Introduction To Production and Operations Management

INTRODUCTION TO
PRODUCTION AND OPERATIONS

MANAGEMENT
Introduction to Operations Management
• Why study Operations Management
• Scope of Operations Management
• Operations Management and decision making
• Historical evolution of Operations Management
• Competitiveness and productivity
Imran Matola, BA., Msc.
Why study Operations Management
• Understanding the meaning of Production and Operations
Management
It is important to dissect the meaning of Production and Operations
Management prior to a discussion on why it is vital to study and
understand Production and Operations Management.
 Production
Production is the act of transforming various material inputs and
immaterial inputs for the purpose of creating value and utility for
consumers.
It is ‘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 such that at each stage of processing, there will be value
addition.
 Operations
These are a total sum of efforts and processes that are carried out in order
create value for the consumers in the form of products or services.
It can therefore be said that operations as a total some of processes,
encompasses production, hence for most authors, they emphasise their
discussion on ‘operations management’.
Operations can also be viewed as a part of an organisation, a function among
other organisational functions.
Below are the generic/basic functions of organisations:
Marketing – Generates demand (sales promotion, advertising, market
research).
Finance/accounting – Tracks how well the organization is doing, pays bills,
collects the money, investments.
Human Resources – Provides labor, wage and salary administration and
job evaluation, recruitment.
Operations – Creates the product/ services (facilities layout, product
development and design, capacity planning).
With this view, Operations is said to be one of very core functions of
any organisation, that is devoted to the to production or delivery of
goods and services.
In affirming the importance of Operations, Porter (1985) include the
Operations function among the primary activities of organisations.
Types of Operations:
Physical: Farming, Mining, Construction, Manufacturing, Power
generation, etc.
Locational: Warehousing, Trucking, mail service, moving, taxis,
airlines, etc.
Exchange: Retailing, wholesaling, banking, renting or leasing, etc.
Entertainment: Films, radio and television, plays, concerts, etc.
Informational: Newspapers, radio and television, telephone,
satellites, the internet, etc.
Physiological: Healthcare. Inputs (Doctors, Nurses, Medical supplies,
Equipment, Laboratories, etc.), Processing (Examination, Surgery,
Monitoring, Medication, Therapy, etc.), and Output (Healthy patients)
 Operations Management
Operations management is a set of interrelated management activities
that are carried out for the purpose of efficient and effective
conversion of inputs into outputs.
Hence, the main purpose of managing an organisation’s operations is
to ensure that stated goals are achieve in the most economical manner
possible.
Operations Management perspectives:
Operations Management can be viewed from three perspectives.
Organisational perspective
Operations Management can be understood from the organisational
point of view by taking into consideration factors that are under the
control of the organisation and disregarding all other factors that affect
organisational performance.
Systems perspective
A systems view of Operations Management is more comprehensive
than the organisational view as it takes into consideration the fact that
organisations do not operate in a vacuum, hence are affected by the
environment in which they operate.
Therefore, an organisation has to coexist and interact with its
environment in order to effectively achieve its objectives.
Supply Chain perspective
Viewing Operations management in a supply chain perspective puts
more emphasis on the organisation’s supply side, but being cognisant
of the complexities and importance of dealing with suppliers in the
manner that achieves value addition to the organisation.
It also emphasises on the transformational processes of the buying
organisation to ensure efficiency and effectiveness.
Importantly also, it emphasises on the demand side of the organisation
by appreciating the complexity and importance of satisfying customer
requirements.
• Need for Operations Management
In general, Operations management is a strategic capability which
greatly impacts on business performance and profits directly.
It is therefore important to study and properly manage Operations in
order to achieve enhancement the following:
Product/Service design
Proper Operations management will create opportunities by designing
and bringing to the market new or improved products or services that
posses characteristics that are attractive to the intended customers
thereby increasing sales and revenue.
Process design
Due to proper Operations management, processes that are involved in creation of
products and services are analysed and designed to provide convenience and
time/cost savings for both the producer and the customer, thereby increasing
revenue.
Efficiency and effectiveness
People that have studied and apply Operations management skills in organisations
will become efficient and effective.
For those in finance, making an audit of inventory turnover and provide
recommendations (the number of times inventory is sold and replaced) becomes
simple if one can asses the underlying operational reasons.
For marketers, a promise to customers on speed of delivery of a product or service
can only be genuine after considering the operational capabilities of the business.
In Human Resource, appropriate recruitment and staff management can only be
effective if skills needed for operational activities are analysed.
Customer service
Well managed organisation operations will lead to production of optimum
quantities that reduce holding costs, and at the same time meeting
expected demand and agreed time of delivery.
Adaptability for future survival
Organisations have to stand a test of time even when they are operating in a
fast changing environment.
Operations management will ensure flexibility of organisations in meeting
customer demands.
For example, if capacity of a business’ facilities and machinery are designed
to accommodate future expansion, it is easy for such a business to cope
with a sudden rise in product or service demand, thereby leading to
customer satisfaction.
Scope of Operations Management
Being the core function of an organisation, Operations management covers a very
wide scope.
Planning
Operations management entails forecasting and planning on:
o Products and services: What should we be producing and what will be our
market?
o Make or buy: What will we be doing ourselves and what will we be outsourcing
form service providers. This decision has an impact on costs as well as quality of
products or services.
o Capacity: How much should we be producing and how much should be the
maximum production capability should our plant have.
Capacity decisions influence operating costs and the ability to respond to
customer demand.
o Location: Where should we locate our office facilities, production plant,
distribution centers, etc.
Location decisions among others, impact transportation costs, labor availability,
