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MODULE 1

LESSON 1: INTRODUCTION TO OPERATIONS MANAGEMENT

Learning Objectives: After reading this module, you should be able to:
1. Define and discuss the operations system
2. Articulate the transition of operations management philosophies and frameworks
3. Define and understand operations management
4. Explain the strategic role and scope of operations management
5. Explain how various tools and techniques of operations management works in an
institution

INTRODUCTION
Operation is that part of an organization, which is concerned with the transformation of a range of inputs
into the required output (services) having the requisite quality level. Management is the process, which
combines and transforms various resources used in the operations subsystem of the organization into
value added services in a controlled manner as per the policies of the organization.

The set of interrelated management activities, which are involved in manufacturing certain products, is
called as production management. If the same concept is extended to services management, then the
corresponding set of management activities is called as operations management.

1.1 OPERATIONS SYSTEM

An operation was 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 a conversion
process that includes manufacturing yields a tangible output: a product, whereas, a conversion process
that includes service yields an intangible output: a deed, a performance, an effort.

Operations 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.

Everett E. Adam & Ronald J. Ebert defines as ‘An operating system is the part of an organization that
produces the organization’s physical goods and services’.

Ray Wild defines operations system as ‘a configuration of resources combined for the provision of goods
or services’.

In some of the organization the product is a physical good (breakfast in hotels) while in others it is a
service (treatment in hospitals). Bus and taxi services, tailors, hospital and builders are the examples of
an operations system. The basic elements of an operation system show in Figure 1.1 with reference to
departmental stores.

Fig.1.1 Operations system for department stores

1.1.1 A FRAMEWORK OF MANAGING OPERATIONS

Managing Operations can be enclosed in a frame of general management function as shown in figure
1.1. Operation managers are concerned with planning, organizing, and controlling the activities, which
affect human behavior through models.

Planning is the activity that establishes a course of action and guide future decision-making. The
operations manager defines the objectives for the operations subsystem of the organization, and the
policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of

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operations in the organization’s overall strategy. It also involves product planning, facility designing and
using the conversion process.

Organizing is the activities that establish a structure of tasks and authority. Operation 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.

Figure 1.2 General Model for Managing Operations

Controlling is the activities that assure the actual performance in accordance with planned performance.
To ensure that the plans for the operations subsystems are accomplished, the operations 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.

1. Behavior: Operations managers are concerned with the activities, which affect human behavior
through models. They want to know the behavior of subordinates, which affects managerial
activities. Their main interest lies in the decision-making behavior.

2. Models: Models represents schematic representation of the situation, which will be used as a
tool for decision-making. Following are some of the models used
a. Aggregate planning models for examining how best to use existing capacity in short
term, break-even analysis to identify break-even volumes,
b. Linear programming and computer simulation for capacity utilization, Decision tree
analysis for long-term capacity problem of facility expansion, simple median model for
determining best locations of facilities, etc.

1.2 OPERATIONS MANAGEMENT DEFINED

Joseph G. Monks defines Operations Management as the process whereby resources, flowing within
a defined system, are combined and transformed by a controlled manner to add value in accordance with
policies communicated by management.

The operations managers have the prime responsibility for processing inputs into outputs. Operations
management is the management of processes that transform inputs into goods and services that add
value for the customer. They must bring together under production plan that effectively uses the
materials, capacity and knowledge available in the production facility. Given a demand on the system
work must be scheduled and controlled to produce goods and/or services required. Control must be
exercised over such parameters such as costs, quality and inventory levels.

Operations Management refers to the ongoing management of daily works of a company, such as technical
support, network management, etc. With Operations Management, there is no set end point. An
Operations Manager would typically be involved in all operations of a company, ensuring that everything
is running smoothly and that staffs are delivering correctly. Let's look at an example - A web agency may
have many projects running at the same time and once these projects are deployed, the project is
finished, in terms of operations management, the operations manager is still occupied with the day to
day support and management of the deployed project, ensuring that it is still running correctly, fixing
various problems and so forth.

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Operations management (OM) is any business function responsible for managing the process of making
goods and services and without it there would be no products or services to sell to customers. It is any
management function responsible for planning, controlling and coordinating the necessary inputs
(resources) such as technology, information, people, equipment, inventory etc. and managing the
transformational processes of ‘making goods or services’. Organizations heavily rely upon operational
processes to produce effective products and efficiently deliver them on time and customers receiving
services relative to buying goods, will often participate more extensively in the creation and delivery of
services ‘more visibly’ seeing operations being performed.

Operational management has a major impact on the cost of producing products or services and how
well the products and services are produced and delivered. Operational functions (departments) are the
transformational processes required to convert business inputs (resources) in ways that add value
(utility) for customers, therefore higher customer willingness to pay and profit margin. Operations
management is critical to gaining competitive advantage (‘order winners’) for an organization.

Examples of operational functions within an organization are as follows:

 Merchandising ‘where retail occurs, bricks or clicks’ e.g. store outlets or websites.
 Manufacturing, production or processing e.g. physical manufacturing and assembly.
 Customer support e.g. customer call centers, customer service and after sales service, customer
complaints and warranty (repair) departments.
 Warehousing, logistics and transport e.g. storage, transport and inventory control.

The definition of the operations Management contains following keywords: Resources, Systems,
transformation and Value Addition Activities.

a. RESOURCES. Resources are the human, material and capital inputs to the production process.
Human resources are the key assets of an organization. As the technology advances, a large
proportion of human input is in planning and controlling activities. By using the intellectual
capabilities of people, managers can multiply the value of their employees into by many times.
Material resources are the physical facilities and materials such as plant equipment, inventories
and supplies. These are the major assets of an organization. Capital in the form of stock, bonds,
and/or taxes and contributions is a vital asset. Capital is a store of value, which is used to
regulate the flow of the other resources.

b. SYSTEMS. Systems are the arrangement of components designed to achieve objectives according
to the plan. The business systems are subsystem of large social systems. In turn, it contains
subsystem such as personnel, engineering, finance and operations, which will function for the
good of the organization.

A systems approach to operations management recognizes the hierarchical management

responsibilities. If subsystems goals are pursued independently, it will result in sub-
optimization. A consistent and integrative approach will lead to optimization of overall system
goals.

The ability of any system to achieve its objective depends on its design and its control. System
design is a predetermined arrangement of components. It establishes the relationships that must
exist between inputs, transformation activities and outputs in order to achieve the system
objectives. With the most structured design, there will be less planning and decision-making in
the operations of the system. System control consists of all actions necessary to ensure that
activities conform to preconceived plans or goals. It involves following FOUR ESSENTIAL
ELEMENTS:
1. Measurement by an accurate sensory device.
2. Feedback of information in a timely manner.
3. Comparison with standards such as time and cost standards.
4. Corrective actions by someone with the authority and ability to correct.

A closed loop control system can automatically function on the basis of data from within its own
system.

c. TRANSFORMATION AND VALUE ADDING ACTIVITIES. The objective of combining resources

under controlled conditions is to transform them into goods and services having a higher value
than the original inputs. The transformation process applied will be in the form of technology to
the inputs. The effectiveness of the production factors in the transformation process is known as
productivity.

The productivity refers to the ratio between values of output per work hour to the cost of inputs.
The firm’s overall ratio must be greater than 1, then we can say value is added to the product.
Operations manager should concentrate improving the transformation efficiency and to increase
the ratio.

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Fig. 1.3 Schematic model for operations/production system

SELF CHECK No. 1-1a

FILL IN THE BLANK

Directions: Fill in the blank with the appropriate answer.

1. The __________________ refers to the ratio between values of output per work hour to the cost of
inputs
2. ________________ are the arrangement of components designed to achieve objectives according to
the plan.
3. ________________ are the human, material and capital inputs to the production process. Human
resources are the key assets of an organization
4. ________________ refers to the ongoing management of daily works of a company, such as
technical support, network management, etc.
5. ________________ represents schematic representation of the situation, which will be used as a
tool for decision-making
6. ________________ is the activity that establishes a course of action and guide future decision-
making
7. ________________ is the activities that assure the actual performance in accordance with planned
performance.
8. ________________ defines operations system as ‘a configuration of resources combined for the
provision of goods or services’.
9. An _________________ was defined in terms of the mission it serves for the organization,
technology it employs and the human and managerial processes it involves.
10. ________________ is any business function responsible for managing the process of making goods
and services and without it there would be no products or services to sell to customers.
____________________________________________________________________________________________________

3.3 OPERATIONS MANAGEMENT OBJECTIVES

Joseph G.Monks defines Operations Management as the process whereby resources, flowing within a
defined system, are combined and transformed by a controlled manner to add value in accordance with
policies communicated by management.

