Introduction to Production

Management
and Strategic Issues
Production Management
• Production is the creation of utilities for meeting the human wants
• Men, material and machines are used for the creation of goods for different utilities
• production is the process of transforming raw materials or purchased component into
finished goods for sale ie, creation of value in the form of utility
• Production management refers to the application of management principles to
production functions/ activities in a factory
• It is a systematic approach to addressing issues in the transformation process
that converts inputs into useful, revenue-generating outputs
• Example: In an automobile factory, metal steel is formed into different shapes, painted
and finished, and then assembled with thousands of component parts to produce a
working automobile
Definition

Production/operations management refers to

systematic design, direction and control of processes
which combines and transforms various resources used
in the production/operations subsystem of the
organization into value added product/services in a
controlled manner as per the policies of the
organization while meeting various organizational
objectives such as effectiveness, efficiency and
adaptability for internal as well as external customers
while fetching revenue
Primary Functional Areas of Business
Operations as the Technical Core

• Operations is the technical core or “hub” of the organization, interacting with the other
functional areas and suppliers to produce goods and provide services for customers
The Transformation Process

Transformation
Inputs Process Outputs
OM’s Transformation Process: How Process Works
System
Random Customer
Fluctuation Feedback
Inputs
Adjustment
Monitor
Land needed?
Output Outputs
Labor
Capital Transformation
Raw Material Process Goods and
Machinery Services
Information Financial Results
Technology Information
Management Feedback
Comparison
Environment: (Actual vs Desired)
Customers, Suppliers, /Monitoring and Control
Competitors, Regulation, (Quality Management,
Economy
maintenance management,
Process Improvement)
Inputs of an Operations System

• External
• Regulations, Legal, Technological, Economy
• Market
• Competition, Customer Desires, Product Info
• Primary Resources
• Materials, Personnel, Capital, Utilities
• Information and management
• Forecasts, scientific analysis
Transformation Processes

 Physical: as in manufacturing operations

 Locational: as in transportation or warehouse operations
 Exchange: as in retail, trade, renting, loans
 Physiological: as in health care
 Psychological: as in entertainment – radio, TV, concerts
 Informational: as in communication – Newspaper, magazine, satelite
Outputs of an Operations System

• Direct
• Products
• Services
• Indirect
• Waste
• Pollution
• Technological Advances
Historical Milestones
Historical Milestones in OM

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

• OM has it roots in the Industrial Revolution that occurred during the late 18th and
early 19th centuries in England
• Prior to that goods had been produced without the aid of mechanical equipment
• skilled crafts persons and their apprentices fashioned goods for individual
customers from studios in their own homes
• Every piece was unique, hand-fitted, and made entirely by one person
• a process known as craft production
• craft production still exists today
The Industrial Revolution

• Began in Britain in the 18th century

• The steam engine, invented by James Watt in 1764, 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 or division of labor
• companies divide their production or service process into several set tasks
• Employees repeat a single portion of the production process rather than performing multiple tasks
themselves
• late-1700s factories had not only machine power but also ways of planning and
controlling the tasks of workers
The Industrial Revolution

• 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
• idea of creating standardized parts that were identical and could be easily swapped out with one
another
• This allowed for mass production of goods and simplified maintenance and repair processes
• efficiently, cost reduction and increased productivity
• 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 (1865 to 1877)

• 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

• Taylor introduced theory of Scientific Mangement in early 1900s
• emphasized the importance of scientifically analyzing work processes to identify the most efficient
methods for performing tasks
• His key contributions included
• Systematic study of work processes
• Principles of management
• Incentive pay systems were initiated
• Emphasis on worker management cooperation: mutual respect and collaboration
Scientific Management

• Tylor's ideas were embraced and extended by efficiency experts Frank and Lillian
Gilbreth, Henry Gantt, and others

• 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 behaviorists came a gradual change in the way

managers thought about and treated workers
Operations Research

• During World War II (late 1930’s), 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, while it contributes
over 50 per cent to India’s GDP
• Investment per office worker now exceeds the investment per factory
worker
• Thus there is a growing need for service operations management
The Technology 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:
Contemporary Forces Shaping P/OM