material costs, and access to markets.
Organising
Organisational structure: Which and how many departments are we going to
have and which and how many units will be in such departments. This
determines the size of the organisation (hence costs), organisation of actual
work (who will be doing what) and chain of command. It also affects career
progression and employee motivation.
Staffing
This involves hiring and laying off decisions. Staffing determines what skills
and competencies to hire (temporarily or permanent) in an organisation and
ensure proper motivational initiatives that add value to the organisation.
These decisions affect a business’ labour attractiveness and staff turnover,
which consequently affects consistency of quality and services produced.
Directing
This relates to the chain of command laid down by the organisational
structure. It involves issuance of work orders and providing leadership to
those responsible for assigned work to perform accordingly.
Controlling
This ensures that everything pertaining to the organisation occurs in
conformity with the plans laid down. It ensures that at intervals,
predetermined plans are compared with the actual performance.
This has a very direct impact on costs, as well as the quality of products and
services produced.
Budgeting
Operations management also involves financial planning so that costs of
running the business should no exceed the revenue earned from spending
on organisational activities.
This has a direct bearing on profitability of the business.
Operations Management and decision making
Decision-making is the process of choosing a course of action from among
alternatives to achieve a desired goal. It is one of the important aspects in
operations management.
oCharacteristics of decision making process:
Decision making is a selection process. The best alternative is selected out
of many available alternatives.
Decision-making is a goal-oriented process. Decisions are made to achieve
some goal or objective.
Decision making is the end process. It is preceded by detailed discussion
and selection of alternatives.
Decision making is a human and rational process involving the application
or intellectual abilities. It involves deep thinking and foreseeing things.
Decision making is a dynamic process. An individual takes a number of
decisions each day.
Terry GR Lays’ decision making sequence:
Determining the problem.
Acquiring general background information and different view points
about the problem.
State what appears to be the best course of action.
Investigate alternative solutions.
Evaluate the alternative solutions.
Select the best alternative and implement.
Institute follow up and modify the decision the possible necessary
and if possible.
In managing operations, it is vital to make sure that a proper decision
making process has been followed in the pursuit of coming up with a
good and right decision, whilst avoiding wrong and bad decisions.
A wrong decision can not be avoided because you make the best
decision out of the wrong information available (it is a mistake every
manager is bound to make). A bad decision however is made after
knowing all the correct facts on the high chances of the decision not
bearing fruits (for example launching a product after experts have
warned you of its faulty characteristics).
oTypes of decisions in Operations Management
Operations management make strategic as well operational decisions.
Strategic decisions
These are decisions that have a long term effect as well as affecting the
entire business.
Because they influence a larger part of the system, it is extremely
undesirable and difficult to undo them when implemented.
They also require more resources, skills as well as judgement.
It is therefore important for operations managers to be very certain on the
implementation of these decisions.
These decisions must be made by top level managers in collaboration with
each other for them to have a harmonising effect across the entire
organisation.
Below are examples of strategic decisions that operations are supposed to
make:
Product selection and design- what product to offer. This has a long term
effect as well as greatly impact on the overall performance on the market
against competitors. In essence, this decision will define the business’
survival.
Process selection and planning- choosing optimal process and detailing the
processes of resource conversion required.
Facilities location- location of production systems or facilities (warehouses,
distribution centers, offices, etc.).
Facilities layout and materials handling- this is the orderly and logical
designing of activity centers in order to facilitate materials flow, reduce
handling costs, and minimize delays.
Capacity planning- acquisition of productive resources. (capacity:
maximum available amount of output of the conversion process over some
specified time span)
Operational decisions
These decisions deal with short term planning and control of problems.
Mostly, they are routine decisions related with general functioning of
the organisational operations.
They do not require much evaluation and analysis and can be carried
quickly.
Ample powers to carryout these decisions should be delegated to
middle and lower ranks.
Production scheduling and control- determine optimal schedule and
sequence of operations, economic batch quantity, machine
assignment, etc. Production control is a follow up of the production
plans laid down by top management.
Inventory planning and control- determining optimal inventory levels
at raw material, WIP and finished goods.
Quality control and assurance- ensuring that whatever product/
service that is produced satisfies the quality requirements of the
customer.
Work design- design of work methods, systems and procedures (e.g.
Job enlargement), design of work incentives
Maintenance and replacement- optimal policies for repetitive,
scheduled and breakdown maintenance of machines, replacement
decisions
Historical evolution of Operations Management
Systems of production have been in existence since ancient times.
This is evidenced by historical features that we see for example the
great wall of china built by Chinese emperors (220-206 BC) that
stretches to 21,196km, Egyptian pyramids (around 600 BC), ships built
by the Spanish and roman empires, roads and aqueducts, etc.
Although these ancient works are public works, they provide proof of
the human ability to organise themselves and materials for
production.
The production of goods for sale, in the modern sense, and in the
factory systems that are in existence can be traced from how it began
and how such systems of production keep on changing.
• The Industrial Revolution
The Industrial Revolution was basically a transition on methods and
systems of manufacturing.
It began in the 1770s in England and spread to the rest of Europe and
to the United States during the 19th century.
Prior to the Industrial Revolution period, goods were produced in small
shops by craftsmen and their apprentices.
Under the craft production system, it was common for one person to
be responsible for making a product in its entirety, such as a horse-
drawn wagon or a piece of furniture, from start to finish.
It required high skills yet simple tools to produce and the products
were usually unique each time they are produced.
Craft production system had major shortcomings.

