Chapter 1

Production and Operations Management (POM)

Introduction
Production is the process by which, raw materials and other inputs are converted into finished
goods
Operations refers to Activities used to create (deliver) goods or provide service to customers

Production and operations management (POM) is the management of an organization’s

production system.

Definition of POM
Production and Operations Management ("POM") is about the transformation of production and
operational inputs into "outputs" that, when distributed, meet the needs of customers.

“Production management deals with decision making related to production process so that the
resulting goods or services are produced according to specifications, in amounts and by the
schedules demanded and at a minimum cost”.- E.S Buffa

“Production management is the process of planning and regulating the operations of that part of
an enterprise which is responsible for actual transformation of materials into finished goods”-
A.W.Field

What is Operations Management?

Operations management (OM) is defined as the design, operation, and improvement of the
systems that create and deliver the firm’s primary products and services.
 Nature of POM

1. Production as a System:

Production System

Conversion
Input Output
Subsystem

Control
Subsystem

Inputs of a Production System

• External
– Legal, Economic, Social, Technological
• Market
– Competition, Customer Desires, Product Info.
• Primary Resources
– Materials, Personnel, Capital, Utilities

Conversion Subsystem
• Physical (Manufacturing)
• Location Services (Transportation)
• Exchange Services (Retailing)
• Storage Services (Warehousing)
Outputs of a Production System
 – Products
– Services

2. Production as an Organization Function:

We focus on POM as we think of global competitiveness, because that is where the vast majority
of a firm’s workers, capital assets, and expenses reside.
To succeed, a firm must have a strong operations function teaming with the other organization
functions.It may be stated that every organisation,irrespective of its purpose has a production
function where departments and personnel play a central role in achieving the objectives of the
organization.

3. Decision Making in POM

POM managers make a series of decisions in the production function.They
plan,organise,staff,direct and control all the activities in the process of converting all the inputs
into finished products.At each level,thay are expected to make decisions and implement them
too.Some of the decisions they make are categorised as below:

a) Strategic Decisions
These decisions are of strategic importance and have long-term significance for the organization.
These involve Decisions about products, processes and facilities.
Examples:
The design for a new product’s production process
Deciding what new facilities are needed and where to locate them
Whether to launch a new-product development plan

b) Operating Decisions
These decisions are relate to the ongoing production of goods and services are to satisfy market
demands and provide profits.

Examples:
 How much finished-goods inventory to carry for each product
How many temporary employees to hire next week
The amount of overtime to use next week
The details for purchasing raw material next month

c) Control Decisions
These decisions concern the day-to-day activities of workers, quality of products and services,
production and overhead costs, and machine maintenance.
Examples:
Labor cost standards for a new product
Department’s failure to meet the planned labor cost target

What Controls the Operations System? [Control Sub system]

Information about the outputs, the conversions, and the inputs is fed back to management by the
control subsystem.This information is matched with management’s expectations. If and when
there is a difference, management must take corrective action to maintain control of the system

Types of Production Systems

Batch production is the manufacture of number of identical products either to meet the specific
order or to satisfy the demand. When the Production of plant and equipment is terminated, the
plant and equipment can be used for producing similar products.Batch production is common in
bakeries and in the manufacture of sports shoes, pharmaceutical ingredients ,inks, paints and
adhesives.

Continuous production is a method used to manufacture, produce, or process materials without

interruption. Continuous Production system is the specialized manufacture of identical products
on which the machinery and equipment is fully engaged. The continuous production is normally
associated with large quantities and with high rate of demand This process is followed in most
oil and gas industries and petrochemical plant and in other industries.
Unit Production is the manufacturing techinque of creating a set of or a single unit of a product
as per the said demand or against an order.This type of production is seen in Automobile
industries and also in the manufacture of custom made goods.

