PRODUCTION & OPERATION MANAGEMENTMBA II Sem.

Unit 1 :

Introduction to Production Management : Production Management, Objectives, functions, meaning, nature and significant scope. Relationship of production with other functions areas. Types of production: intermittent production, continuous production and job shop production.

Production Management:

Production is creation of utility. Production function creates utility by providing form, time and place utilities for the produced goods. Manufacturing provides form and utility while distribution provides time and place utility. Operation is defined as a transformation process. Production is concerned with design and control systems that use raw materials, human resources, equipment and facilities in the development of a product or service. The transformation process is a series of activities that produces value. Ex: steel sheets are formed into different parts and assembled as per requirement. Various grades of bauxite are mixed, heated and cast into ingots in an aluminum factory. Patients are cured through various processes such as medication, laboratory tests, meals, operations, etc., in a hospital.

Production can be defined as a step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility for the user. Thus production is a value addition process. “Production is a process by which goods and services are created”. Elwood Buffa.

Production management is a process of planning, organizing, directing and controlling the activities of the production function. “Production management deals with decision-making related to production processes so that the resulting goods or services are produced according to specifications, in the amounts and by the schedule demanded and at minimum cost.” - E. Buffa.

“ Production Management is the process of effective planning and regulating the operations of that part of an enterprise that is responsible for the actual transformation of materials into finished goods.” E.C. Brech

“Production management is not the application of tools to materials, but, the application of logic to work.” - Peter Drucker

Objectives:

Te objective of production management is to produce goods or services of right quality and quantity at pre-determined tie and pre-established cost. The objectives are reflected in;

1. Right quality, 2. Right quantity 3. Pre-determined time 4. Pre- established cost.

Main Objectives:1. Right Quality: The quality of a product is based upon the customer’s

need. Customers’ needs are translated into products by the product or design engineering department. The manufacturing department then translates these specifications into measurable objectives. The cost decides the final quality of the product. The product must be within the pre-established cost.

2. Right Quantity: Products should be manufactured as per demand. If more than demand is produced, capital will be blocked up in the form of inventory. Shortage will lead to repeated cycles of production which, in turn, will lead to extra cost of manufacturing and wastage of time.

3. Manufacturing Costs: Manufacturing costs are established before the product is actually manufactured. Any variation between the actual cost and the pre-determined cost should be kept at the minimum. The objective is also to reduce the cost of production and to maximize the profit of an organization.

4. Manufacturing Schedule: Timeliness of production and delivery is one of the important parameters to judge the effectiveness of the production department. The production department has to keep in mind various obstacles such as non-availability of material, absenteeism, machine-breakdown, environmental problems, etc., while determining the manufacturing schedule. For this, optimal use of resources must be made.

Subordinate objectives:

1. Machinery & Equipments: The machinery and equipment should be such that they should be able to produce the desired products as per the specifications and accuracy required. The total cost of procurement and running should be reasonable and minimum. The objective should be to utilize the machinery to the maximum extent.

2. Materials: The material, as per specifications, should be made available as per requirement and schedule, at the most economic price. Production department should ensure maximum utilization and minimum wastage and scrap.

3. Manpower: The success of production depends to a large extent on the type of manpower the organization has. Potential skills of the workers should be channalised and utilized in a constructive manner for optimal outputs.

4. Supporting Sevices: Supporting services aid in the maximisation of utilisation of the main departments.

A healthy mixture of the above factors helps the company to satisfy customers and increase the value of the company in the market, leading to enhanced profitability.

FUNCTIONS OF PROD. MGMT.:

The functions of Production Management are :(i) To convert available capital to physical resources required for

production.(ii) To convert the physical resources to salable goods and

services.

For this the managers must;

(a) Produce goods at the right time and the right quantity to meet the demand.

(b) Produce goods at minimum cost .(c) Produce goods of acceptable quality through TQM and SQC

Functions of Production Managers are;1. Forecasting the demand for the products.2. Determining the requirements of various resources to meet the

demands.3. Arranging for the procurement of the various factors.4. Arranging for services such as maintenance, store keeping,

material handling, inspection, quality control, etc., to meet targeted level of production.