Because products were made by skilled craftsmen who custom fitted
parts, production was slow and costly.
And when parts failed, the replacements also had to be custom made,
which was also slow and costly.
Another shortcoming was that production costs did not decrease as
volume increased; there were no economies of scale, which would
have provided a major incentive for companies to expand. Instead,
many small companies emerged, each with its own set of standards.
Due to high demand of products, a number of innovations changed the
methods of production by substituting machine power for human power.
The most significant of these was the steam engine, made practical by James
Watt around 1764, because it provided a source of power to operate
machines in factories.
The availability of coal supplies and iron ore provided materials for
generating power and making machinery.
The new machines, made of iron, were much stronger and more durable
than the simple wooden or rough iron machines that were being used in the
craft production system.
Because of use of durable machines, volume of production increased,
Costs were reduced because of economies of scale, and also time of
production was greatly reduced.
The Industrial Revolution era was further advanced with the invention of the
gasoline engine and electricity in the 1800s.
• Scientific Management
This era started around 1880s and gained more popularity in the 1910s.
The scientific management era brought widespread changes to the
management of operations in the factories.
The movement was spearheaded by the efficiency engineer and
inventor Frederick Winslow Taylor, who is often referred to as the
father of scientific management.
Taylor believed in a "science of management" based on observation,
measurement, analysis and improvement of work methods, and
economic incentives. He studied work methods in great detail by
conducting stopwatch studies in order to establish standard output
per worker on each task, as well as to identify the best method for
doing each job.
In order to improve effectiveness and efficiency, Taylor developed the
below principles of scientific management:
Development of a science for each part of men’s job (replacement of
rule of thumb)
This principle suggests that work assigned to any employee should be
observed and analyzed with respect to each and every element, part
and time involved in it.
This means replacement of odd rule of thumb by the use of method of
enquiry, investigation, data collection, analysis and framing of rules.
Under scientific management, decisions are made on the basis of facts
and by the application of scientific decisions.
Scientific Selection, Training and Development of Workers

