Republic of the Philippines

CAMARINES NORTE STATE COLLEGE

F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

1
LESSON

Introduction to Production and Operations Management

Objectives
 Discuss production and operations management its scope, concept, system and classification
 Determine production management objectives and concept
 Analyze the advantage of feedback in the production process

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.

In simpler terms, Operations Management is the process of converting inputs into desired outputs.
More specifically, it is the management of the conversion of land, labor, capital, technology and management
inputs into desired outputs of goods or services.

HISTORICAL DEVELOPMENT OF OPERATIONS MANAGEMENT

Operations Management has been playing a vital role for over two centuries for the economic
development of a country. The term Operations Management progressed through a series of names:
manufacturing management, production management, production and operations management, and
operations management. All these different names describe the same general discipline. The traditional view
of manufacturing management began in the eighteenth century when Adam Smith recognized the economic
benefits of specialization of labor. For higher skill and efficiency, he recommended breaking down of jobs into
subtasks and reassigning workers to specialized tasks. In late eighteenth century, Eli Whitney and others
highlighted interchangeable parts and cost accounting. In nineteenth century, Charles Babbage came up with
division of labor by skill, assigning of jobs skills and basics of time study. In the early twentieth century,
Frederick W. Taylor implemented Smith’s theories and voiced for scientific management throughout the vast
manufacturing complex of his day. From then until about 1930, the traditional view prevailed. During this time
many techniques developed that we still use today.

From 1930s to 1950s, production management becomes the more widely accepted term. As Frederick
Taylor’s work became more widely known, managers developed techniques that focused on economic
efficiency of manufacturing. Workers were carefully scrutinized and studied in great details to eliminate
wasteful efforts and achieve greater efficiency. At the same time, however, management also began
discovering that workers have multiple needs, not just economic needs. Psychologists, sociologists and other

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social scientists began to study human behavior in the work environment. In addition, economists,
mathematicians, and computer scientists contributed newer, more sophisticated analytical approaches.

During 1970s, two distinct views emerged. The first view was reflected in the new name operations
management. At that time, there was a shift in the service and manufacturing sectors of the economy. As the
service sector became more prominent, the change from production to operations emphasized the
broadening of the field to service organizations. The second view was an emphasis on synthesis in
management practices, rather than just analysis. Previously, managers emphasized more on the analytical
aspects of management practices. Accordingly, they were preoccupied with an intense analytical orientation
and emphasis on marketing and finance. But the result was a failure to integrate operations activities
coherently into the highest levels of policy and strategy. The synthesis approach changed their perspective
and the managers began to focus on how they could combine the various elements of management practices
in the most effective and efficient way to obtain the best result. Because of these new approaches, today the
operations function is experiencing a renewed role as a vital strategic element. Consequently, organizations’
goals are better focused to meet consumer's needs throughout the globe.

YEAR CONTRIBUTION CONTRIBUTOR

1776 Specialization of labor in manufacturing Adam Smith
1799 Interchangeable parts, cost accounting Eli Whitney & others
1832 Division of labor by skill; assignment of jobs by skill; Charles Babbage
basics of time study
1900 Scientific management; time study and work study, Frederick W. Taylor
dividing, planning and doing of work
1900 Motion study of jobs Frank B. Gilbreth
1901 Scheduling techniques for employees, machines, Henry L. Gantt
jobs in manufacturing
1915 Economic lot sizes for inventory control F. W. Harris
1927 Human relations; the Hawthorne studies Elton Mayo
1931 Statistical inference applied to product quality; Walter A. Shewart
quality control charts
1935 Statistical sampling applied to quality control; H.F. Dodge & H.G. Romig
inspection sampling plans
1940 Operations research applications in World War II P.M.S. Blacket & others
1946 Digital computer John Mauchly & J.P.
Eckert
1947 Linear programming George B. Dantzig,
William Orchard-Hays, &
others
1950 Mathematical programming, nonlinear and A. Charnes, W.W.
stochastic processes Cooper, H. Raiffa &
others
1951 Commercial digital computer; large-scale Sperry Univac
computations available
1960 Organizational behavior; continued study of people L. Cummings, L. Porter &
at work others
1970 Integrating operations into overall strategy and W. Skinner
policy
1970 Computer applications to manufacturing, J. Orlicky & O. Wright
scheduling, and control, material requirements
planning (MRP)
1980 Quality and productivity applications from Japan; W.E. Deming & J. Juran
robotics, computer-aided design and
manufacturing (CAD/CAM)
1990 Time based competition and information highway Numerous

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 THE CONCEPT OF PRODUCT: GOODS & SERVICES

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.

Characteristics of Goods Characteristics of Services

1. Tangible product 1. Intangible product
2. Consistent product definition 2. Inconsistent product definition
3. Production usually separate from 3. Produced & consumed at same time
consumption
4. Can be inventoried 4. Cannot be inventoried
5. Low customer interaction 5. High customer interaction

Distinction between Manufacturing Operations and Service Operations

Manufacturing is characterized by tangible outputs (products), outputs that customers consume overtime,
jobs that use less labor 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 labor 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.

A FRAMEWORK FOR MANAGING OPERATIONS

Operation managers are concerned with planning, organizing, and controlling the activities which affect
human behavior through models.

PLANNING
Activities that establishes a course of action and guide future decision-making is planning. 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
operations in the organization’s overall strategy. It also involves product planning, facility designing and
using the conversion process.
ORGANIZING
Activities that establishes a structure of tasks and authority. 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.
CONTROLLING
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.

