Don Honorio Ventura State University

MODULE 2

Concepts of Production Management and Operations Management

INTRODUCTION

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

OBJECTIVES

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

1. Understand the concept of production managements and operations management.

2. Differentiate the classifications of production systems.
3. Understand the different scope of operations management.
1. CONCEPT OF PRODUCTION
1.1.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 system is shown above.
The production system has the following characteristics:
 Production is an organized activity, so every production system has an objective.
 The system transforms the various inputs to useful outputs.
 It does not operate in isolation from the other organization system.
 There exists a feedback about the activities, which is essential to control and improve
system performance.
1.1.1. Classification of Production Systems
Production systems can be classified as Job-Shop, Batch, Mass and Continuous
Production systems.
Figure 2.1 Production Systems

Production/
Operations
Continuous
Volume Production Mass Production

Batch
Production
Job-Shop
Production

CBME 11- Operations

Output/Product Variety Management with TQM Page | 11
 Don Honorio Ventura State University

1.1.1.1.Job Shop Production

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

products designed and produced as per the specification of customers within prefixed time
and cost. The distinguishing feature of this is low volume and high variety of products.
A job-shop compromises of general purpose machines arranged into different
departments. Each job demands unique technological requirements, demands processing on
machines in a certain sequence.

Characteristics
a. High variety of products and low volume.
b. Use of general purpose machines and facilities.
c. Highly skilled operators who can take up each job as a challenge because of uniqueness.
d. Large inventory of materials, tools, parts.
e. Detailed planning is essential for sequencing the requirements of each product,
capacities for each work centre and order priorities.
Advantages

a. Because of general purpose machines and facilities variety of products can be

produced.
b. Operators will become more skilled and competent, as each job gives them learning
opportunities.
c. Full potential of operators can be utilized.
d. Opportunity exists for creative method and innovative ideas.

Limitations
a. Higher cost due to frequent set up changes.
b. Higher level of inventory at all levels and hence higher inventory cost.
c. Production planning is complicated.
d. Large space requirement.

1.1.1.2.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.

CBME 11- Operations Management with TQM Page | 12

 Don Honorio Ventura State University

Characteristics
a. When there is shorter production runs.
b. When plant and machinery are flexible.
c. 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.
d. When manufacturing lead time and cost are lower as compared to job order production.

Advantages
a. Better utilization of plant and machinery.
b. Promotes functional specialization.
c. Cost per unit is lower as compared to job order production.
d. Lower investment in plant and machinery.
e. Flexibility to accommodate and process number of products.
f. Job satisfaction exists for operators.
Limitations
a. Material handling is complex because of irregular and longer flows.
b. Production planning and control is complex.
c. Work in process inventory is higher compared to continuous production.
d. Higher set up costs due to frequent changes in set up.

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

Characteristics
a. Standardization of product and process sequence.
b. Dedicated special purpose machines having higher production capacities and output
rates.
c. Large volume of products.
d. Shorter cycle time of production.
e. Lower in process inventory.
f. Perfectly balanced production lines.
g. Flow of materials, components and parts is continuous and without any back tracking.
h. Production planning and control is easy.
i. Material handling can be completely automatic.
Advantages
a. Higher rate of production with reduced cycle time.

CBME 11- Operations Management with TQM Page | 13

 Don Honorio Ventura State University

b. Higher capacity utilization due to line balancing.

c. Less skilled operators are required.
d. Low process inventory.
e. Manufacturing cost per unit is low.

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

1.1.1.4.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
a. Dedicated plant and equipment with zero flexibility.
b. Material handling is fully automated.
c. Process follows a predetermined sequence of operations.
d. Components material cannot be readily identified with final product.
e. Planning and scheduling is a routine action.

Advantages
a. Standardization of product and process sequence.
b. Higher rate of production with reduced cycle time.
c. Higher capacity utilization due to line balancing.
d. Manpower is not required for material handling as it is completely automatic.
e. Person with limited skills can be used on production line.
f. Unit cost is lower due to high volume production.

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

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

CBME 11- Operations Management with TQM Page | 14

 Don Honorio Ventura State University

Production is defined as:

 The “step-by-step” conversion of one form or material into another form through chemical
or mechanical process to create or enhance the utility of the product to the user.
 Production is a value addition process. At each stage of processing, there will be value
addition.
 A process by which goods and services are created.
Examples of production:
 Manufacturing Custom-Made Products (boilers with a specific capacity, constructing
flats, some structural fabrication works for selected customers, etc.)
 Manufacturing Standardized Products (car, bus, motor cycle, radio, television etc.)
Figure 2.1 Schematic Production System

Inputs: Transformation Process: Outputs:

 Men  Product Design  Products
 Materials  Process Planning  Services
 Machines  Production Control
 Information  Maintenance

Continuous:
 Inventory
Environment Feedback Information
 Quality
 Cost
2. CONCEPTS 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.

