CBM 112: Week 1 - 3
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Production / operations management is the process, which combines and transform
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 part of an organization, which is concerned with the transformation of a
range of inputs into the required (products/services) having the requisite quality level.
Production Management the set of interrelated management activities, which are
involved in manufacturing certain products.
Operations Management the set of interrelated management activities, which involved
services management.
Production and Operation management (POM) is the management of an
organization’s production system.
Production System takes inputs and converts them into outputs
The Conversion Process is the predominant activity of the production system.
The primary concern of an operations manager is the activities of the conversion.
Adam Smith recognized the economic benefits of specialization of labour. He
recommended breaking jobs down into subtasks and recognizing workers to specialized
tasks in which they would become highly skilled and efficient.
Early 20th Century F.W. Taylor implemented Smith’s theories and developed scientific
management.
Historical Summary of Operational Management
Date
Contribution
Contributor
1776
Specialization of labour in
manufacturing
Adam Smith
1799
Interchangeable parts, cost
accounting
Eli Whitney and
others
1832
Division of labour by skill;
assignment of jobs by skill;
basics of time study
Charles Babbage
1900
Scientific management time
study and work study
developed; dividing planning
and doing of work
Frederick W. Taylor
1900
Motion of study of jobs
Frank B. Gilbreth
1901
Scheduling techniques for
employees, machines jobs in
manufacturing
Henry L. Gantt
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1915
Economic lot sizes for inventory
control
F.W. Harris
1927
Human relations; the Hawthorne
studies
Elton Mayo
1931
Statistical inference applied to
product quality: quality control
charts
W.A. Shewart
1935
Statistical sampling applied to
quality control: inspection
sampling plans
H. F. Dodge and
H. G. Roming
1940
Operations research
applications in World
War II
P. M. Blacker and
Others.
1946
Digital Computer
John Mauchlly and
J. P. Eckert
1947
Linear Programming
G. B. Dantzig,
William & others
1950
Mathematical programming, on
- linear and stochastic
processes
A. Charnes, W. W.
Cooper & others
1951
Commercial digital computer:
large - scale computations
available.
Sperry Univac
1960
Organizational behaviour:
continued study of people at
work
L. Cummings, L.
Porter
1970
Integrating operations into
overall strategy
and policy, Computer
applications to manufacturing,
Scheduling and control, Material
requirement
planning (MRP)
W. Skinner J. Orlicky
and G. Wright
1980
Quality and productivity
applications from Japan:
robotics, CAD - CAM
W. E. Deming and
J. Juran
Production Concept
● Production is defined as “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.”
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Edwood Buffa defines production as “a process by which goods and services
are created”
Examples of production are: manufacturing custom-made products like, boilers
with a specific capacity, constructing flats, some structural fabrication works for
selected customers, etc., and manufacturing standardized products like, car, bus,
motorcycle, radio, television, etc.
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 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 is feedback about the activities, which is essential to control and improve
system performance.
Production Management
E.S. Buffa - “Production management deals with decision making related to production
processes 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
● The objective of the production management is “to produce goods services of right
quality and quantity at the right time and right manufacturing cost‟
○ Right Quality – product established based upon the customers’ needs. The right
quality is not necessarily the best quality. It is determined by the cost of the
product and technical characteristics as suited to the specific requirement.
○ Right quantity – manufacturing organization should produce the product in the
right number. If they are produced in excess of demand the capital will block up in
the form of inventory and if quantity is produced in short of demand, leads to
shortage of products.
○ Right time – Timeliness of delivery is one important parameter.
○ Right Manufacturing cost – manufacturing costs are established before the
product is actually manufactured.
Operating System - converts inputs in order to provide outputs which are required by 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.
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Everett E. Adam & Ronald J. Ebert - “ An operating system (function) of an
organization is the part of an organization that produces the organization’s physical
goods and services.”
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Ray Wild - “An operating system is a configuration of resources combined for the
provision of goods or services.”
Concept of Operation
● 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 a conversion process that includes manufacturing yields a
tangible output: a product, whereas, a conversion process that includes service yields an
intangible output: a deed, a performance, an effort.
Distribution between Manufacturing Operations and 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 labour 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 products are made.
Elements of Production Management and Operation Management
● PLANNING - An activity that establishes a course of action and guide future decisionmaking is planning.