Objectives of Operations Management can be categorized into Customer Service and Resource Utilization.

1. CUSTOMER SERVICE
The first objective of operating systems is to utilize resources for the satisfaction of customer wants.
Therefore, customer service is a 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. Thus, providing the ‘right thing at a right price at the right time’ can satisfy primary
objective.

These aspects of customer service – specification, cost and timing – are described for four functions
in Table 1.1. They are the principal sources of customer satisfaction and must therefore be the
principal dimension of the customer service objective for operations managers.

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Table 1.1 Aspects of Customer Service

2. RESOURCE UTILISATION
Another major objective of operating systems is to utilize resources for the satisfaction of customer
wants effectively. 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, underutilization 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 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 because of this conflict, operations managers’ will face many of the problems. Hence,
operations managers must attempt to balance these basic objectives.

The Table 1.2 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 1.2 The Twin Objectives of Operations Management

1.4 THE GOAL OF OPERATIONS MANAGEMENT

The goal of operations management is to maximize efficiency while producing goods and services that
effectively fulfill customer needs.

Countless operating decisions must be made that have both long- and short-term impacts on the
organization’s ability to produce goods and services that provide added value to customers. If the

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organization has made mostly good operating decisions in designing and executing its transformation
system to meet the needs of customers, its prospects for long-term survival are greatly enhanced.

For example, if an organization makes furniture, some of the operations management decisions involve
the following; such as purchasing wood and fabric, hiring and training workers, location and layout of
the furniture factory, purchase cutting tools and other fabrication equipment

If the organization makes good operations decisions, it will be able to produce affordable, functional,
and attractive furniture that customers will purchase at a price that will earn profits for the company.

1.4.1 OPERATIONS OBJECTIVES SUBGOALS

The overall objective of the operations subsystem is to provide conversion capabilities
for meeting the organization’s goals and strategy. The sub-goals of the operations subsystem, must
specify the following:
1. Product/service characteristics.
2. Process characteristics.
3. Product/service quality.
4. Efficiency
 Effective employee relations and cost control of labor.
 Cost control of material.
 Cost control in facility utilization.
5. Customer service (schedule)
 Producing quantities to meet expected demand.
 Meeting the required delivery date for goods or services.
6. Adaptability for future survival.

The priorities among these operations’ sub-goals and their relative emphases should be direct reflections
of the organization’s mission. Relating these six operations’ sub-goals to the broader strategic choices
above, it is clear that quality, efficiency, and dependability (customer service) are reflected in the sub-
goals. Flexibility encompasses adaptability but also relates to product/service and process
characteristics: Once choices about product and process are made, boundaries for meeting the other
operations objectives are set.

1.5 THE STRATEGIC ROLE OF OPERATIONS

Primary goals of the organizations are related market opportunities. Economy and efficiency of
conversion operations are the secondary goals, which will be predominant with the study and practice
of operations management.

1.5.1 A STRATEGIC PERSPECTIVE

In figure 1.1 provides the basic downward flow of strategy influence leading to managing conversion
operations and results. The general thrust of the process is guided by competitive and market conditions
in the industry, which provide the basis for determining the organization’s strategy. Where is the
industry now, and where it will be in the future? What are the existing and potential markets? What
market gaps exist, and what competencies do we have for filling them? A careful analysis of market
segments and the ability of our competitors and ourselves to meet the needs of these segments will
determine the best direction for focusing an organization’s efforts.

After assessing the potential within an industry, an overall organizational strategy must be developed,
including some basic choices of the primary basis for competing. In doing so, priorities are established
among the following four characteristics:
1. Quality (product performance)
e.g. Marks & Spencer, Thornton’s, BMW all are synonymous with the image of high quality.
Quality means ‘fitness for the purpose’, so characteristics include how the product functions
(what it does), robustness, reliability, taste or features it has.
2. Cost efficiency (low product price)
-is important if aiming to offer a product or service at the lowest possible price (cost leadership
strategy). Cheap and cheerful products like supermarket ‘own economy brands’ or the ‘basic no
frills service’ of Easy Jet and Ryan Air, often achieved by standardization of products with inferior
features or functions in order to keep the cost of production very low
3. Dependability (reliable, timely delivery of orders to customers)
-or Speed---e.g. The AA or RAC could offer superior call out response times, Concorde when it
was first launched gave the fastest transatlantic flights, courier companies like FedEx Express
guarantee overnight global parcel delivery.
4. Flexibility (responding rapidly with new products or changes in volume).
-the ability to increase or decrease production to meet customer demand, or offer a variety and
variation in products or services. Multi-skilled staff and resources can help an organization
achieve greater flexibility and economies of scope (cost savings by using the same resource to
make different products or services).

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Time is emerging as a critical dimension of competition in both manufacturing and service industries.
In any industry the firm with the fastest response to customer demands has the potential to achieve an
overwhelming market advantage. In an era of time-based competition, a firm's competitive advantage is
defined by the total time required to produce a product or service. Firms able to respond quickly have
reported growth rates over three times the industry average and double the profitability. Thus the pay-
off for quick response is market dominance. These basic strategic choices set the tone for the shape and
content of the operations functions.

1.5.2 OPERATIONS ALTERNATIVES AND TRADEOFFS

The operations sub-goals can be attained through the decisions that are made in the various operations’
areas. Each decision involves important tradeoffs between choices about product and process versus
choices about quality, efficiency, schedule and adaptability.

Once a decision is made, it leads to many choices. Where should facilities be located? How large should
they be? What degree of automation should be used? How skilled must labor be to operate the automated
equipment? Will the product be produced on site? How do these decisions impact quality, efficiency,
schedule (customer service), and adaptability? Are we prepared for changes in product or service, or do
these decisions lock in our operations? These are examples of the tough, crucial tradeoffs that are at the
heart of understanding the choices that must be made when planning strategically and tactically.

____________________________________________________________________________________________________

SELF CHECK No. 1-2a

Fill in the Blank
Directions: Fill in the blank with the appropriate answer

1. __________________ are processes or activities directly involved in the provision of the

good or service the organization makes or provides.
2. ___________________are business processes that support the product or service when it
has left the organization
3. ___________________is ‘the sequence of business activities by which in the perspective of
the end user, value is added to the products or services produced by
an organization’.
4. ___________________is emerging as a critical dimension of competition in both
manufacturing and service industries
5. ___________________ means ‘fitness for the purpose’.

SELF CHECK No. 1-2b

TRUE OR FALSE
Directions: write true if the statement is correct and false if it is wrong.

____________1. Once a decision is made, it leads to many choices.

____________2. Value chain is a position audit tool which examines the current and ‘internal’
position of an organization.
____________3. Volume refers to the ‘degree of customization’ to its products or services that an
organization can offer to its customers
____________4. Flexibility is the ability to increase or decrease production to meet customer
demand, or offer a variety and variation in products or services
____________5. The goal of operations management is to minimize efficiency while producing
goods and services that effectively fulfill customer needs
____________________________________________________________________________

1.6 STRATEGIC PLANNING FOR DIFFERENT ORGANIZATIONS

Strategic planning is the process of thinking through the current mission of the organization and the current
environmental conditions facing it, then setting forth a guide for tomorrow’s decisions and results. Strategic
planning is built on fundamental concepts: that current decisions are based on future conditions and
results.
1. Strategic Planning for Production and Operations.
In the production or operations function, strategic planning is the broad, overall planning that
precedes the more detailed operational planning. Executives who head the production and
operations function are actively involved in strategic planning, developing plans that are
consistent with the firm’s overall strategies as well as such functions as marketing, finance
accounting and engineering. Production and operations strategic plans are the basis for:
a. operational planning of facilities (design) and
b. operational planning for the use of these facilities.
2. Strategic Planning Approaches for Production/Operations
Henry Mintzberg suggests three contrasting modes of strategic planning: the entrepreneurial, the
adaptive, and the planning modes. In the entrepreneurial mode, one strong, bold leader takes

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planning action on behalf of the production/operations function. In the adaptive mode, a

manager’s plan is formulated in a series of small, disjointed steps in reaction to a disjointed
environment. The planning model uses planning essentials combined with the logical analysis of
management science.

