CONCEPTS OF

PRODUCTION
MANAGEMENT AND MODULE 2
OPERATIONS
MANAGEMENT
 INTRODUCTION

◼ Production and Operation Management deals with the creation of goods and
services through the application of the business concept. They are also vital in
both service and manufacturing firms. Production and Operation
Management has a primary objective, which is to employ the company’s
resources to produce goods and services fit for the market. This post
highlights the definitions, importance, and function of management concepts.
 OBJECTIVES

At the end of this module, students are expected to;

▪ Understand the concept of production managements and operations
management.
▪ Differentiate the classifications of production systems.
▪ Understand the different scope of operations management.
 CONCEPT OF PRODUCTION

◼ 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. A simplified system is shown above.

The 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.
 Classification of Production Systems

◼ Production systems can be classified as Job-Shop, Batch, Mass and Continuous Production systems.
▪ Figure 2.1 Production Systems
 Job Shop Production

Job-shop Production are characterized by manufacturing of one or few

quantity of products designed and produced as per the specification of
customers within prefixed time and cost. The distinguishing feature of this is
low volume and high variety of products.

A job-shop compromises of general purpose machines arranged into

different departments. Each job demands unique technological
requirements, demands processing on machines in a certain sequence.
◼ Characteristics
◼ High variety of products and low volume.
◼ Use of general purpose machines and facilities.
◼ Highly skilled operators who can take up each job as a challenge because of
uniqueness.
◼ Large inventory of materials, tools, parts.
◼ Detailed planning is essential for sequencing the requirements of each
product, capacities for each work centre and order priorities.
Advantages
◼ Because of general purpose machines and facilities variety of products can be
produced.
◼ Operators will become more skilled and competent, as each job gives them learning
opportunities.
◼ Full potential of operators can be utilized.
◼ Opportunity exists for creative method and innovative ideas.

Limitations
◼ Higher cost due to frequent set up changes.
◼ Higher level of inventory at all levels and hence higher inventory cost.
◼ Production planning is complicated.
◼ Large space requirement.
 BATCH PRODUCTION

Batch Production 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. It is
characterized by the manufacture of limited number of products produced at
regular intervals and stocked awaiting sales.

Characteristics
◼ When there is shorter production runs.
◼ When plant and machinery are flexible.
◼ 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.
◼ When manufacturing lead time and cost are lower as compared to job order
production.
Advantages
◼ Better utilization of plant and machinery.
◼ Promotes functional specialization.
◼ Cost per unit is lower as compared to job order production.
◼ Lower investment in plant and machinery.
◼ Flexibility to accommodate and process number of products.
◼ Job satisfaction exists for operators.
Limitations
◼ Material handling is complex because of irregular and longer flows.
◼ Production planning and control is complex.
◼ Work in process inventory is higher compared to continuous production.
◼ Higher set up costs due to frequent changes in set up.
 MASS PRODUCTION

Manufacture of discrete parts or assemblies using a continuous process are called mass
production. This production is justified by very large volume or production. The machines
are arranged in a line or product layout. Product and process standardization exists and all
outputs follow the same path.

Characteristics
◼ Standardization of product and process sequence.
◼ Dedicated special purpose machines having higher production capacities and output rates.
◼ Large volume of products.
◼ Shorter cycle time of production.
◼ Lower in process inventory.
◼ Perfectly balanced production lines.
◼ Flow of materials, components and parts is continuous and without any back tracking.
◼ Production planning and control is easy.
◼ Material handling can be completely automatic.
Advantages
◼ Higher rate of production with reduced cycle time.
◼ Higher capacity utilization due to line balancing.
◼ Less skilled operators are required.
◼ Low process inventory.
◼ Manufacturing cost per unit is low.

Limitations
◼ Breakdown of one machine will stop an entire production line.
◼ Line layout needs major change with the changes in the product design.
◼ High investment in production facilities.
◼ The cycle time is determined by the slowest 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.

Characteristics
◼ Dedicated plant and equipment with zero flexibility.
◼ Material handling is fully automated.
◼ Process follows a predetermined sequence of operations.
◼ Components material cannot be readily identified with final product.
◼ Planning and scheduling is a routine action.
Advantages
◼ Standardization of product and process sequence.
◼ Higher rate of production with reduced cycle time.
◼ Higher capacity utilization due to line balancing.
◼ Manpower is not required for material handling as it is completely automatic.
◼ Person with limited skills can be used on production line.
◼ Unit cost is lower due to high volume production.

Limitations
◼ Flexibility to accommodate and process number of products does not exist.
◼ Very high investment for setting flow lines.
◼ Product differentiation is limited.
 PRODUCTION FUNCTION

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.

Production is defined as:

◼ The “step-by-step” conversion of one form or 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.
◼ A process by which goods and services are created.

sExamples of production:
◼ Manufacturing Custom-Made Products (boilers with a specific capacity, constructing
flats, some structural fabrication works for selected customers, etc.)
◼ Manufacturing Standardized Products (car, bus, motor cycle, radio, 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.

