions to manufacturing

management is shown in the Table 1.1.

Production management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s

works become more widely known, managers developed techniques that focused
on economic efficiency in manufacturing. Workers were studied in great detail to eliminate

wasteful efforts and achieve greater efficiency. At the same time, psychologists, socialists’ and

other social scientists began to study people and human behaviour in the working environment.

In addition, economists, mathematicians, and computer socialists contributed newer, more

sophisticated analytical approaches.

With the 1970s emerge two distinct changes. The most obvious of these, ref lected in the new

name operations management was a shift in the service and manufacturing sectors of the

economy. As service sector became more prominent, the change from ‘product ion’ to

‘operations’ emphasized the broadening of field to service organizations. The second, more

suitable change was the beginning of an emphasis on synthesis, rather than just

analysis, in management practices.

1.3 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 “the step-by-step conversion of one form of material into another form

through chemical or mechanical process to create or enhance the utility of the product to the

user.” Thus production is a value addition process. At each stage of processing,

there will be value addition.

Edwood Buffa defines product ion as ‘a process by which goods and services are created’.

Some examples of production are: manufacturing custom-made products like, boilers with a

specific capacity, constructing flats, some structural fabrication works for selected customers,

etc., and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc.
Objectives of Production Management

1. Produce goods at right quality, right quantity, right time and at minimum cost.

2. Optimum utilization of resources and available production capacity.

3. Produce required quantities at a required quality.

4. Ensure maximum capacity utilization.

5. Flexible working conditions.

6. Minimum raw material, labour cost and maintenance cost.

7. Minimum storage, material handling and inspection.

8. Improve productivity of all inputs.

Scope of Production Management

Production and operations management are concerned 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 personnel, 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

1. 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. 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 the waste of all the investments made in the plant and machinery

equipment. Hence, location of plant should be based on the company‟s expansion plan and

policy, diversification plan 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.

2. 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.

According to James Moore, “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.

3. 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 the market is the biggest challenge faced by the

organizations. The entire process of need identification to physical manufactures 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.

4. 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 work flow for converting raw material into finished product

and to select the workstation for each included in the workflow.

5. 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

item, 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 has to do it. Planning bridges the gap

from where we are, to where we want to go. It makes it 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 material to finished products.

Routing determines the most advantageous path to be followed from department to department

and machine to machine till raw material 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. Dispatching

is concerned with the starting the processes. It gives necessary authority so as to start a

particular work, which has already been planned under „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‟. The function of follow-up is

to report daily the progress of work in each shop in a prescribed Performa and to investigate

the causes of deviations from the planned performance.

6. 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 collection of activities which ensures that the operation

will produce the optimum quality products at minimum cost. The main objectives of quality

control are:

To improve the company‟s income by making the production more acceptable to the

customers i.e. by providing long life, greater usefulness, maintainability, etc.

To reduce companies cost through reduction of losses due to defects.

To achieve inter changeability 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.

7. 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, standardisation, 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.

Importance of Production Management

1. Accomplishment of firm's objectives: Production management helps the business firm to

achieve all its objectives. It produces products, which satisfy the customers' needs and wants.

So, the firm will increase its sales. This will help it to achieve its objectives.

2. Enhances reputation, goodwill and image: Production management helps the firm to

satisfy its customers. This increases the firms reputation, goodwill and image. A good image

helps the firm to expand and grow.

3. Helps to introduce new products: Production management helps to introduce new products

in the market. It conducts Research and Development (R&D). This helps the firm to develop

newer and better quality products. These products are successful in the market because they

and they give full satisfaction to the customers.

4. Supports other functional areas: Production management supports other functional areas

in an organization, such as marketing, finance, and personnel. The marketing department will

find it easier to sell good-quality products, and the finance department will get more funds due

to increase in sales. It will also get more loans and share capital for expansion and

modernization. The personnel department will be able to manage the human resources

effectively due to the better performance of the production department.

5. Helps to face competition: Production management helps the firm to face competition in

the market. This is because production management produces products of right quantity, right

quality, right price and at the right time. These products are delivered to the customers as per

their requirements
6. Optimum utilization of resources: Production management facilitates optimum utilization

of resources such as manpower, machines, etc. So, the firm can meet its capacity utilization

objective. This will bring higher returns to the organization.

