Production and Operation Management

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Production and Operation Management
Institute of Management Studies

• BBA 6th semester

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Chapter 1 Introduction to production and
Operation Management
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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 managers job.

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Introduction to Production Operations Management

• P/OM is the process, which combines and transfer
  various resources used in the production/operation
  s 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
• Forecasting
• Capacity planning
• Scheduling
• Managing inventory
• Assuring quality
• Employee motivation
• Location of facilities

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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 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.

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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

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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.

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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.

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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 peoples wants or needs.
• Operations Management affects
• The collective success or failure of companies
  POM
• Companies ability to compete
• Nations ability to compete internationally

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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 or services
  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

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Functions within Business Organizations

• All business organizations have these three basic
  functions so it doesnt matter the business a
  hospital, a manifacturing firm, a car wash
  etc.....

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Historical Evolution of Production and Operation
Management

• For over two centuries P/OM has been recognized
  as an important factor in a countrys 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

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Historical Evolution of Operations Management

• Industrial revolution (1770s)
• 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, 1960-70s)
• 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

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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.

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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 mass-production by
  bringing together large numbers of semi-skilled
  workers.
• Adam Smiths 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.

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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 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.
• 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 .

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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 Taylors 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.

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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 system.
• There exists a feedback about the activities,
  which is essential to control and improve system
  performance.

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Production System

• Production systems can be classified as Job
  Shop, Batch, Mass and Continuous Production
  system.

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JOB SHOP PRODUCTION

• Quantity of products designed and produced as
  per the specification of customers within
  prefixed time and cost.
• low volume and high variety of products.
• A job shop comprises of general purpose
  machines arranged into different departments.
  Each job demands unique technological
  requirements, demands processing on machines in a
  certain sequence.
• Characteristics
• The Job-shop production system is followed when
  there is
• 1. High variety of products and low volume.
• 2. Use of general purpose machines and
  facilities.
• 3. Highly skilled operators who can take up each
  job as a challenge because of uniqueness.
• 4. Large inventory of materials, tools, parts.
• 5. Detailed planning is essential for sequencing
  the requirements of each product, capacities
• for each work centre and order priorities.

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JOB SHOP PRODUCTION

• Advantages
• 1. Because of general purpose machines and
  facilities variety of products can be produced.
• 2. Operators will become more skilled and
  competent, as each job gives them learning
  opportunities.
• 3. Full potential of operators can be utilized.
• 4. Opportunity exists for creative methods and
  innovative ideas.
• Limitations
• 1. Higher cost due to frequent set up changes.
• 2. Higher level of inventory at all levels and
  hence higher inventory cost.
• 3. Production planning is complicated.
• 4. Larger space requirements.

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BATCH PRODUCTION

• 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. It is characterized by the manufacture
  of limited number of products produced at regular
  intervals and stocked awaiting sales.
• Characteristics
• 1. When there is shorter production runs.
• 2. When plant and machinery are flexible.
• 3. When plant and machinery set up is used for
  the production of item in a batch and change of
  set up is required for processing the next batch.
• 4. When manufacturing lead time and cost are
  lower as compared to job order production.

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BATCH PRODUCTION

• Advantages
• 1. Better utilization of plant and machinery.
• 2. Promotes functional specialization.
• 3. Cost per unit is lower as compared to job
  order production.
• 4. Lower investment in plant and machinery.
• 5. Flexibility to accommodate and process number
  of products.
• 6. Job satisfaction exists for operators.
• Limitations
• 1. Material handling is complex because of
  irregular and longer flows.
• 2. Production planning and control is complex.
  
• 3. Work in process inventory is higher compared
  to continuous production.
• 4. Higher set up costs due to frequent changes
  in set up.

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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. The machines are
  arranged in a line or product layout. Product and
  process standardization exists and all outputs
  follow the same path.
• Characteristics
• 1. Standardization of product and process
  sequence.
• 2. Dedicated special purpose machines having
  higher production capacities and output rates.
• 3. Large volume of products.
• 4. Shorter cycle time of production.
• 5. Lower in process inventory.
• 6. Perfectly balanced production lines.
• 7. Flow of materials, components and parts is
  continuous and without any back tracking.
• 8. Production planning and control is easy.
• 9. Material handling can be completely automatic.

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MASS PRODUCTION

• Advantages
• 1. Higher rate of production with reduced cycle
  time.
• 2. Higher capacity utilization due to line
  balancing.
• 3. Less skilled operators are required.
• 4. Low process inventory.
• 5. Manufacturing cost per unit is low.
• Limitations
• 1. Breakdown of one machine will stop an entire
  production line.
• 2. Line layout needs major change with the
  changes in the product design.
• 3. High investment in production facilities.
• 4. The cycle time is determined by the slowest
  operation.

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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.
• Characteristics
• 1. Dedicated plant and equipment with zero
  flexibility.
• 2. Material handling is fully automated.
• 3. Process follows a predetermined sequence of
  operations.
• 4. Component materials cannot be readily
  identified with final product.
• 5. Planning and scheduling is a routine action.

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CONTINUOUS PRODUCTION

• Advantages
• 1. Standardization of product and process
  sequence.
• 2. Higher rate of production with reduced cycle
  time.
• 3. Higher capacity utilization due to line
  balancing.
• 4. Manpower is not required for material
  handling as it is completely automatic.
• 5. Person with limited skills can be used on the
  production line.
• 6. Unit cost is lower due to high volume of
  production.
• Limitations
• 1. Flexibility to accommodate and process number
  of products does not exist.
• 2. Very high investment for setting flow lines.
• 3. Product differentiation is limited.

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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 organizations
  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.

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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
  managements 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

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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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Questions???