Production &Operations
Management
Unit - I
Production (Vs) Operation
 “The transformation process of inputs into the
form of output, thereby adding value to some
entity”.
 Output may be a product or service. If it is a
product centric that is known as production,
If it is a service centric then that is known as
operation.
Production/operations management
 It is concerned with the production of goods
and services, and involves the responsibility
of ensuring that business operations are
efficient and effective.
 It is also the management of resources, the
distribution of goods and services to
customers.
Definition
 “The field of study that focuses on the
effective planning, scheduling, use, and
control of a manufacturing or service
organization through the study of concepts
from design engineering, industrial
engineering, management information
systems, quality management, inventory
management, accounting, and other functions
as they affect the organization" -- APICS The
Association for Operations Management
OPERATIONS MANAGEMENT
 UNIT – I INTRODUCTION TO PRODUCTION AND
OPERATIONS MANAGEMENT
Production Systems – Nature, Importance and
organizational function. Characteristics of Modern
Production and Operations function. Organization of
Production function. Recent Trends in Production and
Operations Management. Role of Operations in
Strategic Management. Production and Operations
strategy – Elements and Competitive Priorities.
Nature of International Operations Management.
UNIT – II FORECASTING, CAPACITY AND
AGGREGATE PLANNING
Demand Forecasting – Need, Types,
Objectives and Steps. Overview of Qualitative
and Quantitative methods. Capacity Planning
– Long range, Types, Rough cut plan,
Capacity Requirements Planning (CRP),
Developing capacity alternatives. Aggregate
Planning – Approaches, costs, relationship to
Master Production schedule. Overview of
MRP, MRP II and ERP
UNIT – III DESIGN OF PRODUCT, SERVICE AND
WORK SYSTEMS
Product Design – Influencing factors, Approaches,
Legal, Ethical and Environmental issues. Process –
Planning, Selection, Strategy, Major Decisions.
Service Operations – Types, Strategies, Scheduling
(Multiple resources and cyclical scheduling). Work
Study – Objectives, Procedure. Method Study and
Motion Study. Work Measurement and Productivity –
Measuring Productivity and Methods to improve
productivity
UNIT – IV MATERIALS MANAGEMENT
Materials Management – Objectives,
Planning, Budgeting and Control. Overview of
Materials Management Information Systems
(MMIS). Purchasing – Objectives, Functions,
Policies, Vendor rating and Value Analysis.
Stores Management – Nature, Layout,
Classification and Coding. Inventory –
Objectives, Costs and control techniques.
Overview of JIT.
UNIT – V PROJECT AND FACILITY
PLANNING
Project Management – Scheduling
Techniques, PERT, CPM, Crashing CPM
networks – Simple Problems. Facility
Location – Theories, Steps in Selection,
Location Models – Simple Problems. Facility
Layout – Principles, Types, Planning tools
and techniques.
Business environment (Vs) Operations
management
 Operations management closely interrelated
with all other functional areas of the business
environment.
 The following figure shows the various
functions of operations management in other
functional areas.
Evolution of Operations
Management (or) History of OM
 The Industrial Revolution
 Division of Labor
 Scientific Management
 Mass Production
 Lean Production
The Industrial Revolution
 Operations management – did not begin until
the Industrial Revolution in the 1700s
 Prior to that time only craft production
 Mechanically powered machines replaced the
laborer as the primary factor of production
and brought workers to a central location
called Factory.
 The revolution first took hold in textile mills,
grain mills, metalworking, and machinemaking facilities
Division of Labor
 Adam Smith’s Wealth of Nations (1776)
proposed the division of labour.
 Production process was broken down into a
series of small tasks, each performed by a
different worker.
 Allowed him or her to become very proficient
at those tasks
Scientific Management
 In the early 1900s F.W. Taylor approached
the management of work as a science.
 Based on observation, measurement, and
analysis, he identified the best method for
performing each job
 The methods were standardized for all
workers, and economic incentives were
established to encourage workers to follow
the standards
Mass Production
 American manufacturers became adept at
mass production over the next 50 years and
easily dominated manufacturing worldwide.