7. Minimizes cost of production: Production management helps to minimize the cost of

production. It tries to maximize the output and

minimize the inputs. This helps the firm to achieve its cost reduction and efficiency objective.

8. Expansion of the firm: Production management helps the firm to expand and grow. This is

because it tries to improve quality and reduce costs. This helps the firm to earn higher profits.

These profits help the firm to expand and grow.

The importance of Production Management to customers and society:

1. Higher standard of living: Production management conducts continuous research and

development (R&D). Based on the research conducted an industrial concern will produce new

and better varieties of products. People use these products and enjoy a higher standard of living.

2. Generates employment: Production activities create many different job opportunities in the

country, either directly or indirectly. Direct employment is generated in the production area,

and indirect employment is generated in the supporting areas such as marketing, finance,

customer support, etc

3. Spread effect: Because of production, other sectors also expand. Companies making spare

parts will expand. The service sector such as banking, transport, communication, insurance,

BPO, etc. also expand. This spread effect offers more job opportunities and boosts economy.

4. Creates utility: Production creates Form Utility. Consumers can get form utility in the

shape, size and designs of the product. Production also creates time utility, because goods are

available whenever consumers need it.

5. Boosts economy: Production management ensures optimum utilization of resources and

effective production of goods and services. This leads to speedy economic growth and well-

being of the nation.

Five P’s of Production Management

The division of production management functions in to 5 p‟s (product, plant, programme,

processes and people) will provide useful conceptual framework for the various activities

performed by production or operations manager.

The Five P’s:

1. The Product:

Product is the link between production and marketing. It is not enough that a customer requires

product but the organization must be capable of producing the product. As per the product

policy of the organization, an agreement is reached between the various functions on the

following aspects of the product

1. Performance

2. Quality and reliability

3. Aesthetics and ergonomics

4. Quantity and selling price

5. Delivery schedule.

To arrive at the above, the external and the internal factors which affect the various aspects

such as market needs, existing culture and legal constraints and the environmental demands

should be given due consideration. Thus the major policy decisions regarding variety of

product mix is going to affect the producing system.

2. The Plant:
The plant accounts for major investment (fixed assets). The plant should match the needs of

the product market, the worker and the organization. The plant is concerned with:

1. Design and layout of building and offices.

2. Reliability, perfect, maintenance of equipment.

3. Safety of operations.

4. The financial constraint.

Plant layout deals with physical arrangement of plants and machineries within the selected site.

The layout should be such that it should allow for smooth movement of men and materials with

minimum back tracking. The type of the layout is dependent on production type, volume of

demand, etc.

3. The Process:

There is always number of alternative methods of creating a product. It is required to select the

one best method, which attains the objectives. In deciding about the process, it is necessary to

examine the following factors:

1. Available capacity

2. Manpower skills available

3. Type of production

4. Layout of plant

5. Safety

6. Maintenance required

7. Manufacturing costs

4. The Programme:
The programme here refers to the timetable of production. Thus, the programme prepares

schedules for:

1. Purchasing

2. Transforming

3. Maintenance

4. Cash

5. Storage and transport

5. The People:

Production depends upon people. The people vary in their attitudes, skill and expectations from

the work. Thus, to make the best use of available human resource, it is required to have a good

match between people and jobs which may lead to job satisfaction. The production manager

should be involved in issues like:

1. Wages/salary administration.

2. Conditions of work/safety.

3. Motivation.

4. Training of employees.

Meaning of Operation Management

It refers to the process of design, execution and control of operations that convert resources

into desired goods and services.

It is the activity where the resource flow within a defined system are transformed in a controller

manner with policies / desired by the management.

Objectives of Operation management

Improve productivity by better utilization of resources like men, material, method etc.,
 Have less/ no defects.

Utilize plants and machinery effectively and effectively .

Improve material handling equipments.

Have proper control on raw materials, semi-finished goods and finished goods.

Achieve proper cash management.

Enhance production staff with respect to their salary, wages etc.,.

Scope of Operations Management

1) Product selection and design: The product selection makes a system efficient or inefficient.

So it is very important to select right product keeping over all objectives in mind.

2) Process selection and planning: Selection of process involves taking decisions about

technology, machines and equipment

3) Location facilities: It is the most important facility as it looks for long term decisions; a

wrong decision can makes it pay a lot. The operation management helps to select that particular

location where distribution, production cost and location cost is less.

