BBA501-B1849-SLM-Unit-01

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Unit 1 Introduction to Production ManagementStructure

1.1 IntroductionObjectives

1.2 History of Production and Operations ManagementIndustrial Revolution EraEra of Scientific ManagementEra of Human RelationsEra of Quantitative Techniques

Era of QualityEra of Technology1.3 Definitions of Production Management1.4 Production Process1.5 Production: The Heart of an Organization1.6 Objectives of Production Management1.7 Scope of Production Management1.8 Importance of Technology in Production

The HumanMachine Interface1.9 Summary

1.10 Glossary1.11 Terminal Questions1.12 Answers1.13 Case Study

Caselet

Productions and Management Amalgamated

Production implies application of processes (technology) to raw materialsto add value to the desired product using the best method, without

compromising on the preferred quality. There are three ways of Production:(i) Production by disintegration: By separating the contents of crude oil

or a mixture, the desired products are produced. For instance the crude oilis disintegrated into various fuel oils. Similarly, salt production is also anexample for product produced by disintegration.

(ii) Production by integration: In this type of production, differentcomponents of the products are conglomerated to get the desired product.In this process, physical and chemical properties of the materials usedmay be modified. Examples include: assembly of two-wheelers, four-wheelers and so on.

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Production and Operations Management Unit 1

Sikkim Manipal University Page No. 2

(iii) Production by service: In this case, the chemical and mechanicalproperties of materials are enhanced without any physical change. For example, heat treatment of metals. In reality, a combination of theaforementioned methods is used. In general, production is the use of anyprocess or procedure designed to transform a set of input elements into aset of output elements, which have use value and economic value.Management refers to getting things done by the people, by means of planning,coordination, organizing, directing and controlling the activities to fulfil specifiedgoals, within the framework of consensual policies. At present, productionmanagers require scientific base along with personal tactics to manage the

people working under his supervision to attain the desired objectives.Source : Compiled by author

1.1 Introduction

The word production immediately conjures up images of large rooms filled withmachines of every shape and size, materials of all hues and colours, and peopleworking to fulfil their targets. The coordination between all these Ms (i.e. man,machine, materials, money and method) is done by the sixth M, i.e., management.This is what production and operations management is all about. It is concerned

with the production of goods and services and is responsible for ensuring thatthese operations are efficient and effective. In other words, production andoperations management is to manage the efforts and activities of people,equipment and other resources of the organization in order to change raw materialinto finished goods and services.

Production and operations involve the conversion of input into outputthrough a transformation process. In the early days production involved theprocesses followed for mass production of tangible goods. As the complexitiesof business grew, management of the systems responsible for productionbecame essential. Later, even services began to be produced or rendered.These were intangible. So some principles were needed which could encompassthe entire system that produced a commodity or delivered a service. It wasfound that the same principles could be effectively applied in the managementof processes that produced goods as well as those that produced services.This is production and operations management.

POM (as it is called) uses the decision-making tools of operations researchand the principles of industrial engineering, quantitative techniques, shop floor

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control, organizational behaviour, safety management and maintenancemanagement, etc. So production and operations management deals with theconcepts and principles that are employed by organizations to make themefficient and effective. This unit introduces the concept of production managementthat uses the decision-making tools of operations research and the principles of industrial engineering, quantitative techniques, organizational behaviour and others.

Objectives

After studying this unit, you should be able to: discuss the history of production management define production management describe the production process analyse production as the heart of an organization list the objectives of production explain the scope of production interpret the importance of technology in production

1.2 History of Production and Operations Management

Before learning further, it is important to take a look at the history of productionand operations management. This will help you to understand that technology isthe backbone of all production functions.

1.2.1 Industrial Revolution Era

The Industrial Revolution of Great Britain during the late eighteenth century broughtabout extensive mechanization of production systems. It resulted in a shift fromhome based production to large scale production outside the home. Equipmentwere created that could produce in large quantities. Workers reported to a

supervisor, who planned the work and issued orders to workers. Many inventionssuch as James Watts steam engine, Jenny Cartwrights power looms andMaudslays cutting lathes, etc., contributed to the Industrial Revolution.