5 P’s of POM

1. PRODUCT

Marketers in a business must ensure that a business sells products that meet customer needs and
wants. The role of Production and Operations is to ensure that the business actually makes the
required products in accordance with the plan.The role of PRODUCT in POM therefore concerns
areas such as:
-Performance
-Aesthetics
-Quality
-Reliability
-Quantity
-Production Costs
-Delivery dates

2. PLANT

To make PRODUCT, PLANT of some kind is needed. This will comprise the bulk of the fixed
assets of the business. In determining which PLANT to use, management must consider areas
such as:

-Future demand (volume, timing)

-Design and layout of factory, equipment, offices
-Productivity and reliability of equipment
-Need for (and costs of) maintenance
-Heath and safety (particularly the operation of equipment)
-Environmental issues (e.g. creation of waste products)

3. PROCESSES

There are many different ways of producing a product. Management must choose the best
process, or series of processes. They will have to consider:

-Available capacity
-Available skills
-Type of production
-Layout of plant and equipment
-Safety
-Production costs
- Maintenance requirements

4. PROGRAMMES

The production PROGRAMME concerns the dates and times of the products that are to be
produced and supplied to customers. The decisions made about programme will be influenced by
factors such as:

-Purchasing patterns (e.g. lead time)

-Cash flow
-Need for / availability of storage
- Transportation

5. PEOPLE

Production depends on PEOPLE, whose skills, experience and motivation vary. Key people-
related decisions will consider the following areas:

-Wages and salaries

-Safety and training
-Work conditions
-Leadership and motivation
-Communication

Scope of POM

The scope of POM is indeed vast. The various activities that form scope of production function
can be studied in the following broad areas:-

i. Product selection and design: the product mix marks the production system either
efficient or inefficient. Choosing the right products keeping the mission and overall
objective of the organization in mind is the key to success. It is the design of the product,
which makes the organization competitive or noncompetitive.

ii. Activities relating to production system designing: decision related to the production
system design is one of the most important activities of the production management. This
activity is related to production engineering and includes problems regarding design of
tools and jigs, the design, development and installation of equipment and the selection of
the optimum size of the firm. All these areas require the technical expertise on the part of
the production manager and his staff.

iii. Facilities location: the selection of an optimum plant location very much depends upon
the decision taken regarding production engineering. Location should as far as possible
cut down the production and distribution cost.

iv. Method study: the next decision regarding production system design concerns the use of
those techniques, which are concerned with work environment and work measurement.
Standard method should be devised for performing the repetitive functions efficiently.
Unnecessary movements should be eliminated and suitable positioning of the workers for
different processes should be developed. Such methods should be devised with the help
of time study and motion study. The workers should be trained accordingly.
 v. Facilities layout and materials handling: plant layout deals with the arrangements of
machines and plant facilities. The machine should be so arranged that the flow of
production remains smooth. The departments are layout in such a way that the cost of
material handling is reduced. There should be proper choice of material handling
equipment.

vi. Capacity planning: This deals with the procurement of productive resources. Capacity
refers to a level of output of the conversion process over a period of time. Full capacity
indicates maximum level of output. Capacity is planned for short-term as well as for long
term.
vii. Production planning: the decision in production planning include preparation of short-
term production schedules, plan for maintaining the records of raw materials, finished
and semi-finished stock, specifying how the production resources of the concern are to be
employed over some future time in response to the predicted demand for products and
services
viii. Production control: after planning, the next managerial production function is to control
the production according to the production plans because production plans cannot be
activated unless they are properly guided and controlled.

ix. Inventory Control: inventory control deals with the control over raw-materials, work-in-
progress, finished products, stores, supplies, tools, and so is included in production
management. The raw materials, supplies etc should be purchased at right time, right
quality, in right quantity, from right source and at right price.
 OBJECTIVES OF POM

I) The performance objectives may include the following:-

a) Efficiency or productivity expressed as output per unit of input.
b) Effectiveness: It concerns expressed whether a right set of outputs is being produced.
Where efficiency may refer to “doing things right”, effectiveness may mean “doing the
right things”.
c) Quality: Quality is the extent to which a product or service satisfies the customer needs.
The output has to conform to quality specifications laid down before it can be accepted
d) Lead times: Manufacturing lead-time or throughput time is the time elapsed in the conversion
process? Minimization of idle time, delays, waiting etc. will reduce
throughput time.
e) Capacity utilization: Percentage utilization of manpower, machines etc. is calculated in
order to enhance overall capacity utilization.
f) Flexibility: If the conversion process has the flexibility of producing a combination of
outputs, it is possible to satisfy a variety of customer needs.