5. Effectively utilizing the factors of production.6. Helps in determining Plant location as well as layouts.7. Helps in material handling8. Helps in Inventory Control.9. Helps in quality control

SCOPE OF PROD. MGMTThe objectives of Production Management are aimed at satisfying the needs of the customer. The scope of Prod. Mgmt can be considered to be as follows;

Strategic level decision:1. New product design and identification. The success of any

organisation depends upon the product mix that it offers to the customers. The products should be designed in such a way as to meet the expectations and needs of the customers. The cost should also be acceptable to them.

2. Process design and planning: This involves the appropriate technology for the conversion of raw material into desired products. The choice of technology will depend on various factors such as demand, investment capability, labour availability, degree of automation required, etc.

3. Facilities Location and Layout Planning: Due consideration must be given to facilities location as location, once decided upon will not be altered in the near future.

4. Design of material handling system: Handling of material should be kept at minimum, though it is not possible to avoid all material handling. Due thought should be given to the material handling which will depend to a great extent on the nature of product, distance between work stations, intensity of flow or traffic and size, shape and nature of material to be handled.

Capacity Planning:This decision is concerned with the procurement of fixed assets like plant and machinery. It is at this stage that decisions regarding the size, capacity out etc., are taken. The operational or production level planning will, however, be short term decisions. These are;

1. Production Planning: It is concerned with the future course of action regarding production to realize the organizational objectives.

2. Production Control: It is a management technique that sees to it that activities are carried out as per plan. Production planning deals with the out put and to takes corrective action in case of deviation from plans or norms.

3. Other activities: Other activities include inventory control, maintenance and replacement, cost reduction and control and system design.

SIGNIFICANCE OF PROD. MGMT:

a. To customers: 1. Easy availability of products2. Reliable quantity of products.3. Availability of products at reasonable rates.4. Timely delivery of goods.

b. To Investors: i. 1. High return of investment.

ii. Capital appreciation.

c. For Community:1. Economic and social stabilization.2. Satisfaction among members of community.

d. To Employees: 1. Higher remuneration2. Stable employment3. Security of jobs.4. Better working conditions.5. All round security and prosperity to bring about national

benefits.

Relationship of Production with Other Functional Areas:

Production systems are one of the many subsystems of larger organizational systems. Each subsystem is independent and at the same time, interdependent. They are independent in the sense that each functional subsystem has its own objectives and goals. At the same time, they are functionally related with other subsystems of the organization. The goals and objectives of the subsystem is supportive to achieve the goals of the organization. The relationship may be enumerated as below;

Marketing: The production department transforms facilities into products as per the identification and forecasting of product department of the Marketing Department. The relationship is crucial because they are strongly dependent on each other. The production department seeks the following information from the marketing department.

(i) Need of the customer with respect to the product and services produced by the company.

(ii) The demand for the product and the likely market trend for the future period.

(iii) Special features required by customers in the form of feedback regarding acceptability, performance, change in taste, preferences, drawbacks, etc.

(iv) Delivery and product mix required by the customer.

The marketing department requires the following information from the production department;

(i) Production status of the products.(ii) Performance characteristics of the products.(iii) Delivery schedule as per the production plan(iv) Product features and specifications.

Many a times the objectives of the production and marketing departments are conflicting. Marketing department requires a variety of products and they want all the products to be on the production line all the time sio that they can satisfy all customers all the time.

However, production and manufacturing efficiency is maximum when the variety of products being manufactures is minimum. This will reduce the set cost and time lost, especially in continuous productions.

A compromise has to be made to maximum the attainment of the objectives of the organization. Based on the information and feedback received from the marketing department, the production department should plan, organize and execute production.

Finance: Finance is the bloodline of business and it is the Finance Department which sets the wheels of production rolling. The production department has to invest in capital facilities, raw material and component parts. Wages and salaries have to be disbursed. Payments have to be made to suppliers. The Finance Department has to make plans for both long-term and short-term requirements of funds.

The production department has to furnish the detailed production budgets to Finance Department so that funds can be made available and released on time.

Personnel: The success of the production process depends largely on the quality, attitudes and skills of the employees. The responsibility of matching the job and the person lies with the Personnel Department. The Personnel Department has to keep records of the development of the employees and identify their training needs and weaknesses and strengths.