 Elton Mayo and Hawthorne studies,
introduced the idea of workers motivation
and Productivity
 Theories of motivation were developed by
Hertzberg, Maslow, McGregor, and others
 Computers and automation led still another
upsurge in technological advancements
Lean Production/ JIT production:
 Japanese manufacturers changed the rules
of production from mass production to lean
production
 Lean production prizes flexibility (rather than
efficiency) and quality (rather than quantity)
Jidoka / Autonomation
 Jidoka, means, not allowing defective parts to
go from one work station to the next.
 It specifically refers to machines or the
production line itself being able to stop
automatically in abnormal conditions
 This Autonomation allows machines to run
autonomously, as they will stop when a
problem occurs.
 Ultimately, it is about transferring human (or
better) intelligence to machines.
Production system
 ‘A production system is the collection of
people, equipment, and procedures
organized to accomplish the manufacturing
operations of a company (or other
organization).’
Types of production systems
There are three common types of basic
production systems:
1) Batch production system or Job shop
production,
2) Continuous production system or flow shop
production ,
3) Project system or one shot system.
Batch production system
 General-purpose equipment and methods are
used to produce small quantities of output
with specifications that vary greatly from one
batch to the next.
 A given quantity of a product is moved as a
batch through one or more steps, and the
total volume emerges simultaneously at the
end of the production cycle.
 (e.g) heavy-duty construction equipment,
specialty chemicals, and processed food
products,etc
Continuous production system
 Items to be processed flow through a series
of steps, or operations, that are common to
most other products being processed.
 Since large volumes of throughput are
expected, specially designed equipment and
methods are often used so that lower
production costs can be achieved.
 (e.g.) assembling automobiles, consumer
products such as televisions, washing
machines, and personal computers etc
Project system
 The project, or “one-shot” system - For a
single, one-of-a-kind product
 Resources are brought together only once.
Because of the singular nature of project
systems, special methods of management
have been developed to contain the costs of
production within reasonable levels.
 (e.g.) Construction of building, bridge etc
Decision Making in OM
 Strategic Decisions
 Operating Decisions
 Control Decisions
Strategic Decisions
 These decisions are of strategic importance
and have long-term significance for the
organization.
 Examples include deciding:
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the design for a new product’s production
process
where to locate a new factory
whether to launch a new-product development
plan
Operating Decisions
 These decisions are necessary if the ongoing
production of goods and services is to satisfy
market demands and provide profits.
 Examples include deciding:
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how much finished-goods inventory to carry
the amount of overtime to use next week
the details for purchasing raw material next
month
Control Decisions
 These decisions concern the day-to-day
activities of workers, quality of products and
services, production and overhead costs, and
machine maintenance.
 Examples include deciding:
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labor cost standards for a new product
frequency of preventive maintenance
new quality control acceptance criteria
CIM
 Computer Integrated Manufacturing, known as CIM.
 In the 1980s, Computer Integrated Manufacturing
was developed and promoted by machine tool
manufacturers and the CASA/SME (Computer and
Automated Systems Association /Society for
Manufacturing Engineers).
 CIM used to describe the complete automation of a
manufacturing plant, with all processes functioning
under computer control and digital information tying
them together.
Today's Factors Affecting OM
 Global Competition
 Quality, Customer Service, and Cost
Challenges
 Rapid Expansion of Advanced Technologies
 Continued Growth of the Service Sector
 Scarcity of Operations Resources
 Social-Responsibility Issues
Reality of Global Competition
 Changing nature of world business
 International companies
 Strategic alliances and production sharing
 Fluctuation of international financial
conditions
Changing Nature of World
Business
 The US gross domestic product (GDP) is, at $10
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trillion, the largest in the world.
Companies all over the globe are aggressively
exporting their products/services to the US
Many US companies are targeting foreign markets to
shore up profits.
The global economy that interconnects the
economies of all nations has been termed the global
village.
One of the most important new markets is China.
International Companies
 International companies are those whose
scope of operations spans the globe as they
buy, produce, and sell.
 International firms search out opportunities
for profits relatively unencumbered by
national boundaries.
 Operations managers must coordinate
geographically dispersed operations.
Strategic Alliances
 Strategic alliances are joint ventures among
international companies to exploit global
business opportunities.