oThere should be scientifically designed procedure for the selection of
workers.
oPhysical, mental and other requirements should be specified for each
and every job.
oWorkers should be selected and trained to make them fit for the job.
oManagement has to provide opportunities for development of
workers having better capabilities.
Division of Responsibility
This principle determines the concrete nature of roles to be played by
different levels of managers and workers.
The management should assume the responsibility of planning the work
whereas workers should be concerned with execution of tasks.
Thus planning is to be separated from execution.
Co-operation between management and workers
Taylor believed in co-operation and not individualism.
It is only through co-operation that the goals of the enterprise can be
achieved efficiently.
He also believed that there should be no conflict between managers and
workers.
Maximum Prosperity for Employer and Employees

The aim of scientific management is to see maximum prosperity for
employer and employees.
It is important only when there is opportunity for each worker to attain
his highest efficiency.
Maximum output and optimum utilization of resources will bring
higher profits for the employer and better wages for the workers.
The interests of employer and employees should be fully harmonized
so as to secure mutually understanding relations between them.
Both managers and workers should be paid handsomely.
Other scholars also made their contributions on scientific management

movement for example:
Frank Gilbreth, an industrial engineer who is often referred to as the
father of motion study. He developed principles of motion economy
that involved the analysis of the basic hand, arm, and body movements
of workers as they perform work so as to increase efficiency.
Henry Gantt (1901) recognized the value of nonmonetary rewards to
motivate workers, and developed scheduling techniques for employees
and machine jobs in manufacturing.
Another important contributor in the scientific management
movement was Henry Ford, a great industrialist who put into practice
Taylor’s principles and proved successful.
Due to high demand of vehicles in the United States at that time, Ford
introduced the mass production system in the automotive industry, a
system of production in which large volumes of standardized goods
are produced by low-skilled or semiskilled workers using highly
specialized, and often costly, equipment.
This was possible because of application of two concepts:
oProduction of standardised parts: which meant that any part in a
batch of parts would fit any automobile coming down the assembly
line. Parts did not have to be custom fitted, as they were in craft
production.
oDivision of labor: which meant that an operation of assembling an
automobile, was divided up into a series of many small tasks, and
individual workers were assigned to one of those tasks.
Unlike craft production, where each worker was responsible for doing
many tasks, and thus required skill, with division of labor the tasks were
so narrow that virtually no skill was required.
Together, these two concepts enabled Ford to tremendously increase the
production rate at his factories using readily available inexpensive labor.
There were criticism from other scholars and the general public that the
concepts propounded by Taylor were manipulative and benefited the
employer more than the employee.
Both Taylor and Ford were despised by many workers, because they held
workers in such low regard, expecting them to perform like robots.
This gave birth to the human relations movement.
• The Human Relations Movement
This movement unlike with the scientific management, shifts attention
from the technical aspects of work design, to the human aspects in
job design.
Elton Mayo conducted Hawthorne studies from 1927-1932 at the
Western Electric Hawthorne Works in Chicago, where he examined
‘’productivity and work conditions.”
Mayo wanted to find out what effect fatigue and monotony had on job
productivity and how to control them through such variables as rest
breaks, work hours, temperatures, room lighting and humidity.
His studies revealed that in addition to the physical and technical
aspects of work, worker motivation is critical for improving
productivity.
This led to many other theories that explain workers as social beings in need
of attention and social interaction.
During the 1940s, Abraham Maslow developed motivational theories, which
Frederick Hertzberg refined in the 1950s.
Douglas McGregor added Theory X and Theory Y in the 1960s.
The Theory X approach resulted in an adversarial environment, whereas the
Theory Y approach resulted in empowered workers and a more cooperative
spirit.
In the 1970s, William Ouchi added Theory Z, which combined the Japanese
approach to gain employee loyalty, with such features as lifetime
employment, employee problem solving, and consensus building, and the
traditional western approach that features short-term employment,
specialists, and individual decision making and responsibility.
• The influence of Japanese manufacturers
The Japanese can be credited with spawning the "quality revolution" that
occurred in industrialized countries, and with generating widespread interest
in time-based management (just-in-time production).
The Japanese developed or refined management practices that increased the
productivity of their operations and the quality of their products. This made
them very competitive, sparking interest in their approaches by companies
outside Japan.
Their approaches emphasized on quality and continual improvement,
worker teams and empowerment, and achieving customer satisfaction. The
influence of the Japanese in operations is evident by the adoption of
Japanese terms and methods in the management of business operations.
Competitiveness and productivity
• Competitiveness
In business, the name of the game is competition. Those who understand
how to play the game will succeed, those who don’t are doomed to failure.
It should be noted that this game is not just a company against other
companies. In companies that have multiple factories or divisions producing
the same item or service, factories or divisions sometimes find themselves
competing with each other.
When a competitor (another company or sister factory or division) can turn
out products better, cheaper, and faster; that spells real trouble for the
factory or division that is performing at a lower level.
Consequences can be lay offs or shutdown if managers cannot turn things
round.
The bottom line is better quality, higher productivity, lower costs, and the
ability to quickly respond to customer needs.