There are many approaches to strategic planning. The key point is that operations strategies
must be consistent with the overall strategies of the firm. Operations typically utilize the overall
corporate approach to strategic planning, with special modifications and a focus upon operations
issues and opportunities. One general approach to strategic planning is a forced choice model
given by Adam and Ebert.
a. Strategic Planning—Forced Choice Model. One of many planning models that have
been used in strategic planning is a forced choice model, shown in Figure 1.4. In-group
sessions or individually, analysts assess environmental considerations together with the
organization’s current production/operations position, thus forcing management to
develop strategic options for operations.

1.6.1 A STRATEGIC PLANNING OPERATIONS MODEL.

Professor Chris A. Voss of the London Business School, England, has set forth a framework for strategy
and policy development in manufacturing. Concept is that manufacturing strategy tries to link the policy
decisions associated with operations to the marketplace, the environment, and the company’s overall
goals. A simplified framework for examining operations strategy is shown in Figure 1.5.

One feature of this approach that is crucial to competitiveness is market-based view of strategic
planning. It suggests that any strategic business unit of a company operates in the context of its
corporate resources, the general and competitive industry environment, and the specific corporate goals
of the company. In any area in which the company chooses to compete is a set of specific market-based
criteria for success.

A low-cost, high productivity operation makes efficiency possible. Minimum use of scarce resources
while sustaining high outputs is the key to productivity. Effectiveness is how well a company is able to
meet specific criteria such as delivery schedules and technical capability. Quality is the degree to which
the product or services meets customer and organization expectations.
Quality reflects the ‘goodness’ of the product or services to the customer. Flexibility is the adoptability,
the capability to change as business conditions change.

Fig. 1.5 Operations Strategy Framework

1.7 PORTER’S VALUE CHAIN ANALYSIS

A value chain is ‘the sequence of business activities by which in the perspective of the end user, value is
added to the products or services produced by an organization’. (CIMA).

Value chain analysis (VCA) is a position audit tool which examines the current and ‘internal’ position of an
organization. It is ideal tool to examine holistically the operational processes of an organization.
According to Professor Michael Porter, an organization receives resources (inputs) from its environment
and converts (processes) these into products or services (outputs), in doing so it creates ‘added value’
(margin or profit) for the organization and its customers.

Porter grouped nine (9) business processes or activities of an organization into what he called the
value chain activities classified as either primary or secondary activities. Each activity incurs cost
but in combination with other activities will provide customer satisfaction and added value. Profit
margin is the value created when combining activities.

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 Activities are business processes the organization manages in order to ‘add value’ e.g. the product
or service should be worth more than its cost of the individual parts or resources required to make
it, allowing profit margin to be earned.

1. Primary activities are processes or activities directly involved in the provision of the good or
service the organization makes or provides e.g. inbound logistics, operations, outbound logistics,
marketing/sales and after sales service
a. Procurement - Business processes to manage and negotiate the acquisition of resources
(inputs) for the other activities e.g. components, raw materials and equipment. Ensures
resources required are in the right place at the right time and right cost e.g. purchasing
departments.
b. Technology development - Business processes required for innovation, product design and
testing or the invention of new products and processes
e.g. product design or research and development (R&D) departments.
c. Human resource management (HRM) - Business process to procure and look after the
organizations most valued asset ‘its staff’ e.g. staff recruitment, selection, training,
development, retention and reward. Staff are a vital requirement for all activities.
d. Infrastructure - Business processes to support the whole of the value chain but not
belonging to any of the other eight categories of activity above e.g. head office, legal, finance,
IT, buildings maintenance, quality control, staff canteen.

2. Secondary or support activities to support the primary activities by providing necessary support
and resources, but are not directly involved in the provision of the good or service the
organization makes or provides e.g. infrastructure, human resource management (HRM),
technology and procurement
a. Inbound logistics - Business processes that receive, handle and store inputs (resources)
e.g. warehousing, inventory control and inbound transport.
b. Operations - Business processes which are ‘transformational’ and convert inputs to outputs
e.g. staff, materials, machines, equipment etc. used to assemble the final product or service.
c. Outbound logistics - Business processes which deliver the final product (output) when it
leaves the organization e.g. outbound storage and transportation of goods to the customer
or another third party intermediary within the supply chain.
d. Marketing & Sales - Business process of researching customer needs, targeting specific
customers, selling to them and designing an effective marketing strategy for the
organizations products and services.
e. After sales service - Business processes that support the product or service (output) when
it has left the organization e.g. departments that deal with product returns, customer
complaints, after sales training and product support.

____________________________________________________________________________________________________

SELF CHECK No. 1-3a

FILL IN THE BLANK:

Directions: Fill in the blank with the appropriate answer.

1. _______________ are business processes the organization manages in order to ‘add value’.
2. _______________are business processes which deliver the final product (output) when it leaves the
organization
3. _______________are processes or activities directly involved in the provision of the good or service the
organization makes or provides
4. A _______________ is ‘the sequence of business activities by which value is added to the products or
services produced by an organization

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5. _______________is a position audit tool which examines the current and ‘internal’ position of an
organization.
6. _____________is the dimension which refers to the ‘degree of customization’ to its products or services
that an organization can offer to its customers
7. _____________refers to business processes to manage and negotiate the acquisition of resources
(inputs) for the other activities
8. _____________is the value created when combining activities.
9. _____________are business processes required for innovation, product design and testing or the
invention of new products and processes
10. According to______________, an organization receives resources (inputs) from its environment and
converts (processes) these into products or services

5.5 SCOPE OF OPERATIONS MANAGEMENT

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
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 equipment. 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.

Fig. 1.6. Environment of Operations

Fig. 1.7 Scope of Production and Operations Management

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2. PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration of departments,
work canters 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 a plan of an optimum arrangement of facilities including
personnel, operating equipment, storage space, material handling equipment and all
other supporting services along with the design of best structure to contain all these facilities’

‘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. Hence,
material handling is a prime consideration in the designing new plant and several existing plants.

3. PRODUCT DESIGN
Product design deals with conversion of ideas into reality. Every business organization 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 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.

5. 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 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 the 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.
a. Planning is deciding in advance what to do, how to do it, when 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 it possible for things to occur
which would not otherwise happen.
b. Routing may be defined as the selection of path, which each part of the product will follow, which
being transformed from raw material to finished products. Routing determines the most
advantageous path to be followed for department to department and machine to machine till raw
material gets its final shape.
c. 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.
d. Dispatching is concerned with the starting of 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’.
e. 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.

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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 collection of activities, which
ensures that the operation will produce the optimum quality products at minimum cost.

The main objectives of Quality Control are:

b. To improve the company’s income by making the production more acceptable to the customers
i.e. by providing long-life, greater usefulness, maintainability, etc.
c. To reduce companies cost through reduction of losses due to defects.
d. To achieve interchangeability of manufacture in large-scale production.
e. To produce optimal quality at reduced price.
f. To ensure satisfaction of customers with productions or services or high quality level, to build
customer good will, confidence and reputation of manufacturer.
g. To make inspection prompt to ensure quality control.
h. 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:
a. To minimize material cost.
b. To purchase, receive, transport and store materials efficiently and to reduce the related cost.
c. To cut down costs through simplification, standardization, value analysis, import substitution,
etc.
d. To trace new sources of supply and to develop cordial relations with them in order to ensure
continuous supply at reasonable rates.
e. 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:
a. To achieve minimum breakdown and to keep the plant in good working condition at the lowest
possible cost.
b. To keep the machines and other facilities in such a condition that permits them to be used at
their optimal capacity without interruption.
c. 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.

SELF CHECK No. 1-4a

TRUE OR FALSE
Directions: write true if the statement is correct and false if it is wrong.

_____________1. 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.
_____________2. Routing is deciding in advance what to do, how to do it, when to do it and who is to do
it.
_____________3. Product design is a macroscopic decision-making of an overall process route for
converting the raw material into finished goods.
_____________4. Quality Control may be defined as ‘a system that is used to maintain a desired level of
quality in a product or service’.
_____________5. Quality is the adoptability, the capability to change as business conditions change.
_____________6. “First Work Your Plank and then Plan on Work Plan.”
_____________7. Material handling is a prime consideration in the designing new plant and several
existing plants.
_____________8. Activities are business processes the organization manages in order to ‘add value’.
_____________9. 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
_____________10. Location refers to the physical arrangement of facilities.