During this period, Adam Smith, the father of modern economics publishedAn Enquiry into the Nature and Causes of Wealth of Nations or popularly calledThe Wealth of Nations. The three main concepts propounded by him weredivision of labour, pursuit of self-interest and freedom of trade. He felt that other

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costs besides wages, such as rent and profit, also affected the price of acommodity.

Smith believed that division of labour could greatly increase production.

1.2.2 Era of Scientific Management

The era of scientific management began in the United States of America in theearly 20th century. Fredrick Winslow Taylor is called the father of scientificmanagement. He propounded the following four principles:

1. Replace the rule of thumb work method with methods based on a scientific

study of tasks.2. Scientifically select, train, and develop each employee rather than leaving

them to train themselves.

3. Provide detailed instruction and supervision to each worker.

4. Divide work nearly equally between managers and workers; the duty of establishing standards and enforcing them rests with the managementalone.

Taylor also propounded the time and motion study. This involved breakingup the job into its component parts and measuring each component in terms of the time required to do it. This study was carried forward by his associates, thehusband and wife duo of Lilian and Frank B.Gilbreth, who coined the term motionstudy. The Gilbreths used a camera to record and examine detailed micro-movements, and invented cyclographs and chronocyclegraphs to observe rhythmand movements.

Another known pioneer of the scientific management era was Henry Gantt.The Gantt chart that he created is a visual display chart used for schedulingwork based on time; he showed the humane face of management and listed outthe conditions that have a favourable psychological effect on workers.

By the end of the nineteenth century, the internal combustion engine hadbeen invented and the first assembly line manufacture of cars was started byHenry Ford in Detroit, USA.

1.2.3 Era of Human Relations

The impact of behaviour of workmen on their performance was increasinglyrecognized and some experiments were carried out at Hawthorne Works inChicago, USA. These tests called the Hawthorne studies or the Hawthorne

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Self Assessment Questions

1. Adam Smith introduced the concept of specialization of labour in themanufacturing process. (True/False)

2. By the end of the eighteenth century, the internal combustion engine hadbeen invented. (True/False)

3. Digital manufacturing has disabled companies to rapidly build to order,maintain nonstop production and integrate their supply chains. (True/False)

1.3 Definitions of Production Management

The domain of Production and Operations Management (POM) is not only limitedto the production of goods and services, but it also comprises all the activitiesthat are related to the process of production. The term production is applicableto entities like manufacturing units, machinery, equipment, assembly lines, etc.Fundamentally, it is linked to manufacturing. In the past, focus was onmanufacturing management, which was later modified to productionmanagement. Production theories and practices were being used in a broadrange of operations and conditions, which have very little or no link with industries

or manufacturing. The outcome of these activities is not just production of goods,but also supply of services like banking, hotel management, health services,education, transportation, recreation and government operations. As a result of the broadening of the scope, the term production management began to bereferred to as operations management, where the theory, equipment andmethods are used for a varied nature of processes, both, in the manufacturingand in the service sectors.

Here, we take a look at the definition of production. This process is acombination of one or more procedures that are put into execution for the purposeof conversion or transformation of an array of inputs into a predetermined arrayof outputs, in synchronization with the objectives designated to the productionsystem. Usually, a system comprises a process wherein an input is transformedor converted into the desired output with a feedback procedure, so that anyvariation or discrepancies can be spotted and fixed. This process is known astransformation.

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4. The term ___________ is applicable to entities like manufacturing units,machinery, equipment, assembly lines, etc.

5. Production theories and practices were being used in a broad range of _________ and conditions, which have very little or no link with industriesor manufacturing.

6. A ________ comprises a process wherein an input is transformed or converted into the desired output with a feedback procedure.

1.4 Production Process

The production and operations of goods and services involve the conversion of input into output through a transformation process as shown in Figure 1.1.

Input TransformationProcess

Output

Figure 1.1 Conversion of Input into Output

As the complexities of organizations grew, it was found that merelyconverting input to output was not enough. Feedback from the output stage wasnecessary to adjust the changes required in input or the transformation process.So, production control was done to take care of fluctuation in inputs, if any. Thequality of the produced output was now constantly compared to the quality of the desired output and feedback mechanisms were put in place to monitor performance of the transformation process.

