Production and Operation Management

1. Institute of Management Studies Production and Operation Management BBA 6th semester

2. Chapter 1: Introduction to production and Operation Management

3. Outline: What You Will Learn . . . • Define the term Production and Operation management • Identify the three major functional areas of organizations and describe how they interrelate • Define and Explain Production system • Briefly describe the historicalevolution of operations management • Compare and contrast service and manufacturing operations • Describe the operations function and the nature of the operations manager’s job.

4. Introduction to Production & Operations Management P/OM is the process, which combines and transfer 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. It is that part of an organization, which is concerned with the transformation of a range of inputs into the required (product/services) having the requisite quality level. Most of the P/OM activities of different organization fall bellow: • Forecasting • Capacity planning • Scheduling • Managing inventory • Assuring quality • Employee motivation • Location of facilities

5. Value Added Process • Value-added is the difference between the cost of inputs and the value or price of outputs. • In non-profit organization, value-added of output is their value to society. • The greater the value-added, the greater the effectiveness of these operations (i.e. High way construction, state school construction etc...). • In profit organization, value-added of output is measured by prices that customers are willing to pay for those goods and services. • Firms use the money generated by value-added for research and development, worker salaries and profit. • The greater the value-added, The greater the amount of funds available for these purposes.

6. 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. “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” Production is a value addition process. At each stage of processing, there will be value addition. Examples: constructing flats, car, bus, radio, motorcycle, television etc

7. 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 an conversion of process that includes manufacturing yields a tangible output: A product, whereas, a conversion process that includes service yields an intangible output: An act, a performance, an effort.

8. Distinction b/W Manufacturing Operations & 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 labor 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.

9. Definition of Operations Management • The management of that part of an organization that is responsible for producing goods and/or services. • The management of systems or processesthat create goods and/or provide services. i.e. Every book you read, every e-mail you send or every medical treatment you receive involves the operation function of one or more organizations. • The aim of production and operations is to satisfy people’s wants or needs. • Operations Management affects: • The collective success or failure of companies’ POM • Companies’ ability to compete • Nation’s ability to compete internationally

10. Production Management Production Management is a process of planning, organizing, directing and controlling the activities of the production function. It combines and transforms various resources used in the production subsystem of the organization into value added product in a controlled manner as per the policies of the organization. E.S Buffa defines “Production management deals with decision making related to production process so that the resulting goods or services are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost.” Objectives of Production Management: • Right quality • Right quantity • Right time • Right manufacturing cost

11. Functions within Business Organizations Organization Finance Marketing Operations All business organizations have these three basic functions so it doesn’t matter the business a hospital, a manifacturing firm, a car wash etc.....

12. Historical Evolution of Production and Operation Management For over two centuries P/OM has been recognized as an important factor in a country’s economic growth. • System for P & O have existed since ancient times. • The great wall of China • Egyptian pyramids i.e. More than 100000 workers for 20 years. • The ships of Roman empire • The roads and aqueducts of the Roman • These are all examples of the human ability to organize for operation and production • These also show the roots of the Industrial Revolution

13. Historical Evolution of Operations Management • Industrial revolution (1770’s) • Scientific management (1911) • Mass production • Interchangeable parts • Division of labor • Human relations movement (1920-60) • A psychologist focusing on human factor in work-tiredness and motivation. • Decision models (Harris 1915- Mathematical model for inventory Mgt, 1960-70’s) • The factory movement was accompanied by the development of several quantitative techniques. After ww II-the importance of military and manifucturing sectors, the models of forecasting, inventory man., project man were developed. • Influence of Japanese manufacturers – • JIT production, quality revolution, continual improvement etc

14. Historical Evolution of Operations Management • Production of goods remained at a handicraft level untill the Industrial revolution took place. In 1764, the Industrial revolution began and James Watt invented the steam engine and advanced the use of mecanical power to increase productivity. • Eli Whitney (1798) found out and introduced the concepts of standardised parts and interchangeable parts. He then developed musket system because the type of muskets were handcrafted-he produced 10000 muskets by using the concept of interchangeable parts. • By using the same concept, he allowed the manifacture of fire-alarms, clocks, watchs, sewing machines etc.. • Soon after, by conducting the concept of steam engine, Richard Trevithick (1802) invented the first train and Richard Fulton (1807) invented the first steam boat.