 Alliances are often motivated by
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Product or production technology
Market access
Production capability
Pooling of capital
Strategic Alliances
 Japanese companies have long practiced
keiretsu, the linking of companies into
industrial groups.
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A financial keiretsu links companies together
with cross-holding of shares, sales and
purchases within the group, and consultation.
A production keiretsu is a web of interlocking
relationships between a big manufacturer
(Toyota) and its suppliers.
Production Sharing
 Production sharing means that a product
might be designed and financed in one
country, its materials produced in other
countries, assembled in another country, and
sold in yet other countries.
 The country that is the highest-quality, lowestcost producer for a particular activity would
perform that portion of the production of the
product.
Pros and Cons of Globalization
 Pros (Pluses)
 Productivity grows more quickly (living
standards can go up faster)
 Global competition and cheap imports keep a
lid on prices (inflation less likely to derail
economic growth)
 Open economy spurs innovation (with fresh
ideas from abroad)
 Export jobs often pay more than other jobs
 US has more access to foreign investment
(keeps interest rates low)
Pros and Cons of Globalization
 Cons (Minuses)
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Millions of Americans have lost jobs due to
imports or production shifts abroad
Most displaced workers find new jobs that pay
less
Workers face pay-cuts demands from
employers
Service and white-collar jobs are increasingly
vulnerable
US employees lose their comparative
advantage when companies build advanced
factories abroad
Elements of Operations Strategy
 Positioning the production system
 Product/service plans
 Outsourcing plans
 Process and technology plans
 Strategic allocation of resources
 Facility plans: capacity, location, and layout
Positioning the Production System
 Select the type of product design
 Standard
 Custom
 Select the type of production processing
system
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Product focused
Process focused
 Select the type of finished-goods inventory
policy
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Produce-to-stock
Produce-to-order
Product/Service Plans
As a product is designed, all the detailed
characteristics of the product are established.
Each product characteristic directly
affects how the product can be made.
How the product is made determines
the design of the production system.
Stages in a Product’s Life Cycle
 Introduction- Sales begin, production and marketing
are developing, profits are negative.
 Growth - sales grow dramatically, marketing efforts
intensify, capacity is expanded, profits begin.
 Maturity - production focuses on high-volume,
efficiency, low costs; marketing focuses on
competitive sales promotion; profits are at peak.
 Decline - declining sales and profit; product might be
dropped or replaced.
Stages of a Product’s Life Cycle
Automobile
Dot-Matrix
Fax Machine
Printer
Cell Phone
Video Recorder
Internet Radio
Color Copier
Introduction
Growth
CD Player
Maturity
B&W TV
Decline
Outsourcing Plans
 Outsourcing refers to hiring out or subcontracting
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some of the work that a company needs to do.
This strategy is being used more and more as
companies strive to operate more efficiently.
Outsourcing has many advantages and
disadvantages.
Companies try to determine the best level of outsourcing to achieve their operations & business
goals.
More outsourcing requires a company to have less
equipment, fewer employees, and a smaller facility.
Outsourcing Plans
 A company might outsource any of the
following manufacturing related functions:
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Designing the product
Purchasing the basic raw materials
Processing the subcomponents,
subassemblies, major assemblies, and
finished product
Distributing the product
Outsourcing Plans
 Many companies even outsource some
service functions such as:
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Payroll
Billing
Order processing
Developing/maintaining a website
Employee recruitment
Facility maintenance
Process and Technology Plans
 An essential part of operations strategy is the
determination of how products/services will
be produced.
 The range of technologies available to
produce products/services is great and is
continually changing.
Strategic Allocation of Resources
 For most companies, the vast majority of the
firm’s resources are used in
production/operations.
 Some or all of these resources are limited.
 The resources must be allocated to products,
services, projects, or profit opportunities in
ways that maximize the achievement of the
operations objectives.
Facility Plans
 How to provide the long-range capacity to
produce the firm’s products/services is a
critical strategic decision.
 The location of a new facility may need to be
decided.
 The internal arrangement (layout) of workers,
equipment, and functional areas within a
facility affects the ability to provide the
desired volume, quality, and cost of
products/services.