In order to achieve production goals, the Production Department has to inform the Personnel Department of the type of people and the kills required in the department.

Materials Management: The production department, based on the forecasts made by the marketing department, spells out the requirement of materials. The success of the production department depends upon the smooth flow of materials between the various workstations. The Materials Management Department makes available the proper quantity of specified material at the proper time. The Materials Department selects the source of supply. The vendors are rated by them and purchase of material is made by them. They also control inventory, which has a direct bearing on the cost of production. The failure on the parts of Materials Management Department to keep up the required flow of material will have a negative effect on production.

Maintenance: There is a direct relationship between production and maintenance department. The efficiency of the maintenance of the equipments enhances the efficiency of production. A good and effective maintenance department is characterized by

- Less breakdowns and hence less loss of time.- Increase in Equipment/ machinery availability.- Non-stop production.- Higher utilization of equipment/ machinery.- No process defects or reduced yields.

Production Planning and Control : PPC helps to achieve uninterrupted flow of materials through production line by making available of materials at the right time in required quantity. It deals with activities such as process selection, process planning, loading, scheduling and sequencing. Production Planning prepares the time-table of production. The PPC department will try to deviate all sorts of obstacles from production. The department will try to sense the various problems that may arise. Thus successful production depends on the accuracy of the PPC Department.

Research & Development: R&D develops new products and improves the design of existing products in order to make it more useful and desirable for the customer. Design Department’s output will be in the form of drawings. The designer must prepare the designs in consultation with the production department to ensure that it is feasible to make the new product, with available resources.

Thus it is seen that functional co-ordination between various departments is essential for effective and optimal production to achieve the goals of the organization.

PRODUCTION SYSTEMS:

A system is a logical arrangement of components designed to achieve particular objectives, according to pre designed plan.

Prodn Systems are frameworks within which prodn activities of an orgn are carried out.

Input - Receiving Oprns. -- Storage - Processing operations : :

:

:

: Out put - Shipping Operations - Finished good storage ..V

V

Thus production system refers to the system by which various inputs are combined and transformed to obtain desired outputs. It is a mechanism for converting material into finished goods and services.

A production system is said to be efficient when it achieves the best balance of resources, ie., it maintains the input or resource usage per unit of output.

Production systems : : : : : : Continuous Production Intermittent Production : :

: :Mass Pr. Process Pr. Assembly Job Prod Sys Batch Prod. SysSystem System Line

::

Analytical __ :__ Synthetic Prod System Prod System

TYPES OF PRODUCTION:

The production system that a company uses will depend upon the type of product that it will offer to the customer and the strategy it will employ to satisfy the customer. Basically, production systems can be categorized as;

- Make to Stock Production- Make to Order Production- Assemble-to-Order Production

Make to Stock Production: In this system, manufactured stocks or finished goods are kept in the inventory for immediate shipment or supply. This system ensures immediate delivery of good quality, reasonably priced, off the shelf standard products. Eg: automobile bearings, ready to wear garments, nuts and bolts, motors, televisions, etc.

This system implies that the products are well known, with predictable type of demand pattern. Operation management focuses entirely on replenishment of inventory. Actual, single customers’ orders cannot be identified or catered to. The production volume of each sales unit tends to be high and customer’s delivery time is usually determined by the availability of finished goods. The finished good act as a buffer against uncertain demand and stock out situation. The main advantage of this system is the short delivery time. Disadvantage is high cost of inventory and inability to satisfy each customer with specialized products.

Situations for Make to Stock Production:3. Fairly constant and predictable demand.4. Products are few and they are standardized.5. Short delivery time expected by the customer.6. Products with high shelf-life.

Information required:1. Forecasted demand for the planned period.2. starting inventory level3. Desired ending inventory level4. Back orders.

Total Production = Forecasted demand + Back orders + Ending Inventory - Opening Inventory.

Theses are generally mass consumed items and pass through multiple channels before reaching the end user. Most of the data about the customer is not known. Feedback from distributors will have to be depended upon. Demand is calculated from the feedback given by distributors.

This system is characterized by :- less complex production- process and product standardization- fairly constant demand and hence production.

