BUSNESS 1 Chapter 9 Production and Operations Management

BUSİNESS 1

Chapter 9: Production and Operations Management q Production and operations management is the set of activities aimed at planning, organizing, directing, staffing, and controlling the resources used to convert raw materials into finished goods and services. 2

n n The Inputs and Outputs of Production Every firm must have a production system. A production system is one that converts inputs(raw materials, labor, capital) into outputs (goods or services). The successful university converts entering freshmen (inputs) into educated graduates (outputs). Auto-manufacturing plant takes labor, steel, and glass and uses its machinery to produce cars for us. 3

n Ø Ø Ø Inputs: All production systems require certain resources as inputs Capital Material Human Financial Information 4

n n Capital resources include the physical plant and equipment. Human resources include skilled labor, unskilled labor, and managers. Skilled workers can perform special tasks that cannot be performed by all employees. 5

n n Financial resources include money that comes from the owners’ own funds or from borrowing. Corporations often sell shares of stock to obtain additional financial resources. Information resources. Firms are making increasing use of information resources. Knowledge and information are becoming increasingly important inputs in high-tech economy. 6

n n Outputs The outputs of production can be divided into two broad classes consumer products and industrial products. Consumer products are goods and services that individuals and households buy. Such as cornflakes, cars, clothes, haircuts, dry cleaning etc… Industrial products are bought mostly by businesses or by institutions. They include tangible goods such as steel for cars, bricks for building, and wood for pencils. Industrial services include market research reports, legal advice and security systems. 7

n The output has to be designed carefully. It must meet the customers’ needs and it must be profitable. To be effective, a product’s (or service’s) design should be simple, easy to use and easy to manufacture. 8

n n n Types of Production Processes There are two main types of production processes: contionuous and intermittent production. A continous production process is a production process that operates more or less continuosly. The process is highly automated. This means that little human supervision is needed because computers and machines can deal with nearly everything. 9

n n n An intermittent production process starts and stops and starts again, perhaps several times per hour. There are three types of intermittent production systems: unit, batch, and mass production. A unit production system produces small quantities of product, often one at a time. Ships, homes are usually built this way. Batch production involves producing products in small batches. Two or three at a time or twenty gallons at a time. 10

n n Mass production involves producing a large number of standardized items in a standardized manner. The mass production process depends upon four elements: standardization, mechanization, specialization, and the assembly line. For a product to be mass-produced efficiently, it must be more or less standardized. Mass production also depends on mechanization, a heavy reliance on machines for producing the work. In general, the machines that do each job are specialized. They are set up to do one specfic job over and over 11 again.

n Mass production usually relies on an assembly line. An assembly line consists of a fixed sequence of specialized machines and work stations for producing a product. 12

n n n Analytic and Synthetic Processes: Intermittent and continuous processes often are classified as either analytic or synthetic. An analytic production system starts with raw material and then breaks it down into one or more finished products. A synthetic production system manufactures take a variety of raw materials and blend them into finished product. 13

n Analytic systems break down raw materials to produce a finished product; synthetic systems build up raw materials into a finished product. 14

n n 1. 2. 3. Designing Convential Production Systems This task requires that three decisions be made: Where to locate the plant What type of production process to use How to lay out the physical facilities 15

n 1. 2. 3. Plant Location Plant location decisions are important. They affect overall costs, employee morale and many other elements of a firm’s operation. The factors most important in choosing a location were Favorable labor climate is essential. Managers look at more than just the size of the labor force, they also consider its education level and attitude toward work. Ability to keep control of the costs of doing business. An economy diverse enough to weather economic downturns. 16

4. 5. Adequate infrastructure-airports, highways, water supplies- to support population growth; moving raw materials and finished products requires an adequate system of highways, railroads, airports, and waterways. Quality of life plays an important role in attracting and retaining quality employees. 17

n n n Plant location decisions are becoming harder to make. Labor in and near major population centers is becoming scarce. Traffic congestion, crime, pollution control requirements, and plant obsolescence are forcing many plants to leave urban centers. In deciding between two possible locations, a firm might estimate the profitability of each. Once a general has been selected, the next thing to do is to choose a specific site. If several sites are satisfactory, the decision might depend on cost. 18

n n n Plant Layout The third main aspect of production system design is how to lay out the facility. There are three main choices: process, product and fixed layouts. process layout is a type of plant arrangement in which the machinery, materials and labor are laid out on the basis of the function they perform. product layout is a type of plant arrangement in which the machines, material and labor needed to produce one particular product are laid out in an established sequence. 19

n n fixed layout is a type of plant layout in which the product stays in one place and the machinery, materials, and labor are brought to that one location. mixed layout combines process, product and/or fixed layouts. 20

n n n Quality Control and Inventory Quality has become the watchword of the decade. A quality control system is a production system that sets a standard for an input or output, and it makes comparisons against this standard to prevent nonstandard items from going into or coming out of the production process. A growing number of companies are depending on statistical quality control to improve the quality of their goods and services. 21

n n Statistical quality control recognizes that every production process inherently involves some degree of variation and uses statistical analysis to detect those variations and their sources. W. Edwards Deming was one of the pioneers of statistical quality control. In an attempt to become quality leaders, many companies are using competitive benchmarking. Benchmarking involves taking apart competitors’ products to see how they are made. The firm can then estimate methods and costs of production and search for new and better ways to make their own products. 22