II) Cost objectives

Attaining high degree of customer satisfaction on performance front must be coupled with lower
cost of producing the goods or rendering a service. Thus cost minimization is an important
systems objective. Costs can be explicit or implicit. While managing production systems we
must consider the visible and invisible, tangible and intangible costs some examples of these
costs are:

a) Explicit costs:
 Material cost
 Direct and Indirect labour cost
 Scrap/rework cost
 Maintenance cost
 b) Implicit costs:
 Cost of carrying inventory
 Cost of stock outs, storage, back-logging, lost sales
 Cost of delayed deliveries
 Cost of material handling
 Cost of inspection
 Cost of grievances, dissatisfaction
 Down time cost
 Opportunity cost

Characteristics of POM
1) Manufacturing as Competitive advantage/ Reality of global Competition
2) Services Orientation
3) Small has become beautiful
4) Quality, Customer Service, and Cost Challenges
5) Rapid expansion of advanced technologies
6) Disappearance of Smokestacks [Issues of Social Responsibility- Customer attitudes,
Government regulation, Self-interests]

Need to Study POM

 Helps to understand and appreciate the role played by people in producing goods &
services
 To get a Clear picture about factory
 Helps in selecting a Career
 Helps to understand how important it is to the nation
 It has strategic use to executives.
 Historical Milestones in POM

1.The Industrial Revolution

The Industrial revolution developed in England in the 1700s.Adam Smith’s The Wealth of
Nations in 1776 touted the economic benefits of the specialization of labor that broke production
of goods into small specialized tasks.Thus the late-1700s factories had not only machine power
but also ways of planning and controlling the tasks of workers.
The Industrial revolution spread from England to other European countries and to the United
Sates.In the 1800s the development of the gasoline engine and electricity further advanced the
revolution.By the mid-1800s, the old cottage system of production had been replaced by the
factory system.

2.Scientific Management
The Essential principles of scientific management are:-
 Developing a science for each element of a person’s work, which would replace the old
rule-of thumb's method.
 Selecting workers scientifically and training and developing them.
 Cooperating with the workers to ensure that work is done according to the principles of
science that have been developed.
 Dividing work and responsibility almost equally between management and workers.

Frederick Taylor is known as the father of scientific management. His shop system employed
these steps:
 Each worker’s skill, strength, and learning ability were determined.
 Stopwatch studies were conducted to precisely set standard output per worker on
each task.
 Material specifications, work methods, and routing sequences were used to
organize the shop.
 Supervisors were carefully selected and trained.
 Incentive pay systems were initiated.
3. Human Relations and Behavioralism
In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were
affecting production.Researchers and managers alike were recognizing that psychological and
sociological factors affected production.From the work of behavioralists came a gradual change
in the way managers thought about and treated workers.

4.Operations Research
During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had
to be deployed.Military operations research (OR) teams were formed to deal with the complexity
of the deployment. Once the war was over,the applicability of OR to problems in the industry
gradually became apparentwhen OR specialists were called in to help the management come up
with answers to problems relating to Transportaion and communication complexities.
OR helps operations managers make decisions when problems are complex and wrong decisions
are costly.

5.The Service Revolution

The creation of services organizations accelerated sharply after World War II.
Today, more than two-thirds of the Workforce is employed in services.There is a huge trade
surplus in services.Investment per office worker now exceeds the investment per factory
worker.Thus there is a growing need for service operations management.
Characteristics Of Systems To Produce Products Versus Systems To Produce Services

PRODUCTS SERVICES

Tangible Intangible and perishable; consumed in the

process of their production

Can be produced to inventory for-off the-shelf” Availability achieved by keeping the

availability productive system open for services

Minimal contact with ultimate consumer High contact with clients or customers

Complex and interrelated processing Simple processing

Demand on productive systems variable on Demand commonly variable on hourly,

weekly, monthly, and seasonal basis daily and weekly bases

Markets served by productive system are Markets served by productive system are
regional, national and international usually local

Large units that can take advantage of Relatively small units to serve local
economies of scale markets

Location of system is in relation to regional, Location dependent on location of local

national and international markets customers, clients and users