4) Layout and material handling facilities: Layout means positioning of machinery. The

machine should be so arranged that the flow of production remains smooth. There should be a

proper choice of material handling equipments.

5) Capacity planning: Capacity refers to a level of output of the conversion process over a

period of time. Industry creates challenging problems in capacity planning, requiring in the

long run, expansion and contraction of major facilitates in the conversion process. Some tools

helps in capacity planning are marginal costing, linear programming etc.

Importance of Operation Management

1) Towards customers: Customers are the most affected by any business. The objectives of

the operation management always depend on the customer‟s preferences and their

requirements.

2) Towards suppliers: Operations will have a major impact on suppliers, both on how they

prosper themselves, and on how effective they are at supplying the operation.

3) Towards share holders: Better the operation is at producing goods and services, the more

likely the whole business is to prosper and shareholders will be one of the major beneficiaries

of this.

4) Towards employees: Similarly employees will be generally better off if the company is

prosperous. It includes the general working conditions which are determined by the way the

operation is designed.

5) Towards society: Although often having no direct economic connection with the company

individuals and groups in society at large can be impacted by the way its operation managers

behave.

Production and Operation management

Meaning It refers to the management of the conversion process which converts land, labour,

capital and management inputs into desired output goods and services. The conversion is done

by using physical resources to meet the organizational objectives. It is the transformation of

production and operation inputs and outputs to be distributed to meet the customers' needs.

Need for Production and Operation management

i) Produce right quality of product: The quality of product is established based upon the

customers‟ needs. The right quality is not necessarily best quality. It is determined by the cost

of the product and the technical features suited to the specific requirements.

ii) Right quantity: The manufacturing organization should produce the products in right

number. If they are produced in excess of demand the

capital will block up in the form of inventory and if the quantity produced in short of demand,

leads to shortage of products.

iii) Right time: Timely delivery is one of the important parameter to judge the effectiveness

of production department has to make the optimal utilization of input resources to achieve its

objective.

iv) Right manufacturing cost: Manufacturing costs are established before the product is

actually manufactured. Hence all attempts should be made to produce the products at pre-

established cost, so as to reduce the variation between actual and standard cost.

Objectives of Production and Operation management

To attain maximum output with lowest cost.

To control pollution and wastage.

To ensure optimum capacity and resources utilization .

To ensure quality of products.

To suggest changes in machinery and equipment.

To ensure timely delivery of output.

To maintain inventory.

Elements of Production and Operation management

i) Planning: Activities that establish a course of action and guide future decision making is

planning. It includes clarifying the role and focus of operation in the organization, product

planning, facility designing, conversion process etc.,

ii) Organizing: Activities that establish a structure of tasks and authority. Operation managers

establish a structure of roles and flow of information within the operation subsystem.
iii) Controlling: The operation manager must exercise control by measuring actual outputs

and comparing them to planned operations management.

iv) Behavior: Operations managers are concerned with how their efforts to plan, organize, and

control affect human behavior.

v) Model: The Operation Manager can prepare break even models and linear programming to

solve the organizational related problems.

Functions of Production and Operation Management

1) Creation of goods and services: The foundation of every production and operation

department is creation of goods or services. Traditionally, production and operations

department includes the physical assembling of goods and also contains many customer care

services to satisfy the needs of customers.

2) Profit: The main function of production and operations department is to produce a product

or service that creates profit and revenue to the company.

3) Evaluation: Every production and operation department must function as self-evaluating

entity that monitors the quality, quantity, and cost of goods produced.

4) Tasks: It includes forecasting, scheduling, purchasing, design, maintenance, people

management, flow analysis, reporting, assembly and testing.

5) Fulfillment: It ensures timely delivery of the output from production to customers.

6) Analysis: Standard analysis function in a production and operation department include

critical path analysis, stock control analysis, utilization analysis, capacity analysis and just-in-

time analysis of inputs, break- even analysis and metric analysis.

Reasons for Production and Operation Management

Helps in understanding the role played by the people in producing goods & services.
Helps in getting a clear picture about the factory.

Helps in selecting a career.

It has strategic use to the executives.

Helps to understand how important it is to Nation