n n n Controlling the Inventory Levels Inventories include raw materials, parts, and finished and partly finished goods. Controlling inventory levels requires balancing the need to keep enough inventory stock with the expense of holding too much inventory in stock. There are some good reasons for keeping high levels of inventory. A firm using assembly line production is less likely to run out of parts and partly finished components. Running out of inventory can mean expensive downtime. Big orders can be lost if deliveries are not 23

n There are some equally good reasons for keeping inventories low, however. First, inventories require an investment of funds. A factory with a lower inventory operates more efficiently. Second, inventories take up scarce space. Third, products in inventory may decrease in value. That is, they may deteriote or be stolen or damaged. 24

n n Some firms use mathematical formulas to determine the best inventory levels to maintain. These formulas include such things as the cost of losing an order, storage costs, interest, and expected delivery time. Many of these inventory control techniques are based on Pareto’s Law. It recognizes that 80 percent of the typical firm’s sales come from only 20 percent of items in inventory. 25

n Materials requirements planning (MRP) is another widely used inventory technique. MRP is a computerized planning system designed to get the neccessary component parts in the right quantities where they are needed on schedule. It is especially helpful when a company’s product is complex and has a large number of component parts. The MRP program takes the quantity of finished products desired, traces through all component parts to needed to produce them, and creates a schedule for having the components arrive on time. 26

n Just-in-Time Inventory Control Just-in-time (JIT) inventory control is a system designed to link inventory levels to production needs to reduce the amount of inventory required at production facilities. The idea is to have parts for production arrive when they are needed rather than to rely on mountains of inventory to protect against mistakes. 27

n n n The Factory of the Future The factory of the future is composed of six basic elements: automation, robotics, just-in-time inventory control, flexible manufacturing systems, computeraided design and manufacturing, and computer integrated manufacturing. The principal goals of these manufacturing tactics are speed and flexibility. 28

n n Automation involves replacing people with a process or a machine that operates automatically with little or no help from humans. In an effort to boost productivity and cut costs, more companies are using automated systems. Robotics A robot is simply an automated machine, one that can be programmed to perform an operation over and over again. Robots are often used to perform jobs such as welding, spray painting, and materials handling. Robots never get tired, take coffee breaks, call in sick, go on strike. 29

n 1. 2. 3. Flexible Manufacturing Systems (FMS) is; a computer-controlled production system that can produce small batches of products as efficiently as a mass production line produces large batches. FMS has three components: Several work stations and a computer that controls their operations A computer-controlled transport system for moving materials and parts from one machine to another and in out of a system Loading and unloading stations 30

n n n Computer-aided Design and Manufacturing CAD is a process that enables designers of products to sketch their design on a computer screen with an electronic pencil. Computer-aided manufacturing CAM is a process that guides via computer the steps involved in producing a product. An extension of most CAD/CAM systems is computer simulation. A computer simulation is a computer model of a real-world product or system that enables a designer to test the product’s or system’s operation at 31

n Computer İntegrated Manufacturing CIM takes CAD/CAM one step farther. CIM blends the features of CAD/CAM with basic business functions such as purchasing, inventory control, accounting, distribution, and customer relations to produce a control system. 32

n n Materials Management The most vital activity in managing materials, one that often requires a special department, is purchasing. The purchasing task can have a great effect on profits for manufacturers, retailers, and wholesalers. Over time, firms usually develop standard purchasing policies. A common purchasing policy involves reciprocity. Reciprocity is a purchasing policiy under which a customer buys from a supplier if that supplier also buys from its customer. 33

n n n Today the purchasing function is usually handled by professionals. Two tools that they use are value analysis and vendor analysis. Value analysis involves reviewing existing product specifications as set by user departments and identifying and eliminating nonessential requirements. Vendor analysis evaluates and rates the technical, financial, and managerial abilities of potential suppliers in terms of their past performance. It is a method of substituting facts for feeling in the selection of suppliers. 34

n Finished products coming off the assembly line must be moved to a storage facility so that orders can be processed and the products can be packed and shipped. Warehousing refers to the selection and use of buildings or facilities to store finished goods. 35

n n n Production Planning and Control Production planning is aimed at deciding what products to produce and where, when, and how to produce them. Production control is aimed at ensuring that production plans or schedules are being met. The most common type of production planning and control is called order control. It is used when custom products or small lots of products are to be made, and it helps to illustrate the basic production planning and control process. It involves six steps: 36

n n Step 1: Receive Orders The process begins with the customer’s order. Step 2: Develop the Bill of Materials Next the company compiles a list of the raw materials and parts required to fill the order. Many firms maintain forms that list the materials needed to make a product. The list is called a bill of materials list. 37

n Step 3: Develop the Route Sheet Routing determines the sequence of operations to be performed and the path to be taken by the order. The route sheet lists the types of machines required to get each part of the job done and the time required for each step in the operations. 38

n n Step 4: Develop the Production Plan or Schedule The production schedule is often presented on a chart that shows in detail what manufacturing operations are to be carried out and when. A PERT chart is often used for scheduling products. A PERT chart shows all activities that must be completed in their proper sequence. The two major components of a PERT network are events and activities. 39

n n n Step 5: Dispatching means issuing the orders for performing the work. Step 6 Follow Up/Expedite In production management jargon, production control is often called follow-up or expediting. It is the control aspect of production planning and control. There are many different techniques for controlling production. One is for the production supervisor to prepare a report at the end of each day. 40

n Still other companies use of Gantt scheduling charts for controlling production. The Gantt chart shows the scheduled start and stop dates of each production step. These charts show quickly whether the production department is meeting its planned schedules. 41