2.1.Operating System

Operating system converts inputs in order to provide outputs which are required by a
customer. It converts physical resources into outputs, the function of which is to satisfy
customer wants i.e., to provide some utility for the customer. In some of the organization the
product is a physical good (hotels) while in others it is a service (hospital). Bus and taxi services,
tailors, hospital and builders are the example of an operating system. An Operating system
function of an organization is the part of organization that produces the organization’s physical
goods and services. An Operating system is a configuration of resources combined for the
provision of goods and services.
2.2.Difference Between Manufacturing Operations and Service Operations
Manufacturing operations and service operations are often different in terms of what is
done but quite similar in terms of how it is done. Consider these points of comparison:

CBME 11- Operations Management with TQM Page | 15

 Don Honorio Ventura State University

a. Degree of customer contact. Many services involve a high degree of customer contact,
although services such as Internet providers, utilities, and mail service do not. When there
is a high degree of contact, the interaction between server and customer becomes a
“moment of truth” that will be judged by the customer every time the service occurs.
b. Labor content of jobs. Services often have a higher degree of labor content than
manufacturing jobs do, although automated services are an exception. Uniformity of
inputs. Service operations are often subject to a higher degree of variability of inputs.
Each client, patient, customer, repair job, and so on presents a somewhat unique situation
that requires assessment and flexibility. Conversely, manufacturing operations often
have a greater ability to control the variability of inputs, which leads to more-uniform
job requirements. Measurement of productivity.
c. Measurement of productivity can be more difficult for service jobs due largely to the
high variations of inputs. Thus, one doctor might have a higher level of routine cases to
deal with, while another might have more-difficult cases. Unless a careful analysis is
conducted, it may appear that the doctor with the difficult cases has a much lower
productivity than the one with the routine cases.
d. Quality assurance. Quality assurance is usually more challenging for services due to
the higher variation in input, and because delivery and consumption occur at the same
time. Unlike manufacturing, which typically occurs away from the customer and allows
mistakes that are identified to be corrected, services have less opportunity to avoid
exposing the customer to mistakes.
e. Inventory. Many services tend to involve less use of inventory than manufacturing
operations, so the costs of having inventory on hand are lower than they are for
manufacturing. However, unlike manufactured goods, services cannot be stored.
Instead, they must be provided “on demand.”
f. Wages. Manufacturing jobs are often well paid, and have less wage variation than
service jobs, which can range from highly paid professional services to minimum-wage
workers.
g. Ability to patent. Product designs are often easier to patent than service designs, and
some services cannot be patented, making them easier for competitors to copy.

2.3.Operation Functions

Managing operations can be closed in a frame of general management function. Operations

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

CBME 11- Operations Management with TQM Page | 16

 Don Honorio Ventura State University

Planning
Planning Conversion System
 Operations strategies
 Forecasting
 Product and process choices Organizing
 Operations capacity Organizing for Conversion
 Facility location planning  Job design,
 Layout planning
production/operations
Scheduling Conversion System
 Project management
 Scheduling system and
aggregate planning
 Operations scheduling

Conversion Process

Models Behaviour

Controlling
Material Control
 Inventory control
 Material requirement
planning
Managing for World-class
Competition
 Managing for quality
 Quality analysis and control

Figure 2.3 General Model of Operations Management

a. Planning - Activities that establishes a course of action and guide future decision-making
is planning. The operations manager defines the objectives for the operations subsystems
of the organization, and the policies, and procedures for achieving the objectives. This
stage includes clarifying the role and focus of operations in the organization’s overall

CBME 11- Operations Management with TQM Page | 17

 Don Honorio Ventura State University

strategy. It also involves product planning, facility designing and using the conversion
process.
b. Organizing – Activities that establishes a structure of tasks and authority. Operations
managers establish a structure of roles and the flow of information within the operations
subsystem. They determine the activities required to achieve the goals and assign authority
and responsibility for carrying them out.
c. Controlling – Activities that assure the actual performance in accordance with planned
performance. To ensure that the plans for the operations subsystems are accomplished, the
operation manager must exercise control by measuring actual outputs and comparing them
to planned operations management. Controlling costs, quality, and schedules are the
important functions here.

