MBA 4th semester - First Chapter - Copy

Institute of Management Studies
Production and Operation Management
MBA 4th semester
Chapter 1: Introduction to production and
Operation Management
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 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
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
The greater the value-added, the greater the effectiveness of these
operations (i.e. High way construction, state school construction
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
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.
 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.
 The aim of production and operations is to satisfy people’s wants or
Operations Management affects:
 The collective success or failure of companies’ POM
 Companies’ ability to compete
 Nation’s 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 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 doesn’t matter
the business a hospital, a manifacturing firm, a car wash etc.....
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
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
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.
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 massproduction 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.
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
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 .
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’.
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
 There exists a feedback about the activities, which is essential to
control and improve system performance.
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”.
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.
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.