Production and Operations

Management
Introduction
The very essence of any business is to cater needs of customer by providing services
and goods, and in process create value for customers and solve their problems.
Production and operations management talks about applying business organization and
management concepts in creation of goods and services.

Production
Production is a scientific process which involves transformation of raw material (input)
into desired product or service (output) by adding economic value. Production can
broadly categorize into following based on technique:

Production through separation: It involves desired output is achieved through

separation or extraction from raw materials. A classic example of separation or
extraction is Oil into various fuel products.

Production by modification or improvement: It involves change in chemical and

mechanical parameters of the raw material without altering physical attributes of the raw
material. Annealing process (heating at high temperatures and then cooling), is example
of production by modification or improvement.

Production by assembly: Car production and computer are example of production by

assembly.
Importance of Production Function and Production
Management
Successful organizations have well defined and efficient line function and support
function. Production comes under the category of line function which directly affects
customer experience and there by future of organization itself.

Aim of production function is to add value to product or service which will create a
strong and long lasting customer relationship or association. And this can be achieved
by healthy and productive association between Marketing and Production people.
Marketing function people are frontline representative of the company and provide
insights to real product needs of customers.

An effective planning and control on production parameters to achieve or create value

for customers is called production management.

Operations management is the management of that part of an

organization that is responsible for producing goods and/or
services. There are examples of these goods and services all
around you. Every book you read, every video you watch, every e-
mail you send, every telephone conversation you have, and every
medical treatment you receive involves the operations function of
one or more organizations. So does everything you wear, eat,
travel in, sit on, and access the Internet with.
However, in order to have a clear idea of Operations Management,
one must have an idea of ‘Operating Systems’.
An Operating System is defined as a configuration of resources combined for
the provision of goods
or services.
Any operating system converts inputs, using physical resources, to
create outputs, the function of which is to satisfy customers wants.
The creation of goods or services involves transforming or
converting inputs into outputs. Various inputs such as capital,
labour, and information are used to create goods or services
using one or more transformation processes (e.g., storing,
transporting, and cutting). To ensure that the desired output are
obtained, an organization takes measurements at various points in
the transformation process (feedback) and then compares with
them with previously established standards to determine whether
corrective action is needed (control).

Objectives of operations management can be categorised into (i)

Customer service and (ii) Resource utilisation.
(i) Customer service
The first objective is the customer service for the satisfaction of customer
 wants. Customer service is
therefore a key objective of operations management.
The Operations Management must provide something to a
specification which can satisfy the customer in terms cost and
timing. Thus, primary objective can be satisfied by providing the
‘right thing at the right price at the right time’.
These three aspects of customer service - specification, cost and
timing - are described in a little more detail for the four functions in
Table 1. They are the principal sources of customer satisfaction
and must, therefore, be the principal dimension of the customer
service objective for operation managers.
Principal customer
wants
Principal Primary Other consideration
function consideration
Manufacture Goods of a given, Cost i.e. purchase price or cost of obtaining goods
requested or Timing, i.e. delivery delay from order or request to
acceptable receipt of goods
specification
Transport Movement of a Cost, i.e. cost of movement, Timing ,i.e.
given, requested or (i) duration or time to move
acceptable
specification (ii) wait, or delay from requesting to its
commencement
Supply Goods of a given, Cost, that is purchase price or cost obtaining goods
requested or Timing, i.e. delivery delay from order or request to
acceptable supply, to receipt of goods
specification
Service Treatment of a Cost, i.e. cost of treatment Timing, i.e.
given, requested or (i) Duration or timing required for treatment
acceptable (ii) wait, or delay from requesting to its
specification commencement

Table 1: Aspects of Customer Service

Generally an organization will aim reliably and consistently to achieve certain

standards, or levels, on
these dimensions, and operations managers will be influential in attempting to
achieve these standards.
Hence, this objective will influence the operations manager’s decisions to
achieve the required
customer service.
(ii) Resource Utilization
Another major objective is to 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. Inefficient use of resources or inadequate customer
service leads to commercial failure of an operating system.
 Operations management is concerned essentially with the
utilization of resources, i.e., obtaining maximum effect from
resources or minimizing their loss, under utilization or waste. The
extent of the utilization of the resources’ potential might be
expressed in terms of the proportion of available time used or
occupied, space utilization, levels of activity, etc. Each measure
indicates the extent to which the potential or capacity of such
resources is utilized. This is referred as the objective of resource
utilization.
Operations management is also concerned with the achievement of
both satisfactory customer service and resource utilization. An
improvement in one will often give rise to deterioration in the
other. Often both cannot be maximized, and hence a satisfactory
performance must be achieved on both objectives. All the activities
of operations management must be tackled with these two
objectives in mind, and many of the problems will be faced by
operations managers because of this conflict. Hence, operations
managers must attempt to balance these basic objectives.
Below Table 2 summarizes the twin objectives of operations
management. The type of balance established both between and
within these basic objectives will be influenced by market
considerations, competitions, the strengths and weaknesses of the
organization, etc. Hence, the operations managers should make a
contribution when these objectives are set.