○ The operations manager defines the objectives for the operations subsystem of
the organization, and the policies, and procedures for achieving the objectives.
This stage includes clarifying the role and focus of operations in the
organization's overall strategy. It also involves product planning, facility designing
and using the conversion process.
● ORGANIZING - Activities that establish a structure of tasks and authority.
○ Operation managers establish a structure of roles and the flow of information
within the operations subsystem. They determine the activities required to
achieve the goals and assign authority and responsibility for carrying them out.
● CONTROLLING
○ Activities that assure the actual performance in accordance with planned
performance. To ensure that the plans for the operations subsystems are
accomplished, the operations manager must exercise control by measuring
actual outputs and comparing them to planned operations management.
Controlling costs, quality, and schedules are the important functions here.
● BEHAVIOUR
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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 planning, organizing, and controlling
actions. Their interest lies in decision-making behavior.
MODEL
○ As operation managers plan, organize, and control the conversion process,
they encounter many problems and must make many decisions. They can
simplify their difficulties using models like aggregate planning models for
examining how best to use existing capacity in short-term, break even analysis to
identify break even volumes, linear programming and computer simulation for
capacity utilization, decision tree analysis for long-term capacity problem of
facility expansion, simple median model for determining best locations of facilities
etc.
Objective of Operation Management
● Customer Service
○ The first objective of operating systems is the customer service to the satisfaction
of customer wants. Therefore, customer service is a key objective of operations
management.
○ Thus, primary objective can be satisfied by providing the „right thing at a right
price at the right time‟
● Resource Utilization
○ To achieve adequate levels of resource utilization (or productivity) example to
achieve agreed levels of utilisation of materials, machines and labour.
Scope of Production and Operations Management
Production and operations management concern the conversion of inputs into outputs, using
physical resources, so as to provide the desired utilities to the customer while meeting the other
organizational objectives of effectiveness, efficiency and adaptability. It distinguishes itself from
other functions such as personnel, marketing, finance, etc., by its primary concern for
conversion by using physical resources.”
LOCATION OF FACILITIES
Location of facilities for operations is a long-term capacity decision which involves a long term
commitment about the geographically static factors that affect a business organization. It is an
important strategic level decision- making for an organization. It deals with the questions such
as “where our main operations should be based?‟
PLANT LAYOUT AND MATERIAL HANDLING
Plant layout refers to the physical arrangement of facilities. It is the configuration of
departments, work centers and equipment in the conversion process. The overall objective of
the plant layout is to design a physical arrangement that meets the required output quality and
quantity most economically.
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James Moore - “Plant layout is a plan of an optimum arrangement of facilities including
personnel, operating equipment, storage space, material handling equipments and all other
supporting services along with the design of best structure to contain all these facilities”.
“Material Handling‟ refers to the “moving of materials from the store room to the machine and
from one machine to the next during the process of manufacture‟. It is also defined as the „art
and science of moving, packing and storing of products in any form‟. It is a specialized activity
for a modern manufacturing concern, with 50 to 75% of the cost of production
Product design deals with conversion of ideas into reality.
Process design is a macroscopic decision-making of an overall process route for converting
the raw material into finished goods.
Production planning and control can be defined as the process of planning the production in
advance, setting the exact route of each item, fixing the starting and finishing dates for each
item, to give production orders to shops and to follow up the progress of products according to
orders.
Planning is deciding in advance what to do, how to do it, when to do it and who is to
do it. Planning bridges the gap from where we are, to where we want to go.
Routing may be defined as the selection of path which each part of the product will
follow, which is being transformed from raw material to finished products.
Scheduling determines the programmed for the operations. Scheduling may be defined as „the
fixation of time and date for each operation‟ as well as it determines the sequence of operations
to be followed.
Dispatching is concerned with starting the processes. It gives necessary authority so as to start
a particular work, which has already been planned under “Routing‟ and “Scheduling‟.
Quality Control (QC)
● “a system that is used to maintain a desired level of quality in a product or service‟. It is a
systematic control of various factors that affect the quality of the product. Quality control
aims at prevention of defects at the source, relies on an effective feedback system and
corrective action procedure.
● “that industrial management technique by means of which product of uniform acceptable
quality is manufactured‟. It is the entire collection of activities which ensures that the
operation will produce the optimum quality products at minimum cost.
○ To reduce companies' cost through reduction of losses due to defects.
○ To achieve interchangeability of manufacture in large scale production.