It is therefore incumbent for businesses to develop solid strategies for
dealing with these important issues in business.
Competitiveness is a measure of how effectively an organization meets the
needs of customers relative to others that offer similar goods or services.
It is an important factor in determining whether a company prospers, barely
gets by, or fails.
There are a number of ways in which business organisations compete with
each other:
Price is the amount a customer must pay for the product or service. If all
other factors are equal, customers will choose the product or service that
has the lowest price.
Organizations that compete on price may settle for lower profit margins.
It is more healthier for a business competing on price to focus on lowering
costs of producing goods or services than settling for lower profit margins.
Quality refers to materials and workmanship, as well as design.
Usually, it relates to a buyer's perceptions of how well the product or
service will serve its intended purpose. Other businesses choose to
compete by offering products that customers will eventually consider
having better characteristics than those of competitors.
Product or service differentiation refers to any special features (e.g.,
ease of use, convenient location) that cause a product or service to be
perceived by the buyer as more suitable than a competitor's product
or service.
Flexibility is the ability to respond to changes. The better a company
or department is at responding to changes, the greater its
competitive advantage over another company that is not as
responsive. The changes might relate to increases or decreases in
volume demanded, or to changes in the design of goods or services.
Time refers to a number of different aspects of an organization's
operations.
o Another is how quickly new products or services are developed and brought
to the market.
o How quickly a product or service is delivered to a customer. This can be
facilitated by faster movement of information backward through the supply
chain.
o Another is the rate at which improvements in products or processes are
made.
Service might involve after-sale activities that are perceived by
customers as value added; such as setup, warranty work, technical
support, or extra attention while work is in progress, such as courtesy
calls and keeping the customer informed.
The key to successfully competing is to determine what customers
want and then directing efforts toward meeting (or even exceeding)
customer expectations.
There are two basic issues that must be addressed.
What do the customers want? (Which items on the preceding list of
the ways business organizations compete are important to
customers?)
What is the best way to satisfy those wants?
Order qualifiers and order winners
In developing strategies that are to achieve competitive advantage, a
business needs to identify which elements are order qualifiers and
which ones are order winners.
This concept was developed by Terry Hills (1993).
Hills states that order qualifiers are those characteristics that the
company must comply with to be considered as a possible supplier.
Having a good performance in these characteristics, however, is not
enough to win the orders, and exceeding the threshold limit for these
factors influences nothing or very little in the customer final decision.
These characteristics are considered by potential customers as
minimum standards of acceptability to be considered as a potential for
purchase.
On the other hand, order winners are characteristics of an
organization's goods or services that cause them to be perceived as
better than the competition.
These characteristics are those that make up the company
differentiation in comparison to the competitors and allow businesses
that hold them to win business. The higher a business scores in these
factors, the higher the chances of winning the order.
Both groups of criteria are essential to the business success.
Therefore, suppliers must guarantee meeting the qualifying criteria in
order to get into and stay in a market place, while performance in the
order winning criteria is the key to win the battle for customers’
preference.
Whilst in the drive to achieve competitive advantage over others in the
industry, it is important that ethical behaviour on the part of the
organisation as well as its employees is always regarded.
Managers have to be vigilant and ensure that all rules and regulations
that govern the industry are being followed.
Also, it is important that focus is not only emphasised on the internal
organisational activities. Focus has to be broadened by considering the
entire supply chain and environment in which the business is
operating.
Organizations fail, or perform poorly, for a variety of reasons. Being aware of
those reasons can help managers avoid making similar mistakes. Among the
chief reasons for failure are the following:
Putting too much emphasis on short-term financial performance at the
expense of long term goals through research and development.
Failing to take advantage of strengths and opportunities, and/or failing to
recognize competitive threats.
Neglecting operations.
Placing too much emphasis on product and service design and not enough
on process design and improvement.
Neglecting investments in capital and human resources.
Failing to establish good internal communications and cooperation among
different functional areas.
Failing to consider customer wants and needs.
• Productivity
It is a quantitative relationship between what we produce and what we
have spent to produce.
Productivity measures the effective and efficient
use of resources, hence it is an objective measure of efficiency on
resource utilization usually expressed as a ratio of output to input
(output/input).
Since it is a measure of efficiency, higher productivity means lower
costs of production as well as higher profitability and better
competitive advantage.
Higher or improved productivity means that more is produced with the
same expenditure of resources, or even with lesser expenditure on
factors of production e.g. land, materials, machine, time or labor.
oComputing productivity
Productivity denotes relationship between output and one or all
associated inputs.
Partial-factor or single factor productivity
With partial-factor calculation, a single aspect of inputs is isolated in
order to determine productivity ratio.
The formula then, for partial-factor productivity would be the ratio
of total output to a single input.
Example: output/labor, output/materials, output/energy, etc..
If a machine produces 120 bottles in 4 hours.
Its productivity will be: 120 bottles/4 hours = 30 bottles per hour.
The partial factor production is often used because it is simple to