Table 2 : The twin objectives of operations management

The customer service The resource utilization objective.

objective.
To provide agreed/adequate To achieve adequate levels of resource utilization (or
levels of customer service productivity) e.g., to achieve agreed levels of utilization of
(and hence customer materials, machines and labour.
satisfaction) by providing
goods or services with the
right specification, at the right
cost and at the right time.

Operations Management concern with 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 adoptability. It
distinguishes itself from other functions such as personnel,
marketing, finance, etc. by its primary concern for ‘conversion by
using physical resources’. Following are the activities, which are
listed under Production and Operations Management functions:
1. Location of facilities.
2. Plant layouts and Material Handling.
3. Product Design.
4. Process Design.
5. Production and Planning Control.
6. Quality Control.
7. Materials Management.
8. Maintenance Management.

1. 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?’
The selection of location is a key-decision as large investment
is made in building plant and machinery. An improper location
of plant may lead to waste of all the investments made in plant
and machinery equipments. Hence, location of plant should be
based on the company’s expansion plan and policy,
diversification plan for the products, changing sources of raw
materials and many other factors. The purpose of the location
study is to find the optimal location that will results in the
greatest advantage to the organization.
2. 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. According to James More Plant layout is 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.
3. ‘Material Handling’ refers to the ‘moving of materials from the store room to the machine
and from one machine to die 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. This cost can be reduced by proper section, operation and maintenance of
material handling devices. Material handling devices increases the output, improves
quality, speeds up the deliveries and decreases the cost of production. Hence, material
handling is a prime consideration in the designing new plant and several existing plants.
Product Design
Product design deals with conversion of ideas into reality.
Every business organizations have to design, develop and
introduce new products as a survival and growth strategy.
Developing the new products and launching them in the
market is the biggest challenge faced by the organizations.
The entire process of need identification to physical
manufactures of product involves three functions!— Design
and Marketing, Product, Development, and manufacturing.
Product Development translates the needs of customers given
 by marketing into technical specifications and designing the
various features into the product to these specifications.
Manufacturing has the responsibility of selecting the processes
by which the product can be manufactured. Product design
and development provides link between marketing, customer
needs and expectations and the activities required to
manufacture the product.
4. Process Design
Process design is a macroscopic decision-making of an overall
process route for converting the raw material into finished
goods. These decisions encompass the selection of a process,
choice of technology, process flow analysis and layout of die
facilities. Hence, the important decisions in process design are
to analyse die workflow for converting raw material into
finished product and to select the workstation for each
included in me workflow.
5. Production Planning and Control
Production planning and control can be defined as die process
of planning die production in advance, setting die exact route
of each item, fixing die starting and finishing dates for each
item, to give production orders to shops and to follow-up the
progress of products according to orders.
The principle of production planning and control lies in die
statement ‘First Plan Your Work and then Work on Your Plan’.
Main functions of production planning and control include
Planning, Routing, Scheduling, Dispatching and Follow-up.
Planning is deciding in advance what to do, how to do it, when
to do it and who is to do it. Planning bridges die gap from
where we are, to where we want to go. It makes it possible for
things to occur which would not otherwise happen.
Routing may be defined as the selection of path, which each
part of die product will follow, which being transformed from
raw material to finished products. Routing determines die most
advantageous path to be followed for department to
department and machine to machine till raw material gets its
final shape.
Scheduling determines the programme 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 the starting the processes. It
gives necessary authority so as to start a particular work,
which has been already been planned under ‘Routing’ and
‘Scheduling’. Therefore, dispatching is ‘Release of orders and
instruction for the starting of production for any item in
acceptance with the Route sheet and Schedule Charts’.
The function of Follow-up is to report daily the progress of
work in each shop in a prescribed proforma and to investigate
the causes of deviations from the planned performance.
6. Quality Control (QC)
Quality Control may be defined as ‘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 effective feedback system and corrective
action procedure.