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 BEHAVIOR
Operation managers are concerned with how their efforts to plan, organize, and control affect human
behavior. They also want to know how the behavior of subordinates can affect management’s planning,
organizing, and controlling actions. Their interest lies in decision-making behavior.
MODELS
As operation managers plan, organize, and control the conversion process, they encounter many
problems and must make many decisions. They can simplify their difficulties using models like aggregate
planning models for examining how best to use existing capacity in short-term, break even analysis to
identify break even volumes, 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.

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.

Production Process

Now let us take a look at this operation process in more details. As we have said production is the
process of converting the resources available to an organization into products. In some organization
production or manufacturing of goods and the creation of a service go hand in hand. Consider for example a
fast food restaurant where various food items are converted into consumable products but where the speed
and quality of service are also crucial factors for a successful operation. The collection of all interrelated
activities and operations involved in producing goods and services is called a production system. This
illustrates that any production system consists of five principal components: input, transformation, output,
getting feedback and generating managerial control.

 Inputs of a production system consist of the resources that are transformed into the desired outputs
(goods and services), as well as the resources needed to support the overall production process. In
manufacturing, for example, the inputs consist of the raw materials and or the purchased parts that are
transformed into finished goods as outputs. These inputs might be crude oil to convert into petrol, auto
parts to assemble into a car, or fabrics to make dresses. In addition to such material inputs, machines and
material handling.

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  Transformation processes in production typically change the shape of raw materials or change the
composition or form of the material. For example, grains are converted into food products and different
parts are combined to make an automobile. Larger manufacturing systems usually employ several
different transformation processes. In service organizations, transformation does not take place; rather
the service is created. This creation process may consist of making the service available at specific times
and locations—for example, a branch bank with a 24-hour automatic teller that is built in a shopping mall.
In other service organizations, such as hospital, it is the skill and expertise of the staff that create
satisfaction. The extent to which customers participate in the conversion process is very important to
understand.

In service operations, managers sometimes find it useful to distinguish between output and throughput
types of customer participation. Output is a generated service; throughput is an item going through the
process.

 Feedback is the process of monitoring the outputs of a production system and using this information to
control the production process. Effective feedback requires useful performance measures and enables an
organization to improve the goods and services that it offers and better meet the demands of the
marketplace. For example, manufacturers need to determine if finished products contain any defects. If so,
then it must be determined whether the problem is a result of bad materials, poor workmanship or
something else.

Feedback is also an important issue for service operations. For instance, a travel agent often calls a client
after his or her vacation to see if the travel arrangements were satisfactory. In case of a bad report from
the client, the agent can easily understand that if this goes on, he might lose valuable customers in the
future. In larger organizations, feedback provides means for top managers to determine how well their
goals are being met at lower levels. While plans and decisions are fed downward, feedback on
performance flows upwards, thus providing a link between hierarchical levels.

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.

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.

Classification of Production System

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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.
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.
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.
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.

CLASSIFICATION CHARACTERISTICS ADVANTAGES LIMITATIONS:

Job Shop  High variety of products and  Because of general  Higher cost due to
Production low volume. purpose machines and frequent set up
 Use of general purpose facilities variety of changes.
machines and facilities. products can be  Higher level of
 Highly skilled operators who produced. inventory at all levels
can take up each job as a  Operators will become and hence higher
challenge because of more skilled and inventory cost.
uniqueness. competent, as each job  Production planning is
 Large inventory of materials, gives them learning complicated.
tools, parts. opportunities.  Larger space
 Detailed planning is  Full potential of requirements.
essential for sequencing the operators can be
requirements of each utilized.
product, capacities for each  Opportunity exists for
work center and order creative methods and
priorities. innovative ideas.
Batch  When there are shorter  Better utilization of  Material handling is
Production production runs. plant and machinery. complex because of
 When plant and machinery  Promotes functional irregular and longer
are flexible. specialization. flows.
 When plant and machinery  Cost per unit is lower as  Production planning
set up is used for the compared to job order and control is complex.
production of item in a production.  Work in process
batch and change of set up  Lower investment in inventory is higher
is required for processing plant and machinery. compared to
the next batch.  Flexibility to continuous production.
 When manufacturing lead accommodate and  Higher set up costs due
time and cost are lower as process number of to frequent changes in
compared to job order products. set up.
production.  Job satisfaction exists
for operators.
Mass  Standardization of product  Higher rate of  Breakdown of one
Production and process sequence. production with machine will stop an
 Dedicated special purpose reduced cycle time. entire production line.

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 machines having higher  Higher capacity  Line layout needs
production capacities and utilization due to line major change with the
output rates. balancing. changes in the product
 Large volume of products.  Less skilled operators design.
 Shorter cycle time of are required.  High investment in
production.  Low process inventory. production facilities.
 Lower in process inventory.  Manufacturing cost per  The cycle time is
 Perfectly balanced unit is low. determined by the
production lines. slowest operation.
 Flow of materials,
components and parts is
continuous and without any
back tracking.
 Production planning and
control is easy.
 Material handling can be
completely automatic.
Continuous  Dedicated plant and  Standardization of  Flexibility to
Production equipment with zero product and process accommodate and
flexibility. sequence. process number of
 Material handling is fully  Higher rate of products does not
automated. production with exist.
 Process follows a reduced cycle time.  Very high investment
predetermined sequence of  Higher capacity for setting flow lines.
operations. utilization due to line  Product differentiation
 Component materials balancing. is limited.
cannot be readily identified  Manpower is not
with final product. required for material
 Planning and scheduling is a handling as it is
routine action. completely automatic.
 Person with limited
skills can be used on the
production line.
 Unit cost is lower due to
high volume of
production.

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’.
 Right Quality
The quality of product is established based upon the customers’ 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.
 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.
 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.
 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.

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