Production & Operations Management

UNIT – I

INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT

INTRODUCTION
Production/operations management is the process, which combines and transforms various
resources used in the production/operations subsystem of the organization into value added
product/services in a controlled manner as per the policies of the organization. Therefore, it is
that part of an organization, which is concerned with the transformation of a range of inputs
into the required (products/services) having the requisite quality level.

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.

CONCEPT OF PRODUCTION
Production function is that part of an organization, which is concerned with the transformation
of a range of inputs into the required outputs (products) having the requisite quality level.

Production is defined as “the step-by-step conversion of one form of material into another form
through chemical or mechanical process to create or enhance the utility of the product to the
user.” Thus production is a value addition process. At each stage of processing, there will be
value addition.

Edwood Buffa defines production as ‘a process by which goods and services are created’.
Some examples of production are: manufacturing custom-made products like, boilers with a
specific capacity, constructing flats, some structural fabrication works for selected customers,
etc., and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc.

Marwadi University
 Production & Operations Management

PRODUCTION SYSTEM
The production system of an organization is that part, which produces products of an
organization.
It is that activity whereby resources, flowing within a defined system, are combined and
transformed in a controlled manner to add value in accordance with the policies communicated
by management.

A simplified production system is shown above.

The production system has the following characteristics:
1. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve system
performance.

PRODUCTION MANAGEMENT
Production management is a process of planning, organizing, directing and controlling the
activities of the production function. It combines and transforms various resources used in the
production subsystem of the organization into value added product in a controlled manner as
per the policies of the organization.

E.S. Buffa defines production management as, “Production management deals with decision
making related to production processes so that the resulting goods or services are produced
according to specifications, in the amount and by the schedule demanded and out of minimum
cost.”

OBJECTIVES OF PRODUCTION MANAGEMENT

The objective of the production management is ‘to produce goods services of right quality
and quantity at the right time and right manufacturing cost’.

1. RIGHT QUALITY
The quality of product is established based upon the customer’s needs. The right quality is not
necessarily best quality. It is determined by the cost of the product and the technical
characteristics as suited to the specific requirements.

2. RIGHT QUANTITY
The manufacturing organization should produce the products in right number. If they are
produced in excess of demand the capital will block up in the form of inventory and if the
quantity is produced in short of demand, leads to shortage of products.

3. RIGHT TIME
Timeliness of delivery is one of the important parameter to judge the effectiveness of
production department. So, the production department has to make the optimal utilization of
input resources to achieve its objective.

Marwadi University
 Production & Operations Management

4. RIGHT MANUFACTURING COST

Manufacturing costs are established before the product is actually manufactured. Hence, all
attempts should be made to produce the products at pre-established cost, so as to reduce the
variation between actual and the standard (pre-established) cost.

OPERATING SYSTEM
Operating system converts inputs in order to provide outputs which are required by a customer.
It converts physical resources into outputs, the function of which is to satisfy customer wants
i.e., to provide some utility for the customer. In some of the organization the product is a
physical good (hotels) while in others it is a service (hospitals). Bus and taxi services, tailors,
hospital and builders are the examples of an operating system.
Everett E. Adam & Ronald J. Ebert define operating system as, “An operating system
(function) of an organization is the part of an organization that produces the organization’s
physical goods and services.”
Ray Wild defines operating system as, “An operating system is a configuration of resources
combined for the provision of goods or services.”
Concept of Operations
An operation is defined in terms of the mission it serves for the organization, technology it
employs and the human and managerial processes it involves. Operations in an organization
can be categorized into manufacturing operations and service operations. Manufacturing
operations is 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.

Distinction between Manufacturing Operations and Service Operations

Following characteristics can be considered for distinguishing manufacturing operations with
service operations:
1. Tangible/Intangible nature of output
2. Consumption of output
3. Nature of work (job)
4. Degree of customer contact
5. Customer participation in conversion
6. Measurement of performance.

Manufacturing is characterized by tangible outputs (products), outputs that customers consume

overtime, jobs that use less labour and more equipment, little customer contact, no customer
participation in the conversion process (in production), and sophisticated methods for
measuring production activities and resource consumption as product are made.

Service is characterized by intangible outputs, outputs that customers consumes immediately,

jobs that use more labour and less equipment, direct consumer contact, frequent customer
participation in the conversion process, and elementary methods for measuring conversion
activities and resource consumption. Some services are equipment based namely rail-road
services, telephone services and some are people based namely tax consultant services, hair
styling.

Marwadi University
 Production & Operations Management

Objectives of Operations Management

Objectives of operations management can be categorized into customer service and resource
utilization.

CUSTOMER SERVICE
The first objective of operating systems is the customer service to 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, primary objective can be satisfied by providing the ‘right thing at a right
price at the right time’.

RESOURCE UTILISATION
Another major objective of operating systems is to utilize resources for the satisfaction of
customer wants effectively, i.e., customer service must be provided with the achievement of
effective operations through efficient use of resources. Inefficient use of resources or
inadequate customer service leads to commercial failure of an operating system.
Operations management is concerned essentially with the utilization of resources, i.e.,
obtaining maximum effect from resources or minimizing their loss, 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 also concerned with the achievement of both satisfactory customer
service and resource utilization. An improvement in one will often give rise to deterioration in
the other. Often both cannot be maximized, and hence a satisfactory performance must be
achieved on both objectives. All the activities of operations management must be tackled with
these two objectives in mind, and many of the problems will be faced by operations managers
because of this conflict. Hence, operations managers must attempt to balance these basic
objectives.

SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT

Production and operations management concern with the conversion of inputs into outputs,
using physical resources, so as to provide the desired utilities to the customer while meeting
the other organizational objectives of effectiveness, efficiency and adoptability. It distinguishes
itself from other functions such as personnel, marketing, finance, etc., by its primary concern
for ‘conversion by using physical resources.’ Following are the activities which are listed under
production and operations management functions:
1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

Marwadi University
 Production & Operations Management

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’s. 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.

PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration of
departments, work centres and equipment in the conversion process. The overall objective of
the plant layout is to design a physical arrangement that meets the required output quality and
quantity most economically.
According to James Moore, “Plant layout is a plan of an optimum arrangement of facilities
including personnel, operating equipment, storage space, material handling equipments and
all other supporting services along with the design of best structure to contain all these
facilities”.
‘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.

Marwadi University
 Production & Operations Management

Material handling devices increases the output, improves quality, speeds up the deliveries and
decreases the cost of production. Hence, material handling is a prime consideration in the
designing new plant and several existing plants.

PRODUCT DESIGN
Product design deals with conversion of ideas into reality. Every business 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: marketing, product development, and manufacturing. Product development
translates the needs of customers given by marketing into technical specifications and
designing the various features into the product to these specifications. Manufacturing has the
responsibility of selecting the processes by which the product can be manufactured. Product
design and development provides link between marketing, customer needs and expectations
and the activities required to manufacture the product.

PROCESS DESIGN
Process design is a macroscopic decision-making of an overall process route for converting the
raw material into finished goods. These decisions encompass the selection of a process, choice
of technology, process flow analysis and layout of the facilities. Hence, the important decisions
in process design are to analyse the workflow for converting raw material into finished product
and to select the workstation for each included in the workflow.

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
includes planning, routing, scheduling, dispatching and follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who 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.
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 from department to department and machine to machine till
raw material gets its final shape.
Scheduling determines the programme for the operations. Scheduling may be defined as ‘the
fixation of time and date for each operation’ as well as it determines the sequence of operations
to be followed.
Dispatching is concerned with the starting the processes. It gives necessary authority so as to
start a particular work, which has already been planned under ‘Routing’ and ‘Scheduling’.
Therefore, dispatching is ‘release of orders and instruction for the starting of production for
any item in acceptance with the route sheet and schedule charts’.
The function of follow-up is to report daily the progress of work in each shop in a prescribed
proforma and to investigate the causes of deviations from the planned performance.

Marwadi University
 Production & Operations Management

QUALITY CONTROL

Quality Control (QC) may be defined as ‘a system that is used to maintain a desired level of
quality in a product or service’. It is a systematic control of various factors that affect the quality
of the product. Quality control aims at prevention of defects at the source, relies on effective
feedback system and corrective action procedure.
Quality control can also be defined as ‘that industrial management technique by means of
which product of uniform acceptable quality is manufactured’. It is the entire collection of
activities which ensures that the operation will produce the optimum quality products at
minimum cost.

The main objectives of quality control are:

 To improve the companies income by making the production more acceptable to the
customers i.e., by providing long life, greater usefulness, maintainability, etc.
 To reduce companies cost through reduction of losses due to defects.
 To achieve interchangeability of manufacture in large scale production.
 To produce optimal quality at reduced price.
 To ensure satisfaction of customers with productions or services or high quality level,
to build customer goodwill, confidence and reputation of manufacturer.
 To make inspection prompt to ensure quality control.
 To check the variation during manufacturing.

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 materials management are:

 To minimise material cost.
 To purchase, receive, transport and store materials efficiently and to reduce the related
cost.
 To cut down costs through simplification, standardisation, value analysis, import
substitution, etc.
 To trace new sources of supply and to develop cordial relations with them in order to
ensure continuous supply at reasonable rates.
 To reduce investment tied in the inventories for use in other productive purposes and
to develop high inventory turnover ratios.

MAINTENANCE 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:

 To achieve minimum breakdown and to keep the plant in good working condition at
the lowest possible cost.
 To keep the machines and other facilities in such a condition that permits them to be
used at their optimal capacity without interruption.

Marwadi University
 Production & Operations Management

 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.

Classification of Production System

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

JOB SHOP PRODUCTION

Job shop production are characterized by manufacturing of one or few quantity of products
designed and produced as per the specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of products.

A job shop comprises of general purpose machines arranged into different departments. Each
job demands unique technological requirements, demands processing on machines in a
certain sequence.

Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities
for each work centre and order priorities.

Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for creative methods and innovative ideas.

Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.

Marwadi University
 Production & Operations Management

4. Larger space requirements.

BATCH PRODUCTION
Batch production is defined by American Production and Inventory Control Society (APICS)
“as a form of manufacturing in which the job passes through the functional departments in lots
or batches and each lot may have a different routing.” It is characterized by the manufacture
of limited number of products produced at regular intervals and stocked awaiting sales.

Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and change
of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.

Advantages
Following are the advantages of batch production:
1. Better utilization of plant and machinery.
2. Promotes functional specialization.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.

Limitations
Following are the limitations of batch production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.

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

Characteristics
Mass production is used under the following circumstances:
1. Standardization of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.

Marwadi University
 Production & Operations Management

Advantages
Following are the advantages of mass production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilization due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.

Limitations
Following are the limitations of mass production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.

CONTINUOUS PRODUCTION
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. The items are made to flow through the sequence of
operations through material handling devices such as conveyors, transfer devices, etc.

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

Advantages
Following are the advantages of continuous production:
1. Standardization of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilization due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.

Limitations
Following are the limitations of continuous production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.

Marwadi University