3. Scope of Production and Operations Management

Following are the activities which are listed under production and operations management
functions:

Location
Of
Maintenance Facilities
Plant Layout &
Management Material
Handling

Production/
Material Product
Operations
Management Design
Management

Quality Process
Control Design
Production
Planning and
Control

Figure 2.4 Scope of POM

CBME 11- Operations Management with TQM Page | 18

 Don Honorio Ventura State University

3.1.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 question such
as ‘where our main operations should be based?’
The selection of location is a key-decision as large investment is made in building plant
and machinery. An improper location of plant may lead to waste of all the investments made in
plant and machinery equipment’s. Hence, location of plants should be based on the company’s
expansion plan and policy, diversification for the products, changing sources of raw
materials and many other factors. The purpose of the location study is to find the optimal
location that will results in the greatest advantage to the organization.

3.2. Plamt Layout and Material Handling

Plant layout refers to the physical arrangement of facilities. It is the configuration of

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

Figure 2.5 Sample Plant Layout

CBME 11- Operations Management with TQM Page | 19

 Don Honorio Ventura State University

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.

3.3.Product Design

Product design deals with conversion of ideas into reality. Every business organization
has to design, develop and introduce new products as a survival and growth strategy. Developing
the new products and launching them in market is the biggest challenge faced by the organizations.
The entire process of need identification to physical manufacturers of product involves three
functions: marketing, product development, and manufacturing. Product development translates
the needs of customers given by marketing into technical specifications and designing the various
features into the product to these specifications. Manufacturing has the responsibility of
selecting the processes by which the product can be manufactured. Product design and
development provides link between marketing, customer needs and expectations and the
activities required to manufacture the product.

3.4.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.

Figure 2.6 Sample Process Layout

CBME 11- Operations Management with TQM Page | 20
 Don Honorio Ventura State University

3.5.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 time, to give production orders to shops and to follow up the progress of products
according to orders.
The principle of production planning and control lies in the statement ‘First Plan Your
Work and then Work on Your Plan’. Main functions of production planning and control
includes planning, routing, scheduling, dispatching and follow-up.
a. Planning is deciding in advance what to do, how to do it, when to do it and who to do
it and who is to do it. Planning bridges the gap from where we are, to where we want to
go. It makes possible for things to occur which would not otherwise happen.
b. Routing may be defined as the selection of path which each part of the product will
follow, which being transformed from raw materials to finished products. Routing
determines the most advantageous path to be followed from department to department
and machine to machine till raw materials gets its final shape.
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 starting the processes. It gives authority so as to start a
particular work, which has already been planned under the ‘Routing’ and ‘Scheduling’.
Therefore, dispatching is ‘release of orders and instruction for the starting of
production for any item in acceptance with the route sheet and schedule charts’.
e. Follow-up, this has function of reporting the daily progress of work in each shop in a
prescribed preformat and to investigate the causes of deviations from the planned
performance.

3.6.Quality Control

Quality Control (QC) may be defined as ‘a system that is used to maintain a desired
level of quality in a product or service’. It is a systematic control of various factors that affect
the quality of the product. Quality control aims at prevention of defects at the source, relies on
effective feedback system and corrective action procedure. Quality control can also be defined as
‘that industrial management technique by means of which product of uniform acceptable
quality is manufactured’. It is the entire collections of activities which ensure that the operation
will produce the optimum quality products at minimum costs.
The main objectives of quality control are:
 To improve the companies’ income by making the production more acceptable to the
customer i.e., by providing long life, greater usefulness, maintainability, etc.
 To reduce companies’ cost through reduction of losses due to defects.

CBME 11- Operations Management with TQM Page | 21

 Don Honorio Ventura State University

 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.

3.7.Material Management

Materials management is that aspect of management function which is primarily

concerned with the acquisition, control and use of materials needed and flow of goods and
services connected with the production process having some predetermined objectives in view.

The main objectives of materials management are:

 To minimize material cost.

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

3.8.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 plants machinery should be properly maintained.

The main objectives of maintenance management are:

1. To achieve minimum breakdown and to keep the plant in good working condition at the
lowest possible cost.
2. To keep the machines and other facilities in such a condition that permits them to be used
at their optimal capacity without interruption.
3. 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.

CBME 11- Operations Management with TQM Page | 22