Make to Order : Some companies start production only after receiving specific orders. Products are not supplied from existing stock and hence the lead time, ie., the time taken from production to delivery, is long. This kind of production is usually made for products that require custom design components. Generally the basis components along with the engineering design are available with the company, but the product is not completely specified. The production starts when the customer specifies his requirement.

Made to order is a demand responsive strategy and only the product and the design components such as raw material are held in stock. Ex: Custom tailored clothes, special purpose machinery. Very expensive products are usually made to order.

This system is characterized by;- Manufacturing is done to customer’s specifications- The customer is willing to wait as lead time is long.- Product is expensive to store and non-standard.- When there are several product options to store.

There is direct interaction with customer at all stages, but especially so at the Engineering phase. Usually there is negotiation about time of delivery and cost of product. Production schedule changes as per requirement of the customer.

Capacity utilization is usually low and there is no stock Planning and shop floor control is critical and distribution is less complicated.

Assemble-To-Order Production System: When a number of alternative combinations or options are available to customers and the customer is not willing to wait until the product is made, manufacturers resort to the assemble-to-order production system. Manufacture produce and stock standard component parts. When the customers place the order, the manufacturer does the assembling from the parts and components selected by the customer. Since the parts and components are already made and stocked, the only time taken is the time to assemble it.. This leads to lower costs and short lead time. Ex: Consumer electronics goods and computers. Ordering of food at restaurants.

Comparisons between the systems:

Particulars Make to Stock Make to Order Assemble to Order-------------------------------------------------------------------------------------------------------------------------------------------1. Product Range Low High Medium/ High

2. Production Volume High Low Medium

3. Lead Time Low High Medium

4. Customer producer interface Limited/distant High at sales & design High at sales

5. Handling of fluctuations in Safety stock Planning of excess Planning of Demand Of product capacity & raw standard modules Units material stock & parts

6. Basis of planning End item Back logs & Backlogs & trend Forecasts marketing intelli- analysis

gence reports

7. Inventory Level High F.G. Low inventory level Major modules/ Inventory & & associated carrying parts held in carrying costs cost inventory

8. Product category & cost Standardised with Special products Modular parts Low cost/ unit high cost/unit med/ high

price/unit

TYPES OF PRODUCTION SYSTEMS:

Production activities are classified according to the volume/ quantity and standardization of product as follows;

Job Shop Production Batch Intermittent Production Continuous Production

Cellular Production

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

Examples of products manufactured bu job shop industries include space vehicles, aircrafts, machine tools, special purpose machines, tooling and jigs and fixtures, custom clothing, large turbo generators, etc.

A job shop typically comprises of general-purpose machines arranged into different departments. Each job requires unique technological requirements, and demands processing in certain sequence. Because of high variety, scheduling becomes complicated.

Characteristics of Job Order Production;

High variety of products and low volume. Use of general purpose machines and facilities. Highly skilled operators who can take up the challenge of unique

jobs. Frequently changing set ups. Process (functional) type layout for arrangement of facilities. Large inventory of materials, tools and parts. Movement of material is long and interrupted. Relative imbalance of workload in different departments. Functional departmentalization. Requires numerous job instructions. Detailed planning and sequencing involved. Many products are produced so material handling has to be

modified.

Advantages: A variety of products can be processed. Because each job gives them a learning opportunity, operators

become more competent and skilled. All potentials of operators are utilized. Opportunity to use innovative and creative methods.

Disadvantages: Higher set and tooling set cost due to frequent changes. Higher levels of raw material and in process inventory. Production planning is difficult and complicated. Highly competent and skilled manpower is required. Product cost is high. High cost of material handling and larger space requirement.

Project Industries:The key feature of the project type industries is that the materials, tools, equipments and personnel are brought to the location where the [product is to be fabricated. Project is defined as an attempt with a specific objective to be met within a specified and prescribed time and cost limitations. It is a one at a time major task such as construction, ship building, erection and commissioning of plants. It is a site type of organization and based on a single product, generally of a large size which takes months or years for completion. Each project is unique.

Characteristics: Project has a definite start and finish. It needs resources and skills of diversified nature. It has definite and definable goals or end that can be defined in

terms of costs, schedules and performance requirements. Projects constitute distinct activities which constitute Project Life

Cycle.

