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Production and Operation Management


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Title: Production and Operation Management

Production and Operation Management
Institute of Management Studies
  • BBA 6th semester

Chapter 1 Introduction to production and
Operation Management
Outline What You Will Learn . . .
  • Define the term Production and Operation
  • Identify the three major functional areas of
    organizations and describe how they interrelate
  • Define and Explain Production system
  • Briefly describe the historical evolution of
    operations management
  • Compare and contrast service and manufacturing
  • Describe the operations function and the nature
    of the operations managers job.

Introduction to Production Operations Management
  • P/OM is the process, which combines and transfer
    various resources used in the production/operation
    s 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

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
  • The greater the value-added, The greater the
    amount of funds available for these purposes.

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
  • Examples constructing flats, car, bus, radio,
    motorcycle, television etc

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
  • Operations in an organization can be categorized
    into manufacturing operations and service
  • 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.

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.

Definition of Operations Management
  • The management of that part of an organization
    that is responsible for producing goods and/or
  • The management of systems or processes that
    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
  • The aim of production and operations is to
    satisfy peoples wants or needs.
  • Operations Management affects
  • The collective success or failure of companies
  • Companies ability to compete
  • Nations ability to compete internationally

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

Functions within Business Organizations
  • All business organizations have these three basic
    functions so it doesnt matter the business a
    hospital, a manifacturing firm, a car wash

Historical Evolution of Production and Operation
  • For over two centuries P/OM has been recognized
    as an important factor in a countrys economic
  • System for P O have existed since ancient
  • 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

Historical Evolution of Operations Management
  • Industrial revolution (1770s)
  • 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, 1960-70s)
  • 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

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
  • 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.

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
  • 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
  • Adam Smiths 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.

Historical Evolution of Operations Management
  • With aid of the concept of the division of
  • Workers who continually perfomed the same task,
    they would gain skill and experience.
  • Saving time or avoiding lost time due to changing
  • 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 .

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 Taylors 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.

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
  • Production system has the following
  • 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

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

  • 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.

  • Manufacture of discrete parts or assemblies
    using a continuous process are called mass
  • 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
  • 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
  • 2. Higher capacity utilization due to line
  • 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 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
  • 2. Material handling is fully automated.
  • 3. Process follows a predetermined sequence of
  • 4. Component materials cannot be readily
    identified with final product.
  • 5. Planning and scheduling is a routine action.

  • Advantages
  • 1. Standardization of product and process
  • 2. Higher rate of production with reduced cycle
  • 3. Higher capacity utilization due to line
  • 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
  • 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.

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 organizations
    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.

  • 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
  • Organizing Activities that establishes a
    structure of tasks and authority.
  • Controlling Activities that assure the actual
    performance is accordance with planned
  • 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
    managements 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

Objectives of Operations Management
  • Customer service The satisfaction of customer
  • 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