15. Historical Evolution of Operations Management • The first steam boat and the first train indicate a long stream of application in which human anad animal powers were replaced by engine power. • The Industrial revolution was the transformation of a society from peasant and local occupation into a society with world wide connections in terms of great use of machinery and large-scale commercial operations. This is the first step of factory system. • This system replaced the traditional production system by the concept of mass-production by bringing together large numbers of semi-skilled workers. • Adam Smith’s ‘The wealth of nations’ (1776) pointed out the importances and advantages of the division of labor where the production process was broken down into series of small tasks and each performed by a different worker.

16. Historical Evolution of Operations Management • With aid of the concept of the division of labor: • Workers who continually perfomed the same task, they would gain skill and experience. • Saving time or avoiding lost time due to changing jobs. • Workers’ concentration on the same job increased would lead to the development of special tools and techniques for faster and easier task. • Specialization jobs and division of labor began to take place. A prominent mathematician and engineer Charles babbage (1832) promoted an economic analysis of work and pay on the basis of skill requirement. • In the earliest days of manufacturing, goods were produced using craft production-highly skilled workers conducting simple, flexible tools to produce small quantities customized goods .

17. Historical Evolution of Operations Management • Frederick Taylor (1911) published ‘the priciples of scientific management’. This helped to achieve wide tasks in industry. • Frank Gilber (principles of motion economy), Henry Gantt (schudeling and charts design for system) and Herrington Emerson (organizational efficiency) used Taylor’s ideas to improve the system of operation and production management. • Influence of Japanese manufacturers • JIT production, quality revolution, continual improvement etc. • Using the concept of JIT production, Japanese manufacturers changed the rules of production from Mass Production to Lean Production. • Lean production prizes flexibility rather then efficiency, as well as quality rather than quantity. This indicates the first step of ‘Era of Industrial globalization’.

18. 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. Production system has the following characteristics: • Production is an organized activity, so every production system has an objective. • The system transforms the various inputs to useful outputs. • It does not operate in isolation from the other organization system. • There exists a feedback about the activities, which is essential to control and improve system performance.

19. Production System Production systems can be classified as Job Shop, Batch, Mass and Continuous Production system.

20. JOB SHOP PRODUCTION Quantity of products designed and produced as per the specification of customers within prefixed time and cost. low volume and high variety of products. A job shop comprises of general purpose machines arranged into different departments. Each job demands unique technological requirements, demands processing on machines in a certain sequence. Characteristics The Job-shop production system is followed when there is: 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.

21. JOB SHOP PRODUCTION 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 methods 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. Larger space requirements.

22. BATCH PRODUCTION 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.

23. BATCH 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.

24. MASS PRODUCTION Manufacture of discrete parts or assemblies using a continuous process are called mass production. This production system is justified by very large volume of 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.

25. MASS PRODUCTION 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 operation.

26. 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. Component materials cannot be readily identified with final product. 5. Planning and scheduling is a routine action.

27. CONTINUOUS PRODUCTION 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 the production line. 6. Unit cost is lower due to high volume of 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.

28. Operating system Operating system converts inputs in order to provide outputs which are required to 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 other it is a service (hospitals). Bus and taxi services, tailors, hospital and builders are the examples of an operating system. Evereth E. Adam & Ronald J. Ebert define operating system as “An operating system (function) of an organization is the part of an organization that produces the organization’s physical good and services”. Ray Wild defines operating system as, “An operating system is a configuration of resources combined for the provision of goods or services”.

29. OPERATIONS MANAGEMENT Operation managers are concerned with planning, organizing, and controlling the activities which affect human behavior through models. Planning: Activities that establishes a course of action and guide future decision making is planning. Organizing: Activities that establishes a structure of tasks and authority. Controlling: Activities that assure the actual performance is accordance with planned performance. Behavior: Operation managers are concerned with how their efforts to plan, organize and control affect human behavior. They also want to know how the behavior of subordinates can affect management’s planning, organizing, and controlling actions. Their interest lies in decision-making behavior. Models: Aggregate planning models for examining how best to use existing capacity in short terms, Break even analysis to identity break even volumes, Decision Tree analysis for long-term capacity problem of facility expansion. Etc

30. Objectives of Operations Management Customer service: The satisfaction of customer wants, 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. “Right thing at a right price at the right time”. Resource Utilization: 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. Obtaining maximum effect from resources or minimizing their loss, under utilization or waste.

31. Questions???