Planning and scheduling of activities and procurement function are critical to the success of the project. Inventory is mainly concerned in the product itself. Reducing inventory simply means shortening the delivery time and is equivalent of using the equipment to the maximum of its capacity. The objectives of manufacturing, namely minimizing delivery lead time and inventory investment and maximizing equipment utilization usually conflict against each other. PERT and CPM methods are utilized in this kind of production.

Batch production is characterized by the manufacture of limited number of products, produced at regular intervals and stock awaiting sales. Materials tend to be more complex and the facilities can be used for producing another batch of product between two successive productions runs.

Batch production is justified when the production rate exceeds the demand rate.The batch quantities are decided based on the balancing of two cost factors; the set-up cost and the inventory carrying cost. It aims at satisfying the continuous demand for an item, though the plant is capable of producing excess to demand rate. The shop produces enough to build up an inventory and then moves on to production of other items. When the stock of the first item comes down, it is produced once again. This intermittent production caters to make to stock, assemble to order and also to make to order manufacturing environment. Machines used for batch production are general-purpose machines, designed for higher production rates. These machines , with a little alteration, are then used to produce other items.

Characteristics of Batch Production:

6. Short production runs.

7. Plant and machinery are set up to produce one item and then re set to produce another batch of items.

8. There are more number of set ups and hence higher set up costs.

9. Amount of supervision required less than in job orders.10. Plant and Machinery are flexible.11. Manufacturing lead time and also cost are lower than in job

order production.12. There is higher level of work-in-process inventory.13. Flexible material handling system.

Advantages: Better utilization of plant & machinery Promotes functional specialization. Cost per unit is lower than in job order

production. Lower investment in plant & machinery. Flexibility to produce a number of items. Job satisfaction for operators.

Limitations: Material handling is complex owing to irregular & longer

flows. Production planning & control is complex. Work-in-process inventory is high. Longer production time. Higher set up costs Lower utilization of production facilities as compared to

mass production.

PROCESS INDUSTRIES (FLOW PRODUCTION OR CONTINUOUS PROCESS PRODUCTION)

Process manufacturing is defined as the production that adds value by mixing, separating, forming and performing chemical reactions. It may be carried out in either batch or continuous mode. Such industries produce highly standardized non-discrete products in extremely large volumes, in a continuous process. These industries develop extensive long range resource requirement and they are capital intensive. The capital budgeting is crucial to financial performance. Plant location, plant capacity, long range plan for materials, manpower, energy and waste disposal are extremely important aspects for this kind of industry. Maintenance planning is also extremely important. Such industries sell a high volume of goods and production differentiation in not very obvious. Marketing strategy focuses on availability and price.. The process follows a fixed sequence of operations. High automation is possible.

Characteristics of Process Industry (Flow Production):

Dedicated plant and equipments with zero flexibility. Material handling is fully or mostly automated. Flow is measured by weight or volume. Shorter lead time. Products cannot be disassembled and components cannot be

identified with final product. The end product is not divisible and a separate process is required

to make it ready for the market. These are capital intensive units requiring large investments. Process follows a predetermined flow of investments. Maintenance is an important aspect. Unit cost is lower due to high volume of output. Planning and scheduling is a routine action. Operators do not have to be highly skilled..

Special features: Variation in raw material quality due to different sources of supply. Processing technology variations. Variations in the yield of output. Demand for by-products and joint products. Shelf life of raw materials. Product differentiation is limited. Plant availability depends on prevention maintenance.

TYPES OF PRODUCTION:1. Job-Type Production:

In this type of production, one or a few items of the product is made, especially as per the specific design of the customer, within a settled cost and time.

Characteristics of Job Order Production;

High variety of products and low volume. Use of general purpose machines and facilities. Highly skilled operators who can take up the challenge of unique jobs. Frequently changing set ups. Process (functional) type layout for arrangement of facilities. Large inventory of materials, tools and parts. Movement of material is long and interrupted. Relative imbalance of workload in different departments. Functional departmentalization. Requires numerous job instructions. Detailed planning and sequencing involved. Many products are produced so material handling has to be modified.