• Global Competition (time, cost, innovation, quality)

• Changing Consumer Preferences
• Quality, Customer Service (including time), and Cost Challenges
• Rapid Expansion of Advanced Technologies
• Continued Growth of the Service Sector
• Scarcity of Operations Resources
• Environmental and Social Responsibility Issues
• Increased cross-functional decision making
• Supply Chain Disruptions
• Regulatory Compliance
• Workforce Dynamics and Talent Management
• Risk Management and Resilience
• Innovation and Industry 40
Organizational Positions and Career Opportunities in
P/OM

• Entry-Level Positions
• Production Assistant: Assists with day-to-day production activities, such as scheduling, inventory
management, and quality control
• Operations Assistant: Supports operational activities, including process documentation, data
analysis, and coordination with various departments

• Mid-Level Positions
• Production Supervisor: Oversees production teams, ensures production schedules are met, and
monitors quality standards
• Operations Analyst: Analyzes operational data to identify process improvements, cost-saving
opportunities, and efficiency enhancements
• Supply Chain Coordinator: Manages logistics, transportation, and inventory levels to optimize the
supply chain and minimize disruptions
• Senior-Level Positions
• Production Manager: Leads production operations, develops strategies to improve efficiency, and
oversees budgeting and resource allocation
• Operations Manager: Manages overall operational activities, including production, logistics, and
supply chain management, to meet organizational goals
• Plant Manager: Responsible for the overall performance of a manufacturing plant or facility,
including production efficiency, safety, and regulatory compliance

• Specialized Roles
• Quality Manager: Focuses on ensuring product quality and implementing quality control measures
throughout the production process
• Lean/Six Sigma Specialist: Implements Lean and Six Sigma methodologies to streamline
processes, reduce waste, and improve efficiency
• Continuous Improvement Manager: Leads initiatives to identify and implement process
improvements, operational efficiencies, and cost-saving measures
• Executive-Level Positions
• Vice President of Operations: Provides strategic direction for all operational activities, oversees
multiple facilities or regions, and drives organizational growth and profitability
• Chief Operations Officer (COO): Responsible for the overall operations of the organization,
including production, supply chain, and logistics, and works closely with other executives to align
operations with business objectives

• Digital Transformation in P/OM: New Career Pathways

• Data Analyst/Data Scientist
• Supply Chain Analytics Specialist
• E-commerce Fulfillment Manager
• IoT Integration Engineer
• Predictive Maintenance Analyst
• Sustainability and Environmental Manager
• Agile Manufacturing Strategist
• Robotic Process Automation (RPA) Coordinator
• Data-driven Demand Planner
Objectives of Production

• In alignment with broader organizational goals and strategies

• Production aims to optimize resources, deliver value to customers, and drive long-term
profitability and growth
• Meeting Customer Demand
• delivering products or services that meet quality standards, specifications, and delivery timelines
• Maximizing Efficiency
• of resource utilization, to minimize waste and reduce production costs
• Ensuring Quality
• meet customer expectations and build brand reputation
• Increasing Productivity
• improving processes, workflows, and technologies to achieve higher output levels
• Minimizing Lead Times
• from order placement to product delivery or service completion
• Enhancing Flexibility
• to adapt quickly to changes in market demand, customer preferences, or supply chain disruptions
• Reducing Inventory Levels
• optimizing inventory turnover rates to minimize holding costs, improve cash flow, and mitigate risks
associated with obsolete or excess inventory
• Ensuring Safety and Compliance
• with regulatory requirements, industry standards, and environmental regulations to protect employees,
customers, and the environment
• Supporting Innovation
• to develop new products, processes, or technologies that create value for customers and drive
competitive advantage
• Achieving Sustainability
• by adopting environmentally friendly practices, reducing carbon footprint, and promoting social
responsibility throughout the supply chain
Manufacturing Operations

• Globally, India is emerging as an important manufacturing base and is competing closely

with China in attracting several multinational companies to set up their manufacturing
plants
• abundant low-cost, rich talent pool of scientists, researchers, and engineers and English
speaking workforce
• Manufacturing operations transform materials into desired goods and products