Transformationprocess

Input This includes the six Ms, i.e., man, machine, materials, money, method and management.

It is a value-addition process that modifies or adds value to the input and converts it into a form that is more useful and sold to a customer, which can be done in many ways as represented subsequently.

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Al tera tio nincludes all the

activities such aschange in the

physical state of input, changing

dimensions,adding,

chemicals,heating, rolling,galvanizing, etc.

Output

Output can be in the formof either goods or services,or a combination of both.

TransformationProcess

Storagepreserving the

goods in aprotected

environmentso that thesecan be madeavailable at a

later date

Transportationphysical movement of

goods from one place to

another. Traders specializein buying goods from one

place and transportingthem to a location where

they can be sold.

Figure 1.2 The Transformation Process

Table 1.1 Major Differences between Goods and Services

Goods ServicesGoods are tangible; they have physicalparameters.

Services are intangible. They are just ideas, concepts or information.

Goods can be produced, stored andtransported according to demand sincethe value is stored in the product.

Services cannot be producedbeforehand, stored or transported.Value is conveyed as used.

They are produced in a factoryenvironment, usually away from thecustomer.

Services are produced in a marketenvironment in collaboration withthe customer.

Goods are mainly standardized. Services are often customized.Quality is inherent in the product. Quality is inherent in the process

since it is a function of people.

The cycle of production and operations management can be representedas shown in Figure 1.3.

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RandomDisturbances

Input OutputTransformation

Process

Figure 1.3 The Cycle of Production and Operations Management


7. The six Ms associated with the production process are __________ , __________, __________, __________, ________, and _____________

8. The transformation process includes ________, ________, __________,and _____________

9. Goods are tangible but ___________ are intangible.

1.5 Production: The Heart of an Organization

Production is the primary business of an organization. All other wings or activitiesof an organization exist subject to the existence of production. Without productionor anything to sell, there is no organization at all. An organization usually hasseveral departments and each department has a specialized function.

Marketing establishes the demand for goods and sells what is produced. Finance provides the capital for equipment and resources. Human Resource Management provides and manages manpower.

Purchasing is concerned with procurement of materials needed to runthe organization.

Materials Management takes care of inventories. Law Department safeguards the organization on legal issues. Public Relations department builds the image of the organization. R&D is responsible for Research and Development.

But it is the production department which produces goods and services. Itplays a vital role in achieving a firms strategic goal.

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Figure 1.4 Aspects of Production

Production involves the greatest bulk of a companys employees and isresponsible for a large portion of its assets. It also has a major impact on the

quality and cost of goods and therefore is the visible face of the company. Hencewe say that production is the heart of an organization.


10. Marketing establishes the demand for goods and sells what is produced.(True/False)

11. Finance provides the capital for equipment and resources. (True/False)

12. Human Resource Management provides and manages manpower. (True/False)

1.6 Objectives of Production Management

Every organization starts with a goal and mission and then chalks out the activitiesto achieve these goals. All the activities, primarily those for converting inputsinto required outputs, are planned accordingly. The common objectives of anykind of organization are:

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Customer satisfaction: Customer satisfaction is vital to the survival of an organization. The organization researches the expectations of thecustomer or service to be rendered and decides on the product. Anorganization can survive only if its products satisfy the customers on thebasis of the following criteria:

(i) Quality of the product as per acceptable standards

(ii) Easy maintenance and reliability of the product

(iii) Functionality of the product as offered by the seller Profitability: The pricing of the product should be competitive to achieve

sales. For this, the market price of products should be competitive andcommensurate with the features offered in the product. A good organizationproduces the right quality that meets all product specifications, at optimalcost. The organization should focus on minimizing costs and maximizingrevenue for increasing profitability.

Timeliness: The product produced or service rendered may be qualitativeand cost-competitive but if it does not reach the consumers when theyrequire it, the organization loses. The consumer does not wait for a goodor service; he acquires it from a competitor. Therefore, production andoperations management plays a vital role in providing the product or service

on time by effectively maintaining production schedules.To summarize, we can say that an effective POM needs to produce goods

or render services of the right quality in right quantities at the right time and atminimal costs. It should also ensure that there is no wastage in the systembecause this results in cost escalations and severe delays.