Quality Control can also be defined as ‘that Industrial

Management technique by means of which product of uniform
acceptable quality is manufactured’. 11 is the entire collection
of activities, which ensures that the operation will produce the
optimum quality products at minimum cost.
The main objectives of Quality Control are:
(i) To improve the companies income by making the
production more acceptable to the customers i.e. by
providing longlife, greater usefulness, maintainability, etc.
(ii) To reduce companies cost through reduction of losses due to defects.
(iii) To achieve interchangeability of manufacture in large-scale production.
(iv) To produce optimal quality at reduced price.
(v) To ensure satisfaction of customers with productions or services or
high quality level, to build
customer good will, confidence and reputation of manufacturer.
(vi) To make inspection prompt to ensure quality control.
(vii) To check the variation during manufacturing.
7. Materials Management
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. The main objectives of
Material Management are:
(i) To minimize material cost.
(ii) To purchase, receive, transport and store materials efficiently and to
reduce the related cost.
(iii) To cut down costs through simplification, standardization, value
analysis, import substitution,
etc.
(iv) To trace new sources of supply and to develop cordial
relations with them in order to ensure continuous supply
at reasonable rates.
(v) To reduce investment tied in the inventories for use in
other productive purposes and to develop high inventory
turnover ratios.
8. Maintenance Management
In modern industry, equipment and machinery are a very
important part of the total productive effort. Therefore their
idleness or downtime becomes are very expensive. Hence, it is
very important that the plant machinery should be properly
maintained.
The main objectives of Maintenance Management are:
1. To achieve minimum breakdown and to keep the plant in
 good working condition at the lowest possible cost.
2. To keep the machines and other facilities in such a
condition that permits them to be used at their optimal
capacity without interruption.
3. 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.

Operations Management

Location of Facilities

Plant Layout &

Maintenance Management Material Handling

Materials management Production Operations Management Product Design

Quality Control Process Design

Production Planning and Control

As to deliver value for customers in products and services, it is essential for the
company to do the following:

1. Identify the customer needs and convert that into a specific product or service (numbers
of products required for specific period of time)
 2. Based on product requirement do back-ward working to identify raw material
requirements
3. Engage internal and external vendors to create supply chain for raw material and
finished goods between vendor → production facility → customers.

Operations management captures above identified 3 points.

Production Management v/s Operations Management

A high level comparison which distinct production and operations management can be
done on following characteristics:

 Output: Production management deals with manufacturing of products like (computer,

car, etc) while operations management cover both products and services.
 Usage of Output: Products like computer/car are utilized over a period of time whereas
services need to be consumed immediately
 Classification of work: To produce products like computer/car more of capital
equipment and less labour are required while services require more labour and lesser
capital equipment.
 Customer Contact: There is no participation of customer during production whereas for
services a constant contact with customer is required.

Executive Information System

An Executive Information System (EIS) is special type MIS meant for top management of an
organization. In other words, it is a Decision Support System (DSS) for Executives. Executive decisions are
of three types – strategic planning, tactical planning and ‘fire-fighting’. According to CIMA An Executive
Information System (EIS) is a set of procedure designed to allow senior managers to gather and evaluate
information relating to the organization and its environment. Naturally, the EIS takes care the
requirement of information depending upon the type of decisions taken at different levels of managers
in an organization. In fact, EIS acts as a tool specially designed for different executives to feed their
information need in useful formats. A manager can navigate a particular format with some amount of
computer skill. The EIS is not only limited to internal data source rather facilities to easy access to
common sources of external data is also arranged.

Following are the special features of an EIS:

• It a specially designed tool to feed executives information need.

• It is an easy - to - use and screen based software.

• It provides the executives the facilities of on-line analysis tools like time series analysis, regression
analysis etc.

• It is not limited to internal data only. Access to external sources of data is also provided. • It provides
the facilities to connect to internet.
• Information is presented in summary format.

• It is a comprehensive Information System and work in conjunction with DSS.

For an Executive Information System, information requirement varies widely according to the
requirement to understand the impact of different variables on the issue. For example, for decision of
pricing of a product, information requirement may be summed up as follows:

• Recent history of price changes

• Demand for the product

• Graph showing the relationship between demand and price exhibited by recent results

• Effect of demand of changing price over time

• Prices of substitute products

• Price of similar products

• Cost of sales etc