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ACTIVITIES:

General Instructions:

1. Read the directions on every activity carefully with understanding.

2. Answer with the best of your ability and understanding of the concept and/or theories. (Use
separate sheet)
3. For Essays, graphs and diagrams, we will follow the following rubric for rating:
A – Excellent B – Very Good C – Good D – Needs Improvement E – Unacceptable
 Content – Addresses each question and all its parts thoroughly; incorporates relevant
course content into responses; uses specific information from case in response.
 Application / Understanding – Demonstrates deep understanding of course theories and
ideas applied to analysis of situations.
 Original Thinking – demonstrates original thinking that adds insight to analysis of case;
meaningful elaboration beyond text and notes in strategy development
 Structure – Response to each question is well organized, clearly written; there is evidence
of planning before writing
 Grammar and mechanics – response is virtually free of mechanical. Grammatical writing
errors.

1. Why is it important for the various functional areas of a business organization to collaborate?
Cite an example.

2. Many organizations offer a combination of goods and services to their customers. What are the
implications of these differences relative to managing operations?

3. Visit a fast food restaurant and answer these questions:

a. In what ways is quality, or lack of quality, visible?
b. What items must be stocked in addition to the food?
c. How important do you think employee scheduling is? Explain.

You may now proceed to the next module. 

____________________________________________________________________________________________________

ANSWER KEY No. 1-1a

1. Productivity 6. Planning
2. Systems 7. Controlling
3. Resources 8. Ray Wild
4. Operations Management 9. Operation
5. Models 10. Operations management (OM)

ANSWER KEY No. 1-2a ANSWER KEY No. 1-2b

1. Primary activities 1. True
2. After Sales Service 2. False
3. Value Chain 3. False
4. Time 4. True
5. Quality 5. False

ANSWER KEY No. 1-3a

1. Activities 6. Variation
2. Outbound logistics 7. Procurement
3. Primary activities 8. Profit margin
4. value chain 9. Technology development
5. Value chain analysis (VCA) 10 Professor Michael Porter

ANSWER KEY No. 1-4a

1. True 6. False
2. False 7. True
3. False 8. True
4. True 9. True
5. False 10. False
____________________________________________________________________________________________________

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REFERENCES:

1. Marife Agustinn-Acierto,DBA, LPT, FRI(Rs), CPME. Gilfred Abad Acierto, Ph.D,LPT, FRIEdr.
Distribution Management. Copyright 2019. Published by Unlimited Books Library Services &
Publiching Inc.
2. Krishna K. Havaldar. Vasant M. Cavale. Sales and Distribution Management: Text and Cases.
International Edition 2010. Copyright 2007 by Tata McGraw-Hill.
3. Joseph, G. Monks, Theory and Problems of Operations Management, Tata McGraw-Hill Publishing
Company Limited, 2nd Edition, 2004.
4. Joseph, G. Monks, Operations Management, McGraw-Hill International Edition, 3rd Edition.
5. S. Anil Kumar, N. Suresh, Production and Operations Management, New Age International (P)
Limited Publishers, 2nd Edition, 2008.
6. Kumar, S. A. & Suresh, N., Operations Mnagement, (Pdf) Available at :
http://www.tn.upi.edu/pdf/Operations_Management.pdf
7. Introduction to Product and Operations Management (PDF) Available
at:http://www.newagepublishers.com/samplechapter/001233.pdf

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LESSON 2: PRODUCTIVITY

Learning Objectives: After reading this module, you should be able to:
1. Define and understand productivity.
2. Discuss the different factors that affects productivity.
3. Explain productivity in different types of organizations.
4. Explain how various tools and techniques of operations management works in an
institution
5. Explain the relations of production management with other management functions

INTRODUCTION
Productivity is defined in terms of utilization of resources, like material and labor. In simple terms,
productivity is the ratio of output to input. For example, productivity of labor can be measured as units
produced per labor hour worked. Productivity is closely linked with quality, technology and profitability.
Hence, there is a strong stress on productivity improvement in competitive business environment.

On the other hand, Production/Operation management is the process which combines and transforms
various resources used in the production/operation subsystem of the organization into value added
products/services in a controlled manner as per the policies of the organization.

Production/Operation function:

The set of interrelated management activities which are involved in manufacturing certain products is
called production management and for service management, then corresponding set of management
activities is called as operation management.

Examples: (Products/goods) Examples: (Services)

Boiler with a specific capacity, Medical facilities,
Constructing flats, Car, bus, Travel booking services
radio, television.

In the process of managing various subsystems of the organization executives at different levels of the
organization need to track several management decisions. The management decisions are Strategic,
tactical and operational.

2.1 DEFINITION OF PRODUCTIVITY

Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to
what is required to produce it (inputs). The measure of productivity is defined as a total output per one
unit of a total input. In order to obtain a measurable form of productivity, operationalization of the
concept is necessary. In explaining and operationalizing, a set of production models are used. A
production model is a numerical expression of the production process that is based on production data
(i.e., measured data in the form of prices and quantities of inputs and outputs)

Productivity can be improved by (a) controlling inputs, (b) improving process so that the same input
yields higher output, and (c) by improvement of technology. These aspects are discussed in more detail
in the lesson on Productivity Management

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Productivity is a relationship between the output (product/service) and input (resources consumed in
providing them) of a business system. The ratio of aggregate output to the aggregate input is called
productivity.

Productivity = output/Input

 For survival of any organization, this productivity ratio must be at least 1. If it is more than 1,
the organization is in a comfortable position. The ratio of output produced to the input resources
is utilized in the production.

2.2 IMPORTANCE OF PRODUCTIVITY

Benefits derived from higher productivity are as follows:
1. It helps to cut down cost per unit and thereby improve the profits.
2. Gains from productivity can be transferred to the consumers in form of lower priced products or
better quality products.
3. These gains can also be shared with workers or employees by paying them at higher rate.
4. A more productive entrepreneur can have better chances to exploit expert opportunities.
5. It would generate more employment opportunity.
6. Overall productivity reflects the efficiency of production system.
7. More output is produced with same or less input.
8. The same output is produced with lesser input.
9. More output is produced with more input.
10. The proportional increase in output being more than the proportional increase in input.

2.3 PRODUCTIVITY MEASUREMENT

Productivity may be measured either on aggregate basis or on individual basis, which are called total
and partial measure.

Total productivity Index/measure = Total output/ Total input

Partial productivity indices, depending upon factors used, it measures the efficiency of individual factor
of production

Example:

1. The input and output data for an industry given in the table. Find out various productivity measures
like total, multifactor and partial measure.

Output
1. Finished units 10,000
2. Work in progress 2,500
3. Dividends 1,000
4. Bonds -------
5. Other income --------
Input
1. Human 3,000
2. Material 153
3. Capital 10,000
4. Energy 540
5. Other Expenses 1,500

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Solution :

Note: For multifactor and partial measures it is not necessary to use total output as numerator. Often,
it is described to create measures that represent productivity as it relates to some particular output of
interest.

2. A furniture manufacturing company has provided the following data. Compare the labor, raw
materials and supplies and total productivity of 1996 and 1997.

Output: Sales value of production in dollar ($)

22,000 (in 1996) and 35,000 (in 1997)

1996 1997 Inputs: Labor

10,000 15,000 Raw materials and Supplies
8,000 12,500 Capital equipment depreciation
700 1,200 Other
2,200 4,800

Solution:
1996 1997
a. Partial productivities
Labor 2.20 2.33
Raw materials and Supplies 2.75 2.80
b. Total Productivity 1.05 1.04

2.4 MODERN DYNAMIC CONCEPT OF PRODUCTIVITY

Fig. 2.1 Dynamic Concept of Productivity

Productivity can be treated as a multidimensional phenomenon. The modern dynamic concept of

productivity looks at productivity as what may be called “productivity flywheel”. The productivity is
energized by competition. Competition leads to higher productivity, higher productivity results in better
value for customers, this results in higher share of market for the organization, which results in still
keener competition. Productivity thus forms a cycle, relating to design and products to satisfy customer
needs, leading to improved quality of life, higher competition i.e. need for having still higher goals and
higher share of market, and thereby leading to still better designs.

2.5 FACTORS AFFECTING PRODUCTIVITY

Economists site a variety of reasons for changes in productivity. However, some of the principle factors
influencing productivity rate are:
1. Capital/labor ratio: It is a measure of whether enough investment is being made in plant,
machinery, and tools to make effective use of labor hours.
2. Scarcity of some resources: Resources such as energy, water and number of metals will create
productivity problems.
3. Work-force changes: Change in work-force effect productivity to a larger extent, because of the
labor turnover.

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4. Innovations and technology: This is the major cause of increasing productivity.