If the above-mentioned factors are not kept in mind, then it could lead tofailure of the management in achieving its objectives and targets.


13. An organization can survive only if its products satisfy the _________.14. The __________ of the product should be competitive to achieve sales.

15. Production and _________ management plays a vital role in providing theproduct or service on time by effectively maintaining production schedules.

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1.7 Scope of Production Management

The scope of production and operations management encompasses all theactivities involved in producing a good or a service. Imagine how an entrepreneur would go about it. He would first decide what product or service he wants to sell.He then decides what process he will use, where he will make it, etc. Followingthe same line of thought, the scope of production and operations managementis listed below:

1. Product selection and development: This deals with the study of howa product is selected and developed for commercial production.

2. Process selection: This deals with how the process required for producing a product for commercial purposes is selected.

3. Facilities location: This concerns the parameters that need to beconsidered for locating factory premises.

4. Layout planning: This deals with the study of how the factory or plantshould be laid out for optimum production.

5. Material handling: This deals with the study of the significance of materialflow in an organization, the different methods of material handling, etc.

6. Manufacturing system: It is the study of different types of manufacturing

systems and their applicability.7. Production planning and production control: This concerns the

methods followed in different kinds of manufacturing systems. It includesmethods followed for job loading, scheduling, dispatching, PERT /CPMand linear programming etc.

8. Work studies: This involves method study and work measurement

9. Materials Management: This deals with methods to control inventory,inventory analysis, etc.

10. Quality: This deals with quality standards and techniques, TQM, six sigmaetc.

11. Safety Managemen t: This involves safety management principles,methods, etc.

Activity 1

Imagine that you are an entrepreneur, and describe the scope of productionand operations with regard to your goods and services. Mention the productyou would deal in and associate each aspect of scope with the same.

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16. Layout planning deals with the study of how the factory or plant should belaid out for optimum production. (True/False)

17. Material management deals with the study of the significance of materialflow in an organization, the different methods of material handling, etc.(True/False)

18. Materials handling deals with methods to control inventory, inventoryanalysis, etc. (True/False)

1.8 Importance of Technology in Production

Technology makes way for fast and efficient operations in manufacturingcompanies, as well as facilitates cost-saving measures. Technology broughtsignificant changes to traditional production systems that have been so beneficialto all industrial players, including suppliers and customers. A pharmaceuticalcompany, for example, employs advanced machineries in concocting,capsulizing, and wrapping medicine. Traditionally, the making of medicine wasmanually done. However, to prevent contamination and mitigate errors fromhuman intervention, pharmaceutical companies have employed robots andcomputerized machines, resulting in the mass production of medicine at faster speeds and lower costs.

It is now quite difficult to imagine a world without modern inventions.Countries in Europe, North America, and some parts of Asia are particularlyexperienced at applying modern technology in producing products and services.The Finnish pharmaceutical sector for instance is characterized by a high-levelknow-how, attracting foreign capital to the country.

Figure 1.5 Wrapping Machine

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1.8.1 The HumanMachine Interface

Humanmachine interface refers to the user interface in a manufacturing systemor process control system tools used for incorporating the human factors in theinterface design are developed.

Rapid changes in technology in the last few decades have resulted increating machines that are capable of performing tasks that have traditionallybeen done by people. Robots, for example, have relieved workers of menial anddangerous tasks such as welding or lifting heavy objects. In offices, wordprocessors have broadened the scope of secretaries jobs. On the one hand,technological developments have enhanced the role of the worker in productionsystems. On the other hand, increased automation has resulted in a threat to

job security; for instance, totally automated factories are a reality in countriessuch as Germany and Japan. This presents a dilemma for operations managers:What should be the proper balance between human work and machine work?

Automation has significantly changed the nature of the workforce. It hasdecreased the need for low skilled, direct factory workers but has increased thedemand for highly trained specialists. There are now a large number of technical,professional, and managerial workers who are performing complex, long-cycleactivities. A workers time is mostly devoted to mental processes, with muchless time being spent on physical work. The degree of human and machine

work varies from industry to industry. Human involvement is generally more inthe primary sector and less as we go into the secondary and tertiary sectors.

