Production & Operations

Management
 Overview

 Introduction
 Functions within business organizations
 Operation management function
 Classification of production systems
 Productivity
 Factors affecting productivity
 Contemporary issues & development
Functional subsystem of organization

Marketing

Production

Finance Personnel
 Goods & Services

 Manufacturing
 Tangible product
 Product can be inventoried
 Low customer contact
 Longer response time
 Capital intensive
 Services
 Intangible product
 Product cannot be inventoried
 High customer contact
 Short response time
 Labor intensive
 Operations management is the management of an
organization’s productive resources or its production
system.
 A production system takes inputs and converts them
into outputs.
 The conversion process is the predominant activity
of a production system.
 The primary concern of an operations manager is the
activities of the conversion process.
 Definition of OM

The business function responsible for planning,

coordinating, and controlling the resources
needed to produce products and services for a
company
 Organizational Model

Finance
Sales HRM

OM
QA
Marketing

MIS Accounting
Engineering
Historical Development of OM
 Historical Milestones in OM

 The Industrial Revolution

 Post-Civil War Period
 Scientific Management
 Human Relations and Behaviorism
 Operations Research
 The Service Revolution
 The Industrial Revolution

 The industrial revolution developed in England in

the 1700s.
 The steam engine, invented by James Watt in 1764,
largely replaced human and water power for
factories.
 Adam Smith’s The Wealth of Nations in 1776 touted
the economic benefits of the specialization of labor.
 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 1790 an American, Eli Whitney, developed the
concept of interchangeable parts.
 The first great industry in the US was the textile
industry.
 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production had been replaced by the factory system.
 Post-Civil War Period

 During the post-Civil War period great expansion of

production capacity occurred.
 By post-Civil War the following developments set the
stage for the great production explosion of the 20th
century:
 increased capital and production capacity
 the expanded urban workforce
 new Western US markets
 an effective national transportation system
 Scientific Management

 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.
 In the 1920s, Ford Motor Company’s operation
embodied the key elements of scientific
management:
 standardized product designs
 mass production
 low manufacturing costs
 mechanized assembly lines
 specialization of labor
 interchangeable parts
 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.
 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.
 After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.
 OR helps operations managers make decisions when
problems are complex and wrong decisions are costly
 The Service Revolution

 The creation of services organizations accelerated

sharply after World War II.
 Today, more than two-thirds of the US workforce is
employed in services.
 About two-thirds of the US GDP is from 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.
 The Computer Revolution

 Explosive growth of computer and communication

technologies
 Easy access to information and the availability of
more information
 Advances in software applications such as Enterprise
Resource Planning (ERP) software
 Widespread use of email
 More and more firms becoming involved in E-
Business using the Internet
 Result: faster, better decisions over greater distances
 Operations as a System

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem
 INPUTS OUTPUT

MATERIALS

LABOUR
GOODS AND
TRANSFORMATION SERVICES
EQUIPMENT (CONVERSION)
PROCESS
CAPITAL

FEEDBACK INFORMATION

ENVIORNMENT
 Inputs of an Operations System

 External
 Legal, Economic, Social, Technological

 Market
 Competition, Customer Desires, Product Info.

 Primary Resources
 Materials, Personnel, Capital, Utilities
 Conversion Subsystem

 Physical (Manufacturing)
 Locational Services (Transportation)
 Exchange Services (Retailing)
 Storage Services (Warehousing)
 Other Private Services (Insurance)
 Government Services (Federal)
 Outputs of an Operations System

 Direct
 Products

 Services

 Indirect
 Waste

 Pollution

 Technological Advances
Transformation Process of a Canned food
processor

Inputs Processing Outputs

Raw vegetables Cleaning Canned
Metal sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
Transformation Process of a Hospital

Inputs Processing Outputs

Doctors,nurses Examination Healthy
Hospital Surgery Patients
Medical Monitoring
supplies Medication
Equipment Therapy
Laboratories
 OM’s Transformation Role

 To add value

 Increase product value at each stage

 Value added is the net increase between output product value and
input material value

 Provide an efficient transformation

 Efficiency – means performing activities well for least possible cost

 Decision Making in OM

 Strategic Decisions
 Tactical Decisions
 Operational Decisions
 Productivity

 Productivity is a measure of how efficiently inputs

are converted to outputs
Outputs
Productivity =
Inputs

 Single-factor measures
 Output / (Single Input)

 All-factors measure
 Output / (Total Inputs)
 Measures of Productivity

Single-factor Output Output Output Output

measures Labor Machine Capital Energy

All-factors Output
measure All inputs
• Labor Productivity
– Quantity (or value) of output / labor hrs
– Quantity (or value) of output / shift
• Machine Productivity
– Quantity (or value) of output / machine hrs
• Energy Productivity
– Quantity (or value of output) / kwh
• Capital Productivity
– Quantity (or value) of output / value of input
 Strategies for improving Productivity

Increased output for same input

Decreased input for same output

Proportionate increase in output is more

than proportionate increase in input

Proportionate decrease in input is more

than proportionate decrease in output

Simultaneous increase in output with

decrease in input
Productivity Flywheel
 Technical factors

 Proper location
 Layout and size of the plant and machinery
 Correct design of machines and equipment
 Research and development
 Automation and computerization, etc.

If the organization uses the latest technology, then its

productiveness will be high
 Production factors

 Production of all departments should be properly

planned, coordinated and controlled.
 Right quality of raw-materials.
 Production process should be simplified and
standardized
 Organizational factor

 Authority and Responsibility of every individual

and department should be well defined.
 Line and staff relationships should also be clearly
defined.
 Personnel factors

 Selection of right individual for suitable posts.

 Training & development
 Better working conditions & work environment
 Motivation
 Job security
 Importance for suggestions of workers
 Finance factors

 Control on fixed capital & working capital

 Proper financial planning
 Proper returns on capital invested in business
 Avoiding over and under utilization of capital
 Management factors

 Management of organization should be scientific,

professional, future-oriented, sincere and
competent.
 Managers should possess imagination, judgement
skills and willingness to take risks.
 Optimum use of the available resources to get
maximum output at the lowest cost.
 Government factors

 Knowledge about the government rules and

regulations.
 Financial policies of government (Taxes, interest
rates) influence productivity to a great extent.
 Location factors

 Infrastructure facilities
 Nearness to market
 Nearness to sources of raw-materials
 Skilled workforce