Batch-Type Production:

Batch-type of production is characterized by manufacture of limited number products at regular interval and stocked to await sales. Examples of such production are: medicines, chemicals, assembly shops etc.

Characteristics of Batch production:14. Short production runs.15. Plant and machinery are set up to produce one item and then re

set to produce another batch of items.16. There are more number of set ups and hence higher set up

costs.17. Amount of supervision required less than in job orders.18. Plant and Machinery are flexible.19. Manufacturing lead time and also cost are lower than in job

order production.20. There is higher level of work-in-process inventory.21. Flexible material handling system.

MASS PRODUCTION:

Mass production is also referred to Continuous production. The production facilities are arranged as per the sequence of production operation, from the beginning to the finished product. This flow is maintained through material handling equipments such as conveyor belts, transfer devices, etc. Assembly line production is an example.

Characteristics of Mass Production: Flow of material is continuous Special purpose machines are used Amount of supervision is less Material handling systems are mechanized. Lower skilled persons can manage operation Short-cycle time Work-in-process is comparatively low High inventory of raw material Little flexibility of equipment and machine.

Types of Manufacturing systems :

High Job Type /i\ i

Variety Batch Type /i\ i Mass Production Low ________________________________________ Low -> -> High Volume

Types of manufacturing systems

CELLULAR PRODUCTIONThe Cellular production system is based on group technology which seeks to achieve superior performance by exploiting similarities in the parts. Groups or parts that have similar requirements are group into families. After the parts are divided into families, a cell which has all the equipments and facilities required by the parts is created. A team is responsible for organizing work within a cell. Based on the date of requirement, the cell members schedule the work. Cellular manufacturing combines the advantages of job shop to obtain high variety and the reduced cost of mass production. Cellular processes are used as a substitute for job shop process that need increased productivity. They are being used for service operations also.

Advantages: Reduced material handling and transportation because

workstations are especially close and are often operated as repetitive flow processes.

Set up time are reduced because the jobs often have similar characteristics that require less time for setting up.

Reduction in throughput time because of reduction in waiting time between productive stages and also for waiting for transportation.

Efficient scheduling lowers in process inventory and less inventory.

Less space is required as the machines in the cell are located close by.

Simplified shop floor control and reduction in defects due to increased accountability.

Lower total investment due to higher productivity and efficiency

Limitations:

Breakdown of a single machine leads to halt of entire cell. In situations of lowering the demand, breaking down the cell

and redistribution may be necessary. Implementation requires considerable amount of work and

expertise to characterize and classify the products and to design appropriate work cells.

Comparison between various types of production_______________________________________________________________Characteristics Job-Order Batch Mass_____________________________________________________________________________1. Volume of production One or few Limited number Large Quantity

2. Product variety Large variety Medium or few One /few standard

3. Layout Process/ Functional Process/ functionalProduct/ Line

4. Set up time High High & Frequent Low

5. Manufacturing Cycle time Large Medium Low

6. Material Flow Discontinuous/ non Discontinuous Uniform andUniform, travel long

uninterrupted flowDistances

7. Equipment & machinery General purpose General purpose Special purposeHigh production

Dedicated

8. Flexibility High High Very Low

9. P.P.C. Complex Complex Simple/routine

10. Work-in-process High Medium Low

11. Cost per Unit High Medium Low

12. Skill of labour Highly skilled Skilled Semi or unskilled

13. Investment Low Medium Highly Capital Intensive

14. Material Handling Manual Manual/semi auto Automated

15. Plant utilization & Low Medium High Productivity________________________________________________________________________________

Questions:

1. “ Production is a value addition process”. Comment with an example.

2. Production Management is “process of planning, organizing and controlling the activities of production functions”. Explain.

3. Discuss the scopes and objectives of production Management.

4. Explain the salient features and characteristics and when to use the following types of production systems:

(i) Make to order(ii) Make to stock(iii) Make to Assemble.

5. Explain the various interrelationship between the following functional Areas

1. Production and Marketing2. Production and Finance3. Production and Personnel

6. Give the characteristic features of the following types of production;a. Job order and Project type.b. Batch Productionc. Mass Production and Flow Production.d. Cellular Manufacturing system.