▪ Operating System
◼ 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. In some of the
organization the product is a physical good (hotels) while in others it is a service
(hospital). Bus and taxi services, tailors, hospital and builders are the example of an
operating system. An Operating system function of an organization is the part of
organization that produces the organization’s physical goods and services. An
Operating system is a configuration of resources combined for the provision of
goods and services.
 Difference Between Manufacturing Operations and Service
Operations

Manufacturing operations and service operations are often different in terms of

what is done but quite similar in terms of how it is done. Consider these points of
comparison:
◼ Degree of customer contact. Many services involve a high degree of customer
contact, although services such as Internet providers, utilities, and mail service do
not. When there is a high degree of contact, the interaction between server and
customer becomes a “moment of truth” that will be judged by the customer every
time the service occurs.
◼ Labor content of jobs. Services often have a higher degree of labor content than
manufacturing jobs do, although automated services are an exception. Uniformity
of inputs. Service operations are often subject to a higher degree of variability of
inputs. Each client, patient, customer, repair job, and so on presents a somewhat
unique situation that requires assessment and flexibility. Conversely,
manufacturing operations often have a greater ability to control the variability
of inputs, which leads to more-uniform job requirements. Measurement of
productivity.
◼ Measurement of productivity can be more difficult for service jobs due
largely to the high variations of inputs. Thus, one doctor might have a
higher level of routine cases to deal with, while another might have
more-difficult cases. Unless a careful analysis is conducted, it may appear that
the doctor with the difficult cases has a much lower productivity than the one
with the routine cases.
◼ Quality assurance. Quality assurance is usually more challenging for
services due to the higher variation in input, and because delivery and
consumption occur at the same time. Unlike manufacturing, which
typically occurs away from the customer and allows mistakes that are
identified to be corrected, services have less opportunity to avoid exposing
the customer to mistakes.
◼ Inventory. Many services tend to involve less use of inventory than
manufacturing operations, so the costs of having inventory on hand are lower
than they are for manufacturing. However, unlike manufactured goods,
services cannot be stored. Instead, they must be provided “on demand.”
◼ Wages. Manufacturing jobs are often well paid, and have less wage
variation than service jobs, which can range from highly paid professional
services to minimum-wage workers.
◼ Ability to patent. Product designs are often easier to patent than service
designs, and some services cannot be patented, making them easier for
competitors to copy.
 ▪ Operation Functions
◼ Managing operations can be closed in a frame of general management function. Operations managers
are concerned with planning, organizing, and controlling the activities which affect human behaviour
through models.
 GENERAL MODEL OF OPERATIONS
MANAGEMENT
◼ Planning - Activities that establishes a course of action and guide future decision-making
is planning. The operations manager defines the objectives for the operations subsystems 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 establishes a structure of tasks and authority. Operations
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
operation 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.
◼ Scope of Production and Operations Management
◼ Following are the activities which are listed under production and operations
management functions:
 LOCATION OF FACILTIES

◼ 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 question 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 equipment’s.
Hence, location of plants should be based on the company’s expansion
plan and policy, diversification 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.
 PLANT LAYOUT AND MATERIAL
HANDLING
◼ Plant layout refers to the physical arrangement of facilities. It is the
configuration of departments, work centres 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. Plant layout is a plan of an optimum
arrangement of facilities including personnel, operating equipment,
storage space, material handling equipment’s and all other supporting
services along with the design of best structure to contain all these facilities.
PLANT LAYOUT AND MATERIAL
HANDLING
◼ 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. 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.
 PRODUCTION DESIGN

◼ Product design deals with conversion of ideas into reality. Every business
organization has to design, develop and introduce new products as a survival and
growth strategy. Developing the new products and launching them in market is the
biggest challenge faced by the organizations. The entire process of need
identification to physical manufacturers of product involves three functions:
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.
 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 the facilities. Hence, the important decisions in
process design are to analyze the workflow for converting raw material into
finished product and to select the workstation for each included in the
workflow.
PROCESS DESIGN
 PRODUCTION PLANNING AND CONTROL

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 time, 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 the statement ‘First Plan Your Work
and then Work on Your Plan’. Main functions of production planning and control includes
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 to do it
and who is to do it. Planning bridges the gap from where we are, to where we want to go.
It makes possible for things to occur which would not otherwise happen.
◼ Routing may be defined as the selection of path which each part of the product will
follow, which being transformed from raw materials to finished products. Routing
determines the most advantageous path to be followed from department to department
and machine to machine till raw materials gets its final shape.
 PRODUCTION PLANNING AND CONTROL

◼ Scheduling determines the program 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 authority so
as to start a particular work, which has already been planned under the
‘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’.
◼ Follow-up, this has function of reporting the daily progress of work in each
shop in a prescribed preformat and to investigate the causes of deviations
from the planned performance.
 QUALITY CONTROL

◼ Quality Control (QC) 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’. It is the entire collections of
activities which ensure that the operation will produce the optimum quality
products at minimum costs.
The main objectives of quality control are:
◼ To improve the companies’ income by making the production more acceptable to
the customer i.e., by providing long life, greater usefulness, maintainability, etc.
◼ 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 reduced price.
◼ 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.
 MATERIAL 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 materials management are:

◼ 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 MANAGMENT

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 plants machinery should be properly maintained.

The main objectives of maintenance management are:

◼ 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.