○ To produce optimal quality at a reduced price.
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To ensure satisfaction of customers with productions or services or high quality
level,
To build customer goodwill, confidence and reputation of manufacturer.
To make inspection prompt to ensure quality control.
To check the variation during manufacturing.
Materials Management is that aspect of management function which is primarily concerned
with the acquisition, control and use of materials needed and flow of goods and services
connected with the production process having some predetermined objectives in view
● To minimize material cost.
● To purchase, receive, transport and store materials efficiently and to reduce the related
cost.
● To cut down costs through simplification, standardization, value analysis,
● import substitution, etc
● To trace new sources of supply and to develop cordial relations with them in order to
ensure continuous supply at reasonable rates.
● To reduce investment tied in the inventories for use in other productive
● purposes and to develop high inventory turnover ratios.
MAINTENANCE MANAGEMENT
● In modern industry, equipment and machinery are a very important part of the total
productive effort.
○ To achieve minimum breakdown and to keep the plant in good working condition
at the lowest possible cost..
○ To keep the machines and other facilities in such a condition that permits them to
be used at their optimal capacity without interruption.
○ To ensure the availability of the machines, buildings and services required by
other sections of the factory for the performance of their functions at optimal
return on investment.
NATURE AND SCOPE OF OPERATIONS MANAGEMENT
● Operation mgt. is often used along with production mgt. in literature on the subject.
● Operation mgt. is understood as the process whereby resources or inputs are converted
into useful products
SCOPE OF PRODUCTION AND OPERATION MGT.
Commencing w/ the selection of location production mgt covers such activities as acquisition
of land, construction building, procuring, and installing machinery, purchasing and sorting raw
materials and converting them into saleable products.
EVOLUTION OF PRODUCTION FUNCTION SIX HISTORICAL DEVELOPMENTS:
● The industrial Revolution
● Scientific management
● Human Relation Movement
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Operation Research
Computers and advanced production technology
Service Revolution
STRATEGIES OF OPERATION MANAGEMENT
1. Design of goods and services - associated w/ quality and human resources.
2. Quality - product quality must be maintained during construction process products.
3. Design Process and capacity – related to the quality, human resources, inventory,
scheduling and maintenance.
4. Site selection - choice of location associated w/ supply chain mgt.
5. Design layout – is done after design process and capacity.
6. Human resource (HR) and design work – HR factors include safety, health, job
description, work environment and wages.
7. Supply chain mgt – is influenced by site selection and product quality
8. Inventory – decision are influenced by design processes and capacity human resources,
and design layout.
9. Scheduling – decision are influenced by the design process and capacity, layout and HR
10. Maintenance – associated w/ maintaining the quality or qualities.
MANUFACTURING SYSTEM AND LAYOUT
1. Manufacturing system
● Devoted to the transformation of raw materials into marketable goods.
● Employs a series of value-adding processes to convert raw materials into more useful
forms, and eventually into finished products.
● Backbone of the national economy.
● Discipline built upon a collection of methodological tools brought together to effect an
integrated or total approach to problem-solving in manufacturing engineering and
management with productivity improvement as its overall objectives.
2. Layouts - configuring the plant site with line, building, major facilities, work area, aisles,
and other pertinent features such department boundaries
a. Process Layout – are found primarily in job shops or firm that produce
customized
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PRODUCTION SYSTEM
Production is an organized operation. Every method of production has a purpose. The machine
converts the various inputs into functional outputs. It is not operating in isolation from the other
form of organization. Feedback on the activities exists, which is important for monitoring and
improving device efficiency.
Production Management - involves planning, organizing and controlling of the whole
production process. The interrelation of these activities and operations involved in producing the
goods and the services.
Production Model - produces a large number of items in many steps can be modeled as a
continuous flow problem.
Meaning of Production System - methods and procedures used to produce goods for the
market. It utilized material capital, transportation and labor resources to produce required output
in form goods and distribute products.
Allocating resources - bringing in material and equipment is an important step in the
production system.
Division of Labor - it is how workers and their skills are utilized assembly line methods
simplifying a worker’s skills to limited tasks to increase productivity.
PRODUCTION SYSTEM DESIGN
● Meaning of Production - an act of either manufacturing or mining or growing of goods
(commodities) generally in bulk for trade.
● Meaning of System - an arrangement or assembly of interdependent processes
(activities) that are based on some logic and function.
