Institute of Management Studies Production and Operation Management

Institute of Management Studies Production and Operation Management MBA 4 th semester

Chapter 1: Introduction to production and Operation Management

Outline: What You Will Learn. . . ü ü ü 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 historical evolution of operations management Compare and contrast service and manufacturing operations Describe the operations function and the nature of the operations manager’s job.

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: l Forecasting l Capacity planning l Scheduling l Managing inventory l Assuring quality l Employee motivation l Location of facilities

Value Added Process v v v 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.

Concept of 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

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.

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 services. Ø 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 organizations. ü The aim of production and operations is to satisfy people’s wants or needs. Ø ü Operations Management affects: Ø The collective success or failure of companies’ POM Ø Companies’ ability to compete Ø Nation’s ability to compete internationally

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 are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost. ” Objectives of Production Management: l Right quality l Right quantity l Right time l Right manufacturing cost

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

Historical Evolution of Production and Operation Management ü 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. Ø The great wall of China Ø Egyptian pyramids i. e. More than 100000 workers for 20 years. Ø The ships of Roman empire Ø The roads and aqueducts of the Roman v These are all examples of the human ability to organize for operation and production v These also show the roots of the Industrial Revolution

Historical Evolution of Operations Management ü ü ü Industrial revolution (1770’s) Scientific management (1911) Ø Mass production Ø Interchangeable parts Ø Division of labor Human relations movement (1920 -60) v A psychologist focusing on human factor in work-tiredness and motivation. Decision models (Harris 1915 - Mathematical model for inventory Mgt, 1960 -70’s) v 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 – v JIT production, quality revolution, continual improvement etc

Historical Evolution of Operations Management v 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. v 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. v By using the same concept, he allowed the manifacture of fire-alarms, clocks, watchs, sewing machines etc. . v 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 v 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. v 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. v This system replaced the traditional production system by the concept of massproduction by bringing together large numbers of semi-skilled workers. v 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.

Historical Evolution of Operations Management v ü ü ü 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. v 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. v 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 v Frederick Taylor (1911) published ‘the priciples of scientific management’. This helped to achieve wide tasks in industry. v ü 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 v JIT production, quality revolution, continual improvement etc. v Using the concept of JIT production, Japanese manufacturers changed the rules of production from Mass Production to Lean Production. v 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 management. Production system has the following characteristics: l Production is an organized activity, so every production system has an objective. l The system transforms the various inputs to useful outputs. l It does not operate in isolation from the other organization system. l There exists a feedback about the activities, which is essential to control and improve system performance.

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”.

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

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.

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