 Manufacturing Operations can be described using verbs as

 pressing and turning metal (on a lathe), cutting paper, sewing clothes, sawing and drilling
wood, forming plastics, shaping clay, heat-treating materials, soldering contacts, weaving
fabric, blending fuels, filling cans
 snapping together parts, gluing sheets, fitting components, joining pieces together, preparing
(assembling) a burger
 Products like automobiles, airplanes, televisions, furniture suites, computers, refrigerators, and
light bulbs (LEDs too) are made in factories
 Fast-food chains like McDonald’s and Burger King view the assembly of sandwiches from
meat, buns, and condiments as a manufacturing application
 Manufacturing Operations (continued)

 Goods and services co-exist when manufacturers need to provide maintenance and
repair services, eg, autos, copy machines, refrigerators, X-Boxes, etc

 Servicing goods (repair, replace, etc) to satisfy customers’ warranty expectations

requires product and process design considerations to optimize productivity
 Operations example in Manufacturing:
Food Processing

INPUTS PROCESS OUTPUTS

Raw vegetables Cleaning Clean vegetables

Metal sheets Cutting/Rolling/Welding Cans

Energy, Vegetables Cutting Cut vegetables

Energy, Water, Cooking Boiled

Vegetables vegetables
Energy, Cans, Boiled Placing Can food
vegetables
Service Operations

 Service operations refer to the activities and processes involved in delivering

services to customers or clients
 focus on intangible outputs such as experiences, expertise, or assistance
 These operations involves stages, including customer interaction, resource allocation,
service delivery, and post-service support
 Effective management of service operations is essential for ensuring customer
satisfaction, optimizing resource utilization, and achieving business objectives
 Key aspects of service operations management include capacity planning, quality
assurance, service design, process optimization, and customer relationship
management
 Examples
 Service operations in banks, hospitals, education, law, post office 34
Service Operations (continued)

 Retail operators and grocery supermarkets define processes that are

pertinent to merchandise selection and pricing, outsourcing, distribution
logistics, display, and store retailing

 MasterCard, VISA, and American Express are totally dependent upon

smart operations management to provide profit margin excellence

 Disaster (crisis) management, another service area, is an emerging field

within the realm of Production and Operations Management

35
Operations example in service: Health care

Inputs Processing Outputs

Doctors, nurses Examination Healthy
Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
Manufacturing Vs Service Organizations
The Service – Product Spectrum
Goods-service Continuum

Steel production Home remodeling Auto Repair Maid Service Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage goods

Low percentage service High percentage service

39
Scope of Production Function

• Production planning and control

• involves the coordination of all production activities to meet customer demand efficiently
• It encompasses forecasting demand, creating production schedules, allocating resources,
monitoring processes, and adjusting schedules as needed to ensure smooth operations and meet
quality, cost, and delivery targets
• This function integrates strategic decision-making with real-time monitoring and adjustment to
optimize production processes and drive continuous improvement within the organization
• Quality Control and Assurance
• Ensuring the quality of products is crucial
• Quality control involves inspecting products during and after production to identify defects
and ensure they meet specified standards
• Quality assurance involves implementing processes and systems to prevent defects from
occurring in the first place
Scope of Production Function (Contd…)