5. Regulatory effects: These impose substantial constraints on some firms, which lead to change in
productivity.
6. Bargaining power: Bargaining power of organized labor to command wage increases excess of
output increases has had a detrimental effect on productivity.
7. Managerial factors: Managerial factors are the ways an organization benefits from the unique
planning and managerial skills of its manager.
8. Quality of work life: It is a term that describes the organizational culture, and the extent to which
it motivates and satisfies employees.
____________________________________________________________________________________________________

SELF CHECK No. 2-1a

TRUE OR FALSE
Directions: write true if the statement is correct and false if it is wrong.

_____________1. Quality of work life refers to a term that describes the organizational culture, and the
extent to which it motivates and satisfies employees.
_____________2. Trend analysis is studying productivity in comparison with other industries and other
firms of different sizes in the same industry
_____________3. “Innovations and technology” is the major cause of increasing productivity
_____________4. Productivity is a measure of the efficiency of production
_____________5. When productivity is measured separately for each input resource to the production
process it is called total factor productivity.
_____________6. The measure of productivity is defined as a total output per one unit of a total input.
_____________7. Competition leads to higher productivity, higher productivity results in better value for
customers.
_____________8. Total factor productivity calculations are required at firm level and industry level,
whereas factor productivity calculations are made for measuring productivity at
national and international level.
_____________9. Green Productivity" signifies a new paradigm of socio-economic development aimed at
the pursuit of economic and productivity growth while not protecting the environment
____________10. Productivity is closely linked with quality, technology and profitability.
____________________________________________________________________________________________________

2.6 ENHANCING PRODUCTIVITY TO GAIN COMPETITIVENESS

Although labor and multifactor productivity measures can be informative, they also can be deceptive
when applied to a firm at process levels.

Example: If a firm decides to transfer some of its work to outside suppliers and lay off some of its own
workforce, the labor productivity will increase. This is because the value of the firm's total sales (the
numerator) remains unchanged while the number of employees (the denominator) drops.

NOTE: What is measured and the way in which the processes are managed play a key role in determining
productivity improvements. We have to increase the value of output relative to the cost of input. If
processes can generate more output of better quality using the same amount of input, productivity
increases. If they can maintain the same level of output while reducing the use of resources, productivity
also increases. Some of the objectives of improvements in productivity are:
1. Efficiency 4. Quality
2. Maximum output 5. Elimination of waste
3. Economy 6. Satisfaction of human beings through increased
employment, income and better standard of living

From a broader perspective, an increase of productivity is due to a squeeze in waste of resources. The
resources may be productive resources, governance, markets or social needs. The real issue is how to
achieve them.

The structure of operations is not as simple as saying that fewer, bigger facilities will result in higher
productivity and lower costs. According to conventional economic theory, this tends to be true up to a
certain limit. Economies of scale allow firms to increase productivity by making operations larger. Service
and manufacturing operations can take advantage of this to improve productivity and lower costs.

Consolidation in the many industries is being driven by the need to spread Fixed Costs, such as
information systems, infrastructure, and management, over a broader base of operations. But this action
assumes that demand is infinite. Therefore, matching the characteristics of the market to the needs of
the customer is crucial. Very often, adding facilities is not the right answer.

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However, it must be remembered that developments in technology often drive productivity

improvements. As organizations invest in technology, they can optimize time, expand options, and
reduce costs.

Technology is in many cases revolutionizing business and Operations Management by changing

everything from the way products are designed to how inventory is managed and controlled. It is helping
in decision making by gathering, organizing, analyzing, and presenting data to managers faster and
cheaper each day. This has an impact not only on how effectively and efficiently the equipment is used
but also on designing activities that help enhance productivity.

1. Technology, Innovation and Automation: Technology, Innovation and automation brings new
ideas, methods, and/or equipment to the process of making a product. Technology determines
both the maximal physical quantity of output that can be reached as well as the number and the
quality of inputs required. This presents an opportunity to cut costs and to do more value-added
work. The technology that is adopted is an economic choice, taken upon both economic and
technological reasons. However, reversibility of the choice is often low because of high switching
costs. Business process redesign is another aspect of technology. Technology to improve physical
productivity focuses on understanding the diffusion of technology in use and redesigning of
processes that exist within and between companies. The rate of technological change varies
between industries and the need increases as the clock-speed of the industry increases.
Innovative changes in business processes that allow the customer to obtain better value,
increases productivity of the organization. Using numerically controlled machine tools can
increase productivity and reduce manpower. Similar technologies have been available for decades,
but are constantly finding new applications. These reflect exercises in automation as the focus is
to substitute capital for labor. It is different from technological innovation because existing
automation is merely applied to a new situation.

2. Learning and Experience: This was first observed in the aircraft industry and was found to
enhance productivity and reduce costs substantially. The productivity is greatly improved by a
distinct form of specialization. As workers learn, they get better trained in the techniques required
to do the job. Learning and experience enable firms to achieve productivity improvements because
the workforce gains knowledge about the product and work processes. From these knowledge
workers find better ways to organize work.
3. Job Design, Work Analysis and Motivation: All these techniques enable firms to examine work
at the level of the individual worker, the interface between a worker and a machine, or the
interface between a worker and the firm. The job design and work analysis approach investigates
and improves individual movement to improve productivity. It makes possible productivity
improvements through scientific redesign of the work content. Job design and work
measurements also provide benchmarks that can be powerful motivators. Motivation is a powerful
tool that can be used to increase productivity in any job that is labor intensive.

Firms can also provide incentives to increase workers' productivity through a stimulating environment
and the removal of obstacles to their effective work. The classical Hawthorne Studies by Elton Mayo
showed that if labor is motivated to do more work, productivity can increase without additional
investments or cost increases.

Example: When the lighting levels in the Hawthorne works were improved, there was increased
productivity with no additional costs.
_____________________________________________________________________________________________

SELF CHECK No. 2-1a

TRUE OR FALSE
Directions: write true if the statement is correct and false if it is wrong.

____________1. Firms can also provide incentives to increase workers' productivity through a
stimulating environment and the removal of obstacles to their effective work
____________2. “Learning and experience” is helping in decision making by gathering, organizing,
analyzing, and presenting data to managers faster and cheaper each day.
____________3. The job design and work analysis approach investigates and improves individual
movement to improve productivity
____________4. Labor Productivity is only based on observations of volume product outputs and
inputs for labor.
____________5. The generic strategy of differentiation rests on the choice of a narrow competitive
scope within an industry

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____________6. A firm pursuing a cost-leadership strategy attempts to gain a competitive advantage

primarily by reducing its economic costs below that of its competitors
____________7. Organizations compete successfully by seizing opportunities
____________8. Single factor productivity accommodates more than one input factor and more than one
output factor when calculating overall productivity
____________9. The productivity tree reflects that productivity is an attitude of mind which is intolerant
of waste of every kind and in any form
___________10. Outputs are easy to define and measure.
____________________________________________________________________________________________________

2.7 PRODUCTIVITY IN DIFFERENT TYPES OF ORGANIZATIONS

2.7.1 Productivity in Manufacturing Versus Service Firms

Productivity applies equally to the blue-collar workforce as to people doing intellectual work. In many
developed countries, blue-collar workers represent a small and declining portion of the workforce and
the dominant workforce is represented by intellectual work in service organizations. This change is
explained by a change from a manufacturing to service-based economy in these countries. The problem
presented by this shift is that productivity gains in the service sector have lagged behind gains in the
manufacturing sector.

The animating force for productivity and wage growth in the new economy will be the pervasive use of
digital electronic technologies. This is expected to increase efficiency and productivity, particularly in
the low-technology service sector.

It is forecasted that with increased learning, the digitization of the economy in the 21st century will
bring in the kind of economic benefits that mechanization brought in the 20th. And this will be spurred
by the "network effect" – the more we use these technologies (e.g., Internet, smart cards, broadband and
telecommunications), the more applications will be developed, and the more value they will provide for
users. Once this occurs, the productivity paradox could very likely give way to a productivity and wage
boom.

2.7.2 Productivity Gains from Software

New ways of developing and using software have led to higher efficiency and productivity through greater
interaction between users

1. Collaborative Software
Collaborative software was originally designated as groupware and this term can be traced as far back
as the late 1980s, when Richman and Slovak said, “Like an electronic sinew that binds teams together,
the new groupware aims to place the computer squarely in the middle of communications among
managers, technicians, and anyone else who interacts in groups, revolutionizing the way they work.
Collaborative software, or groupware, puts computers in the center of communications between groups
of workers, managers, and technicians. This way of working has produced major gains in productivity
since it was first introduced. Collaborative software has produced major gains in productivity. The
definition of an office has dramatically changed as an individual is able to work efficiently as a member
of a group wherever there is a computer (or an iPad, or iPhone, or Blackberry).