The level of automation and use of human labour in an industry should beselected so as to provide the lowest unit manufacturing cost at highestproductivity. The relative roles that human beings and machines have played inproduction have changed during the course of history. Prior to the IndustrialRevolution, manufacturing tasks were performed primarily by people. Activitiessuch as weaving cloth, forging and bending metal, etc. were labour intensive.

As the Industrial Revolution progressed, machines provided more power for manufacturing, but workers retained much of the control of the process. For example, lathes and drill machines required a large amount of operator assistance. Today, numerically controlled machines and robots permit less humaninvolvement in the production process. In service organizations, we also seeevidence of this evolution in ATMs of banks, railway bookings, etc.

The focus has now shifted from issues of human production to humanmachine interface. In order to make effective decisions regarding the introductionof new technology, managers need to understand the fundamental differencesbetween machines and people.

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Advantages of humans over machines

They can think creatively and adapt to new and unexpected situationsmuch better than machines.

They can take subjective decisions and have reasoning abilities. Buthumans tire after some time; their productivity is not uniform over time;due to boredom, frustration, fatigue, etc., they are not capable of performingheavy-duty jobs and their memory is short and limited.

Advantage of machines over humans

They are better suited for complex or repetitive tasks requiring precisionand speed.

They are accurate, fast and precise and can perform heavy duty taskswhich are beyond the human capabilities.

They can store and process large amounts of data. They are more reliable and consistent than humans. They do not cause Industrial relation problems like strikes, lockouts, etc. State-of-the-art automated plants increase the market value of the firm

and improve client base in international markets. But their capability islimited to their programmed instructions. They are less flexible thanhumans and cause unemployment/ retrenchment of work force.

The goal of the operations manager is therefore to provide the bestsynthesis of technology and people so that the objectives of the organizationare met.

Technological changes have occurred in every industry and can becategorized into two groups - hardware and software.

Hardware technologies have resulted in greater automation of processes.They perform labour - intensive tasks that were originally performed by humans.Examples of these major types of hardware technologies are numerically

controlled machine tools, machining centres, industrial robots, automatedmaterials handling systems, and flexible manufacturing systems. These are allcomputer - controlled devices that can be used in the manufacturing of products.

Activity 2

Prepare a chart displaying the various technological aspects associatedwith production management of a company. You may give examples of existing companies.

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19. _________ makes way for fast and eff icient operations in manufacturingcompanies, as well as facilitates cost- saving measures.

20. Characteristics of a human being are not thought of as fixed quantities.(True/False).

1.9 Summary

Let us recapitulate the important concepts discussed in this unit: Frederick W. Taylor introduced the concept of scientific management. Production and operations involve the conversion of input into output

through a transformation process. In the industrial revolution era, Adam Smith propounded three main

concepts: division of labour, pursuit of self-interest and freedom of trade. By the end of the nineteenth century, the internal combustion engine had

been invented and the first assembly line manufacture of cars was startedby Henry Ford in Detroit, USA.

The Hawthorne studies or the Hawthorne experiments form the basis of several behavioural and motivation theories.

Quantitative techniques originated during World War II. Operationsresearch teams were formed to deal with strategic and technical problemsfaced by the military. These techniques were later used for non-militaryapplications as well.

The ISO 9000 series for quality management systems, and the ISO 14000environment management standards have been established and arefollowed across the world.

Computerization of information, Internet facilities, digital processes, etc.

have enhanced effective communication across the levels of hierarchy inthe production process. Production is a process or a set of procedures to be executed in order to

convert or transform a set of inputs into a predetermined set of outputs inaccordance with the objectives assigned to the production system.

Production is the primary business of an organization. All other wings or activities of an organization exist subject to the existence of production.

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Objectives of production and operations management: customer satisfaction, profitability and timeliness

The scope of production and operations management encompasses allthe activities involved in producing a good or a service.

Technology makes way for fast and efficient operations in manufacturingcompanies, as well as facilitates cost-saving measures.

In the technologists view, a human being has certain physiological,psychological and sociological characteristics that define both his/her capabilities and limitations in the work situation.

1.10 Glossary

Chronocyc leg raph : A device used in micromotion studies to record acomplete work cycle by taking still pictures with long exposures, the motionpaths being traced by small electric lamps fastened to the workers handsor fingers

Cy c l o g r a p h : It (also known as an arcograph) is an instrument for drawing arcs of large diameter circles whose centres are inconvenientlyor inaccessibly located.