Classification of Production System
● JOB SHOP PRODUCTION - characterized by manufacturing of one or few quantity of
products designed and produced as per the specification of customers within prefixed
time and cost.
● BATCH PRODUCTION - it is defined by American Production and Inventory Control
Society (APICS) “as 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.
● 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.
● 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.
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Capacity Planning - It is important to understand the capacity of your facilities in the procedure
used to conclude the right quality of product produced at the right time and how much capacity
is needed to construct a greater product or begin production. This method is needed to achieve
maximum firm performance and rate capabilities.
● Four types of capacity planning
1. Long-term capacity planning
2. Short- term capacity planning
3. Finite capacity planning
4. Infinite capacity planning
PRIORITY RULES
● Random (R)
● First Come/First Served (FC/FS)
● Shortest Processing Time (SPT)
● Earliest Due Date (EDD)
● Critical Ratio (CR)
● Least Work Remaining (LWR)
● Fewest Operations Remaining (FOR)
● Slack Time (ST)
● Slack Time per Operation (ST/O)
● Next Queue (NQ)
● Least Setup (LSU)
Capacity Planning Techniques
1. Capacity Planning using Overall Factors (CPOF) - is a C2 software system that allows
commanders to maintain top sight over the battlefield; collaborate with superior, peers and
subordinates over live data; and communicate their intent.
2. Capacity Bills - this technique takes Bill of Material used and parts produced, work center
setup and actual run times and computes capacity by multiplying the number of units required
by the time needed to produce each. (Feb.22, 2016)
3. Resource Profiles - method is one of the techniques that can be used for a company’s
resource requirements planning. Includes the time-phased profile of the capacity requirements
for each end item.
4. Capacity Requirements Planning (CRP) - is the process of determining the production
capacity needed by an organization to meet changing demands for its products. In the context
of capacity planning, design capacity is the maximum amount of work that an organization is
capable of completing in a given period.
Importance of Capacity Decisions
- Impact on the ability of the organization
- Affect operating costs
- Capacity - major determinant of initial cost
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- Involve long-term commitment of resources
- Affect competitiveness
- Capacity - affects the ease of management
Aggregate Planning - it is a process of developing, analyzing and maintaining a preliminary,
approximate schedule of the overall operations of an organization.
Aggregate Plan - generally contains targeted sales forecast, production levels, inventory levels
and customer backlogs.
Aggregate Planning Strategies
● Level Strategy - seeks an aggregate plan that maintains a steady production rate
and/or a steady employment level. To satisfy changes in customer demand, the firm
must raise or lower inventory levels in anticipation of increased or decreased levels of
forecast demand.
● Chase Strategy - major advantage: allows inventory to be held to the lowest level
possible, and for some firms, this is a considerable savings. Most firms embracing the
just-in-time production concept utilize a chase strategy approach to aggregate planning
● Informal trial-and-error techniques – is method of reaching correct solution or
satisfactory result by trying out various means or theories until error is sufficiently
reduced or eliminates
Operations Scheduling
Scheduling pertains to establishing both the timing and use of resources within an organization
● Forward Scheduling - selects a planned order release date and schedules all activities
from this point forward in time
● Backward Scheduling - begins with a planned due date & moves backward in time,
according to the required processing times, until the order will be released
Loading - involves assigning jobs to work centers & to various machines in the work centers.
Infinite Loading - jobs are assigned to work centers without regard for capacity of the work
center.
Finite Loading - projects the actual start and shop items of each job at each work centre
Load Chart - displays the loading and idle tikes for machines or departments
Schedule Chart - is used to monitor job progress equipment Selection is a process of
identifying a set of suitable equipment which are most suitable for processing a set of products.
Mass Production - establish production line, equipment availability must be taken into account.
Batch Production - select the machines by simultaneously
Measuring Capacity
● an estimate of demand for each period in the planning horizon, expressed by the
number of acceptable or good or conforming units needed per period, and obtained from
a detailed demand forecast.
● an estimate of processing time for the work station where the equipment will be used.
Let the following:
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P - Production rate of work station in units of output
T - Processing time per unit in minutes
D - Duration of the period in hours ( for one shift, D =8; D=16; and three, D=24)
E - Efficiency of equipment expressed as % of running time per period
N - Number of machines required by work station
The requirements base formula is:
N= TP
60 D.E
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