Computer software designed to help people involved in a common task achieve goals. Examples of
collaborative software include document sharing, shared calendars, instant messaging, and web
conferencing

2. Agile Software Development

Agile software development is a group of software development methods based on iterative and
incremental development, where requirements and solutions evolve through collaboration between self-
organizing, cross-functional teams. It promotes adaptive planning, evolutionary development and
delivery, a time-boxed iterative approach, and encourages rapid and flexible response to change. It is a
conceptual framework that promotes foreseen interactions throughout the development cycle.

Agile methods break tasks into small increments with minimal planning and do not directly involve long-
term planning.

Iterations are short time frames (time boxes) that typically last from one to four weeks. Each iteration
involves a team working through a full software development cycle when a working product is
demonstrated to stakeholders. The development cycle includes: Planning, Requirements analysis,
Design, Coding, Unit testing and Acceptance testing.
This approach minimizes overall risk and allows the project to adapt to changes quickly. Stakeholders
produce documentation as required. An iteration might not add enough functionality to warrant a

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market release, but the goal is to have an available release (with minimal bugs) at the end of each
iteration. Multiple iterations might be required to release a product or new features.

According to the Agile Manifesto: Through this work we have come to value: individuals and interactions
over processes and tools; working software over comprehensive documentation; customer collaboration
over contract negotiation; responding to change over following a plan. That is, while there is value in the
items on the right, we value the items on the left more.

2.7.3 Productivity Gains from Hardware

Productivity gains were not just the result of inventions, but also of continuous
improvements to those inventions which greatly increased output in relation to both capital and labor
compared to the original inventions.

Productivity improving technologies lower traditional factors of production of land, labor, capital,
materials, and energy.

1. Productivity Improving Technologies. Productivity improving technologies are technologies

that lower the traditional factors of production of land, labor capital, materials, and energy that
go into production of economic output. Increases in productivity are responsible for increases in
per capita living standards. Since the beginning of the Industrial Revolution, some major
contributors to productivity have been:
a. The spinning jenny and spinning mule greatly increased the productivity of thread
manufacturing compared to the spinning wheel.
b. Replacing human and animal power with water power, wind power, steam, electricity, and
internal combustion greatly increased the use of energy.
c. Energy efficiency in the conversion of energy to useful work.
d. Infrastructures: canals, railroads, highways, and pipelines.
e. Mechanization of both production machinery and agricultural machines
f. Work practices and processes: the American system of manufacturing, Taylorism or
scientific management, mass production, assembly line, modern business enterprise.
g. Materials handling: bulk materials, palletization, and containerization.
h. Scientific agriculture: fertilizers and the green revolution, livestock and poultry
management.
i. New materials, new processes for production and dematerialization.
j. Communications: telegraph, telephone, radio, satellites, fiber optic network, and the
Internet.
k. Home economics: public water supply, household gas, appliances.
l. Automation and process control.
m. Computers and software, data processing.

Productivity gains were not just the result of inventions, but also of continuous improvements to
those inventions which greatly increased output in relation to both capital and labor compared to the
original inventions. Productivity also arises from developing economies of scale, despite that not
actually being a technology in its own right.

2. Industrial Machinery. The most important mechanical devices before the Industrial Revolution
were water and windmills. Just before the Industrial Revolution, water power was applied to
bellows for iron smelting. Wind and water power were also used in sawmills. The technology of
building mills and mechanical clocks was important to the development of the machines of the
Industrial Revolution.

The spinning wheel was a medieval invention that increased thread making productivity by a
factor greater than ten. Later in the Industrial Revolution came the flying shuttle, a simple device
that doubled the productivity of weaving. Spinning thread had been a limiting factor in cloth
making, requiring 10 spinners using the spinning wheel to supply one weaver. With the spinning
jenny, a spinner could spin eight threads at once. The spinning mule allowed a large number of
threads to be spun by a single machine using water power. A change in consumer preference for
cotton at the time of increased cloth production resulted in the invention of the cotton gin. Steam
power eventually was used as a supplement to water during the Industrial Revolution, and both
were used until electrification.
3. Machine Tools. Machine tools, which cut, grind, and shape metal parts, were another important
mechanical innovation of the Industrial Revolution. Before machine tools, it was prohibitively
expensive to make precision parts, an essential requirement for many machines and
interchangeable parts. Perhaps the best early example of a productivity increase by machine tools

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and special purpose machines is the Portsmouth Block Mills. With these machines, 10 men could
produce as many blocks as 110 skilled craftsmen.

Historically important machine tools are the screw-cutting lathe, milling machine, and metal
planer (metalworking), which all came into use between 1800 and 1840. However, around 1900,
it was the combination of small electric motors, specialty steels, and new cutting and grinding
materials that allowed machine tools to mass produce steel parts.

4. Productivity Gains from Computer Hardware. Computer hardware is the collection of physical
elements that comprise a computer system. Computer hardware refers to the physical parts or
components of computer (objects you can touch), such as a: Monitor; Keyboard; Printer; Chip;
Hard disk; and Mouse.

The history of computing hardware is the record of the ongoing effort to make hardware faster,
cheaper, and capable of storing more data.

2.8 HOW TO IMPROVE BUSINESS PRODUCTIVITY?

Productivity can be increased by any of the following three ways:

1. By increase of output, keeping input constant.
2. By decreasing inputs for producing the same output.
3. By increasing outputs proportionately higher than increases affected in inputs.

Various factors contributing to increase of productivity can be summarized as below:

1. Better utilization of resources like men, machines and materials.
2. Using efficient and effective methods of working.
3. Through good and systematic plan-layouts using guidelines and principles of motion economy.
4. Reducing material handling through better layouts and using appropriate material handling
equipment/facilities.
5. Selection of appropriate technology suiting the product(s) and the production process selected.
6. Selection of proper maintenance policy, keeping in mind the service level, preventive maintenance
and breakdown maintenance.
7. Provision of healthy and safe working conditions to workmen.
8. Through modern HRM methods; management by MBO rather than management by crisis, counselling
rather than threatening workmen – through participation of workmen in management including
quality circles etc. This shall ensure better working environment and keep the workforce motivated.
9. Provision of fair wages and proper compensation through incentive schemes.
10. Through better quality by use of SQC techniques sampling plans in purchase and statistical process
control in production.

Essentially, an organization must address two questions: “Who are we?” and “What do we want to be?”
This is the mission of the organization and it defines its reason for existence. It might include a definition
of products and services it provides, technologies used to provide these products and services, types
of markets, important customer needs, and distinctive competencies—the expertise that sets the firm
apart from others. The mission guides the development of strategies by different groups within the
firm.
1. It determines the value creation logic of the organization;
2. Sets limits on available strategic options;
3. It governs the trade-offs among the various performance measures and between short-and long-
term goals;
4. It establishes the context within which daily operating decisions are made; and
5. It inspires employees to focus their efforts toward the overall purpose of the organization.

For example:
A clear understanding of the implications of strategic choices on operational capability is vital to
success. Without the capability to produce low cost products, no amount of dreaming would have made
Hero Cycles capable to provide a product to replace the BSA and Hercules bicycles. Their ability to
design bicycles that met India specific needs at low cost made it possible for them to provide the right
product at the right time and make them market leaders.