Input : Something entered into a system to get a desired result. Ou tpu t : Product Transformat ion : Change in form

1.11 Terminal Questions

1. Describe the historical overview of production management.

2. Explain the objectives of production.

3. Discuss the scope of production.

4. How is production the heart of an organization?5. Describe the production process.

6. What is the importance of technology in production?

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1.12 Answers


1. True

2. False

3. False

4. Production

5. Operations

6. System

7. Man, machine, materials, money, method, management

8. Alteration, transportation, storage, output

9. Services

10. True

11. True

12. True

13. Customers

14. Pricing

15. Operations

16. True

17. False

18. False

19. Technology

20. True

Terminal Questions

1. Before learning further, it is important to take a look at the history of production and operations management. For more details, refer section1.2.

2. Every organization starts with a goal and mission and then chalks out theactivities to achieve these goals. For more details, refer section 1.6.

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3. The scope of production and operations management encompasses allthe activities involved in producing a good or a service. For more details,refer section 1.7.

4. Production is the primary business of an organization. For more details,refer section 1.5.

5. The production and operations of goods and services involve the conversionof input into output through a transformation process. For more details,refer section 1.4.

6. Technology brought significant changes to traditional production systems

that have been so beneficial to all industrial players, including suppliersand customers. For more details, refer section 1.8.

1.13 Case Study

On the Highway

GM has had a long history in India. Its cars were first imported in Indiabetween 1918 and 1928, mostly by the rich. The first generation of GMvehicles imported into India were Chevrolets small four-cylinder Tourers.They were preferred at the time owing to their fuel efficiency and the ease of

running them. GM first entered the Indian market with the launch of itsChevrolet brand in 1928.

After the economic reforms initiated in the early 1990s, especially theautomobile sector and the passenger vehicles segment witnessed massivegrowth. The gross turnover of the Indian automobile market grew from US$20,896 million in 2004-05 to US$ 38,238 million in 2008-09.

GMI launched the Chevrolet Cruze in the Indian market in October 2009. Itwas well received in the Indian market and got positive reviews from industryanalysts. By June 2011, the Chevrolet Cruze had clocked in sales of 860units per month, making it one of the best performing premium sedans in

the Indian market. Irrespective of the success of GMIs first small car, theChevrolet Spark, the company could not make any crucial impact on theIndian automobile sector.

GMI expected that the Beat would increase its Indian sales from 70,000units in 2009 to 100,000 units in 2010. Before the Beat was launched in theIndian market, it was launched in Korea, Europe, and East Asia and wasselling 5,000 units a month in the Korean market. GM hoped to release theBeat in 150 countries around the globe to make it a truly global car. Apart

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from domestic production, GM planned to make India an export hub of theBeat and export 20 per cent of the units to the Europe and Asia Pacificmarkets. By this, GM hoped to follow many other global car manufacturersthat had made India their global automobile manufacturing hub. The increasein the sales of the Beat despite the problems faced by the Indian automobilemarket like increasing fuel prices and high interest rates on vehicle loanswas seen as a sign of improvement in its performance in the Indian market.

Analysts said that GMI had started to understand the preferences of theIndian customers. They said that high fuel efficiency and the low price tagwere the primary reasons for the success of the Beat diesel in India.

Discussion Questions

1. Give a brief history of GM in India.

2. Mention two successful endeavours of GM in the Indian market.

Source : Compiled by author

References

Aquilano, Chase and Jacobs (2003). Operations Management for Competitive Advantage . New Delhi: Tata McGraw-Hill.

Bedi, Kanishka (2007). Production and Operations Management . NewDelhi: Oxford University Press.

Bhattacharya, D.K. (2000). Production and Operations Management. NewDelhi: Excel Books.

Evans, J.R., D.R. Anderson, D.J. Sweeney and T.A. Williams (1984). Applied Production and Operations Management. US: West PublishingCo. St. Paul M.N.

E-References

www.pom.org/journals/departments (Retrieved on 30 March 2013)

BBA501-B1849-SLM-Unit-01

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