calculate and the data is easy to extract or access.
Partial factor productivity measures are also easier to relate to specific
processes, hence action can be easily taken on a particular aspect of
production in order to improve productivity.
Multi-factor productivity (MFP).
This measures productivity using more than a single factor of production for
example labour and materials used in production, whilst ignoring other factors.
The unit of measuring the combined factors of production has to be uniform, e.g. in
monitory value.
Example: Calculate MFP using the following data:
Output = 10,000 units.
Inputs:
Materials: K 1500
Labour: K 2500
Overhead: K 1000
MFP = Output
Materials + Labour + Overhead
= 10000/5000
= 5 units/kwacha
Total-factor productivity (TFP)
Total factor productivity is measured by combining the contribution of all the
resources used in the production of goods and services and dividing it into
the output.
It gives an aggregate of how efficient a process has been of producing goods
and services, without looking at specific contribution of each factor of
production.
TFP does not show the interaction between each input and output
separately and is thus too broad to be used as a tool for improving specific
areas.
It requires that total output must be expressed in the same unit of measure
and total input must be expressed in the same unit of measure.
Productivity growth
Productivity ratio is nothing but a number.
It becomes useful when the measure is used in comparison with previous measurement or
in comparison with a competitor, or comparing with a common and expected standard.
Productivity growth is calculated as:
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
Example:
Current period productivity = 400
Previous period productivity = 250
PG = (400 – 250)/250
= 150/250
=0.6 or 60%
In operations, productivity measurement is important because it
defines the level of individual, machine, team, department, as well as
an entire organization's performance, thereby making it easy to
improve.
Productivity measurement also relates to competitiveness.
If two firms both have the same level of output but one requires less
input because of higher productivity, that one will be able to charge a
lower price and consequently increase its share of the market.
Or that firm might opt to charge the same price, thereby gaining a
relatively greater profit.

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INTRODUCTION TO

PRODUCTION AND OPERATIONS

Craft production system had major shortcomings.

Scientific Selection, Training and Development of Workers

Maximum Prosperity for Employer and Employees

Other scholars also made their contributions on scientific management

The partial factor production is often used because it is simple to

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