TI Cycles operational strategy of producing elegant, high quality bicycles became the corporate strategy
of the company. This resulted in its inability to compete with Hero Cycles. It did not develop the
capabilities to compete on price, and hence it could not provide value when there was a shift in the
needs of the market.
____________________________________________________________________________________________________

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SELF CHECK No. 2-2a

Fill in the Blank

Directions: Fill in the blank with the appropriate answer

1. _______________ examples are materials waiting in the form of inventory in the stores, machines
waiting to be loaded, job orders waiting to be processed, etc.
2. Reduction of scrap or rejections, or percentage increase in yield just by one _______________can
save an organization tremendously.
3. For an effective and efficient production system, ______________ of all kinds must be eliminated
or at least minimized
4. The ________________could be an unnecessary input, a defective output, idling of the resources,
etc.
5. The ________________ was a medieval invention that increased thread making productivity by a
factor greater than ten
6. ________________ is the collection of physical elements that comprise a computer system
7. The most important mechanical devices before the Industrial Revolution were ________________.
8. Effectiveness of production management is measured by the efficiency through which the inputs
are converted into outputs is called __________________.
9. ________________are technologies that lower the traditional factors of production of land, labor
capital, materials, and energy that go into production of economic output.
10. ________________puts computers in the center of communications between groups of workers,
managers, and technicians.
____________________________________________________________________________________________________

EXERCISES

1. A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in
one-half hour with four workers. What is labor productivity?

2. A wrapping-paper company produced 2,000 rolls of paper one day. Standard price is $1 / roll. Labor
cost was $160, material cost as $50, and overhead was $320. Determine the multifactor productivity.
____________________________________________________________________________________________________

ANSWER KEY No. 2-1a

1. True 6. True
2. False 7. True
3. True 8. False
4. True 9. False
5. False 10. False

ANSWER KEY No. 2-2a

1. True 6. True
2. False 7. True
3. True 8. False
4. True 9. True
5. False 10. False

ANSWER KEY No. 2-3a

1. Idling of resources 6. Computer hardware
2. 1 % 7. water and windmills
3. Wastage 8. productivity of the system
4. Wastage 9. Productivity improving technologies
5. spinning wheel 10. Collaborative software
____________________________________________________________________________________________________

REFERENCES:
1. Stevenson,Sum. Operations Management:An Asian Perspective. Copyright 2012 by McGraw-Hill
Education.
2. www.knoah.com/images/pdf/operation/productionmanagement
3. www.pcmag.com/.../0,2542,t=automation&i=38258,00.asp
4. Chase, Richard B., and Eric L. Prentis, Operations Management: A Field Rediscovered, Journal
of Management, 13, no. 2 (October 1987): 351: 366
5. Hayes, Robert H., Towards a 'New Architecture' for ROM, Production and Operations
Management, 9, no. 2 (Summer 2000) 105-110.
6. Schonberger, Richard J., World Class Manufacturing: The Next Decade, New York: The Free Press,
1996

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LESSON 3: PRODUCTION SYSTEM

Learning Objectives: After reading this module, you should be able to:
1. Define production system.
2. Discuss the different factors that affects productivity.
3. Explain how various tools and techniques of operations management works in an
institution
4. Explain the relations of production management with other management functions

INTRODUCTION

A “Production System” is a system whose function is to transform an input into a desired output by
means of a process (the production process) and of resources. The definition of a production system is
thus based on four main elements: the input, the resources, the production process and the output.

Most of the organizations (including non-profit organization) can be described as production systems.
These organizations transform (or convert) a set of inputs (such as materials, labour, equipment, energy
etc.) in to one or useful outputs. The outputs of a production system are normally called products. These
products may be:

(a)Tangible goods (b)Intangible services (c)combination of (a) and (b)

(Steels,chemicals etc.) (Teaching,health care etc.) (fast food,tailoring etc.)

Fig 3.1 A simple block diagram of a Production System

Production system refers to manufacturing subsystem that includes all functions required to design,
produce, distribute and service a manufactured product. So this system produces goods and/or services
on a continuous and/or batch basis with or without profit as a primary objective

Production is the basic activity of all organizations and all other activities revolve around
production activity. The output of production is the creation of goods and services which satisfy the
needs of the customers. In some organization the product is physical (tangible) good. For example,
refrigerators, motor cars, television, toothpaste etc., while in others it is a service (insurance, healthcare
etc.). 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 (men, material, machines, information, energy) to
useful outputs (goods and/or services).
 Production system doesn’t oppose in isolation from the other organization system such as
marketing, finance etc.

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 There exists a feedback about the activities which is essential to control and improve system
performance. The transformation process involves many activities and operation necessary to
change inputs to output. These operations and activities can be mechanical, chemical, inspection
and control, material handling operation etc.

3.1 MODELS OF PRODUCTION SYSTEM:

A model is a representation of reality that captures the essential features of an object/system/process.
Three types of models are there such as physical, schematic and mathematical.

I. Physical model: Replica of a physical object with a change of scale.

a. For big/huge structure of physical object: small scale (Ex. solar system)
b. For microscopic objects: magnified scale (Ex. Atomic model)

II. Schematic model: These are 2-D models which represents

• Price fluctuations with year.
• Symbolic chart of activities in sequence for a job.
• Maps of routings
• Networks of timed events.

The pictorial aspects are useful for good demonstration purposes.

III. Mathematical model:

Formulas and equations have long been the servants of physical sciences. One can represent the
important aspect of a system/problem in mathematical form using variables, parameters and
functions. This is called mathematical model .by analyzing and manipulating the mathematical
model, we can learn how the real system will behave under various conditions.

PRODUCT VS. SERVICES

3.2 VARIOUS TYPES OF LAYOUT:

Plant layout means the disposition of the various facilities (equipment, material, manpower etc.) and
services of the plant within the area of site located.

Objectives
a. Material handling and transportation is minimized and effectively controlled.
b. Bottlenecks and points of congestions are eliminated (by line balancing) so that the raw material
and semi-finished goods move fast from one workstation to other.
c. Workstations are designed suitable and properly.
d. Suitable spaces are allocated to production centers and service centers.
e. The movements made by the workers minimized.

Layout can be classified into the following four categories:

1. Process Layout:
 It is also known as functional layout.
 Here similar machines and services located together Ex. All the lathe machines will be at one
place and all milling machines at another place and so on.
 This type of layout generally employed for industries engaged in job-shop production and non-
repetitive kind of production.

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 When their variety of products manufactured at low volume we prefer this type of layout. Ex.
Furniture manufacturer company, restaurant etc.


Fig 3.2 Process Layout

2. Product Layout
 It is also known as line (type) layout.
 The flow of product will smooth and logical.
 When the machines and auxiliary services are located according to the processing sequence we
prefer this layout.
 It implies that various operations raw materials are performed in a sequence and the machines
are placed along the product flow line.
 The product layout is selected when the volume of production of a product is high such that
separate production line to manufacture it can be justified.
 Assembly line production or mass production prefer this type layout.

Ex. Assembly of television sets, assembly of computer key-board etc.

Fig 3.3 Product Layout

3. Group Layout:
 It is the combination of both process and product layout.
 In this type of layout, a set of machinery or equipment is grouped together in a section so that
each group of machines or equipment is used to perform similar operations to produce a family
of components. These machines grouped in to cells.
 It minimizes the sum of cost of transport and the cost of equipment

Fig 3.4 Group Layout

4. Fixed Position Layout

 It is also called static product layout in which the physical characteristics of the product dictate
as to which type of machine and men are brought to the product.
 This type layout is inherent in ship building, aircraft manufacture and big pressure vessels
fabrication.

Fig 3.5 Fixed Position Layout

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In other type layout the product moves past stationary production equipment where as in this
case men and equipment are moved to the material at one place and the product is completed at
the place where the material lies.
____________________________________________________________________________________________________

SELF CHECK No. 3-1a

Fill in the Blank
Directions: Fill in the blank with the appropriate answer.

1. ______________is also called static product layout in which the physical characteristics of the
product dictate as to which type of machine and men are brought to the product.
2. ______________is also known as line (type) layout and the flow of product is smooth and logical.
3. ______________means the disposition of the various facilities such as equipment, material,
manpower, etc. and services of the plant within the area of site located
4. ______________organizations perform some chemical/physical processes such as blending
refining, welding, grinding, etc. to transfer their raw material into tangible
products
5. ______________can represent the important aspect of a system/problem in mathematical form
using variables, parameters and functions.
6. A _______________ is a representation of reality that captures the essential features of an
object/system/process
7. ______________refers to manufacturing subsystem that includes all functions required to design,
produce, distribute and service a manufactured pro duct
8. The outputs of a production system are normally called _______________.
9. ______________is the basic activity of all organizations
10. ______________is also called static product layout in which the physical characteristics of the
product dictate as to which type of machine and men are brought to the product

SELF CHECK No. 3-2a

TRUE OR FALSE
Directions: write true if the statement is correct and false if it is wrong.

___________1. In the plant layout, bottlenecks and points of congestions are eliminated by line
balancing so that the raw material and semi-finished goods move fast from one
workstation to other.
____________2. Service providing organization, though transform a set of input into set of output,
they produce a tangible output
____________3. Manufacturing unit/organization producing products generally require larger
facilities, more automation and greater capital investment than service providing
organization.
____________4. Manufacturers take generally some lead time in terms of days/week while the
services are offered within few minutes of customer’s arrival.
____________5. The products/goods generally take shorter period for its use while the output
produced from a service operation is consumed within a longer time.

3.3 PROCESS-FOCUSED AND PRODUCT-FOCUSED SYSTEM:

In process-focused system the arrangement of facilities is made according to the process layout and in
product-focused system the arrangement of facilities is made according to the product layout.
Comparison of process oriented layout and product oriented layout

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3.4 PRODUCTION FUNCTION

A. Functions of industrial enterprise. The major functions of a relatively large industrial firm are
represented by the following figure:

Fig 3.7 Functions of Industrial Enterprise

The core area of the diagram represents the organization’s policy making group. In a hierarchic triangle,
this group would occupy the apex. The overlapping portions of the circle denote the cooperation needed
from the two groups in order to establish overall policy. The slope of each function and its relationship
to the production process are briefly discussed in the following.
1. Manufacturing. A fundamental function of much production system is to produce a physical
output. Manufacturing includes the operations and direct support services for making the product
operation management is concerned with production scheduling, performance standards, method
improvement, quality control, plant layout and material handling. A plant service section handles
shipping receiving, storing and transporting raw material parts and tools. The plant engineering
group is usually responsible for in-plant construction, maintenance, design of tools and equipment
and other problems of mechanical, hydraulic or electrical nature.
2. Personnel. The recruitment and training of the personnel needed to operate the production system
are the traditional responsibilities of the personnel function. Along with it, this department takes
care health, safety, wage administration of the employees. Labor relation and employee services and
benefits are increasingly important.
3. Product development. Many organizations give major emphasis on product development because
the ultimate profit of any organization depends primarily on the nature/quality of product. The
product must be customized. A separate section is responsible for this task.
4. Marketing. Many ideas of product development come through the marketing function. Selling is
the primary interest of marketing. Sales forecasts and estimate of the nature of future demands is
also performed by this department. Contact with customers provide feedback about the quality
expected from the firm and opinion on how well the products meet quality standard.
5. Finance and accounting. Internal financing includes reviewing the budgets for operating sections,
evaluating of proposed investments for production facilities and preparing balance sheet. Besides
these the other responsibilities is to see how well the firm is scoring in the business competition
game. In this business game analogy, the accounting functions are collection of cost data for
materials direct labor and overhead. Special reports are prepared regarding scarp, parts and
finished goods inventories, pattern of labor hours and similar data applicable to production
activities.

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6. Purchasing. In a narrow sense, purchasing is limited to accounting materials from outside sources.
But while carrying out this activity, it requires to investigate the reliability of vendors, type of
materials needed, coordinating material purchase volume with the requirement as per schedule,
discovering new material and process. The purchasing function serves the other functional areas,
overlap sometimes with inventory control, material inspection, shipping and receiving, sub-
contracting and internal transportation.

B. Functions of production process

Another was to group functions in according to their relative position in a production process. The
sequential arrangement is shown in the following:

Fig 3.8 Functions of Production Process

3.5 TYPES OF PRODUCTION SYSTEM:

The production system of a company mainly uses facilities, equipment and operating methods (called
the production system) to produce goods that satisfy customers’ demand. The above requirements of a
production system depend on the type of product that the company offers and the strategy that it
employs to serve its customers. The classification of production system is explained in the table.
1. Job Shop Production
 Job shop is appropriate for manufacture of small batches of different products. Each of which
is custom designed and requires its own unique set of processing steps or routing through
production process.
 The production system in which different types of product follow different sequences through
different shops. Ex. Furniture manufacturing company, restaurant, prototype industry.
 Much time is spent waiting for access to equipment. Some equipments overloaded.
 A process technology suitable for a variety of custom designed products in some volume.
 This production system adopts process layout. As by this production system, we manufacture
more variety of products at low product volume.

Fig 3.9 Classification of Production Systems

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2. Batch Production
 A process technology suitable for variety of products in varying volumes.
 Here, limited product variety which is fixed for one batch of product. Ex. Bakery shop,
medicine shop.
 Within the wide range of products in the facility, several are demanded repeatedly and in large
volume.
 This type of production system should be preferred when there is wide variety of products in
wide variety of volumes.
3. Assembly Line (Mass) Production
 A process technology suitable for a narrow range of standardized products in high volumes.
 The successive units of output undergo the same sequence of operation using specialized
equipment usually positioned along a production line.
 The product variety is fixed here. Ex. Assembly of television sets, assembly of auto, assembly
of computer keyboard, cold drinks factory etc.
4. Continuous Production
 A process technology suitable for producing a continuous flow of products.
 The product is highly standardized.
 Material and products are produced in continuous, endless flows, rather than in batches or
discrete units.
 Continuous flow of technology affords high volume, around-the-clock operation with capital
intensive, specialized automation.
____________________________________________________________________________________________________

SELF CHECK No. 3-2a

Fill in the Blank
Directions: Fill in the blank with the appropriate answer.

1. ______________includes reviewing the budgets for operating sections, evaluating of proposed

investments for production facilities and preparing balance sheet.
2. ______________is the primary interest of marketing
3. ______________suggest when to eliminate the existing product and introduce a new one
4. ______________ is the stage where the demand is low, because the costumer doesn’t know much
about the product.
5. The arrangement of facilities is made according to the process layout is called ______________
6. The arrangement of facilities is made according to the product layout is called ______________
7. In the business game analogy, the _______________ are collection of cost data for materials direct
labor and overhead.
8. The _________________of the personnel needed to operate the production system are the
traditional responsibilities of the personnel function.
9. Early in this stage, due to acceptability of the product by the costumer, there is drastic jump in
sales and profit rise.
10. A fundamental function of many production system is to produce a ________________.

ACTIVITIES:

General Instructions:

1. Read the directions on every activity carefully with understanding.

2. Answer with the best of your ability and understanding of the concept and/or theories. (Use
separate sheet)
3. For Essays, graphs and diagrams, we will follow the following rubric for rating:
A – Excellent B – Very Good C – Good D – Needs Improvement E – Unacceptable
 Content – Addresses each question and all its parts thoroughly; incorporates relevant
course content into responses; uses specific information from case in response.
 Application / Understanding – Demonstrates deep understanding of course theories and
ideas applied to analysis of situations.
 Original Thinking – demonstrates original thinking that adds insight to analysis of case;
meaningful elaboration beyond text and notes in strategy development
 Structure – Response to each question is well organized, clearly written; there is evidence
of planning before writing
 Grammar and mechanics – response is virtually free of mechanical. Grammatical writing
errors.

1. Identify an area of the store that has the characteristics of each of these processing types: job
shop, batch, repetitive, and continuous.

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2. Compare the layout of a supermarket to the layout of a convenience store. Explain the differences
you observe.

3. Design an assembly line for preparing a chicken sandwich (lettuce, tomato, mayonnaise and
chicken). Use about six workstations. Begin with cutting the bun open, and end with cutting the
sub in half. Estimate the time needed in seconds for each workstation. (Use separate sheet of
paper).

You may now proceed to the next module. 

_____________________________________________________________________________________________

ANSWER KEY No. 3-1a ANSWER KEY No. 3-1b

1. Fixed Position Layout 1. True
2. Product Layout 2. False
3. Plant layout 3. True
4. Manufacturing 4. True
5. Mathematical model 5. False
6. Model
7. Production system
8. Products
9. Production
10. Fixed Position Layout

ANSWER KEY No. 3-2a

1. Internal financing
2. Selling
3. Life cycle
4. Introduction
5. process-focused system
6. product-focused system
7. accounting functions
8. recruitment and training
9. growth
10. physical output

ANSWER KEY No. 3-3a ANSWER KEY No. 3-3b

1. Value-Marketing Strategies 1. False
2. Diversification Strategies 2. True
3. New Product Strategy 3. False
4. Concentric Diversification 4. False
5. Product-Scope Strategy 5. True
6. Product Positioning Strategy
7. Batch Production
8. Product-Design Strategy
9. Job Shop
10. Production System
____________________________________________________________________________________________________

REFERENCES:
1. Production Systems: Planning, Analysis & Control: By — Riggs, J.L. (4th Edition.) John Wiley &
Sons
2. Modern Production/Operation Management: By — Buffa, E.S. & Sarin, =,.K.(8`" Edition.) John
Wiley & Sons.
3. Production & Operations Management: By Panneer Saivem, R. (2'1 Edition.) PHI
4. Production & Operations Management: By Chary, S.N.(TMH)

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