• Inventory Management
• Managing inventory levels is essential to meet customer demand while minimizing
holding costs
• This function involves determining optimal inventory levels, ordering and receiving
materials, and tracking inventory throughout the production process
• Maintenance Management
• Ensuring that equipment and machinery are properly maintained is vital for preventing
breakdowns and minimizing downtime
• Maintenance management involves scheduling routine maintenance, conducting repairs
when needed, and implementing preventive maintenance measures
• Workforce Management
• Managing the workforce involves recruiting, training, and scheduling employees to
ensure adequate staffing levels and optimal productivity
• It also includes creating a safe and supportive work environment to promote employee
morale and motivation
• Cost Management
• Controlling production costs is crucial for maintaining profitability
• This function involves monitoring expenses, identifying cost-saving opportunities,
and implementing strategies to reduce waste and inefficiency
• Process Improvement
• Continuous improvement is essential for staying competitive and adapting to
changing market conditions
• This function involves identifying areas for improvement, implementing process
changes, and measuring the impact on productivity and quality
• Location Planning
• Location planning involves selecting the optimal location(s) for production
facilities or operations
• This function involves conducting site selection studies, analyzing location
alternatives, and evaluating the trade-offs between different locations based on
strategic priorities and operational requirements
• Layout
• Layout planning involves designing the physical arrangement of production
facilities, workstations, equipment, and resources within a manufacturing or
service environment
• Layout design typically involves analyzing production processes, creating facility
layouts using tools like flowcharts or software simulations, and optimizing layouts
to minimize waste and maximize productivity
• Material Handling
• Material handling involves the movement, storage, and control of materials and
products throughout the production process
• Material handling functions include receiving, storing, picking, transporting, and
delivering materials using various equipment and technologies such as conveyors,
forklifts, automated guided vehicles (AGVs), and robotics
• Product and Process Design
• Product and process design involves developing new products or optimizing existing ones
and designing the production processes to manufacture them efficiently
• Factors such as customer requirements, market demand, product complexity, production
capabilities, quality standards, and cost constraints influence product and process design
decisions\
• Capacity Planning
• Strategic capacity planning involves determining the production capacity needed to meet
future demand
• It includes assessing current capacity, forecasting future demand, and making decisions
regarding expansions, acquisitions, or outsourcing to ensure that production capacity
aligns with business objectives
• International Expansion and Globalization
• For organizations operating in global markets, strategic production management involves
navigating the complexities of international expansion and globalization
• This includes assessing market opportunities, establishing international manufacturing
facilities or partnerships, and adapting production processes to local regulations and
cultural preferences
Classification of Production system

• Production systems can be classified as Job Shop, Batch, Mass and Continuous Production system
What is Productivity?

• A measure of Competitiveness
• the degree to which a nation can produce goods and services that meet the test of international
markets while simultaneously maintaining or expanding the real incomes of its citizen
• Productivity is the relation between what we produce and the resources used
• Productivity is the arithmetic ratio of output to the amount of input

PRODUCTIVITY = Output / Input

• Output
• sales made, products produced, customers served, meals delivered, or calls
answered
• Input
• labor hours, investment in equipment, material usage, or square footage

• Productivity refers to the efficient utilization of resources, including workers,

machines, and materials, within the production system to achieve maximum output
Productivity and Competitiveness
Productivity Measures

PARTIAL PRODUCTIVITY MEASURE (PPM)

PARTIAL PRODUCTIVITY= Total output / individual input

(a) Labor Productivity=Total o / Labor input
(b) Capital Productivity = Total o / Material input
(c) Material Productivity = Total o / Capital input
(d) Energy Productivity = Total o / Energy input

TOTAL PRODUCTIVITY MEASURE (TPM)

= Total tangible o / Total tangible i
Tangible o= Value of Finished & Partial units produced, dividend from securities, interest, other incomes
Tangible i = Value of ( human , material, capital, other inputs)
Factors Affecting Productivity

• Technology and Equipment

• Up-to-date technology and efficient equipment can enhance productivity
• Workforce Skills and Training
• Skilled and well-trained employees are more productive
• Work Environment
• A safe, organized, and supportive work environment promotes productivity by reducing distractions and
enhancing employee morale
• Effective Management Practices
• Clear goal-setting and performance monitoring, positively impact productivity levels
• Process Optimization
• Streamlining production processes and implementing lean principles to reduce waste and improve workflow
• Quality Control
• Ensuring product quality minimizes defects, rework, and waste, leading to higher productivity levels
• Supply Chain Management
• Timely delivery of materials and components through effective supply chain management ensures smooth
production operations, enhancing productivity
Productivity Improvement Techniques

1 Technology based
2 Employee based
3 Material based
4 Process based
5 Product based
6 Management based
Importance of Productivity

• Performance Evaluation • Continuous Improvement

• Identify opportunities for ongoing
• Assess efficiency and effectiveness optimization
• Resource Optimization • Customer Satisfaction
• Identify inefficiencies in resource usage • Deliver faster, higher-quality products or
• Competitive Advantage services
• Benchmark against industry standards and • Human Resource Management
competitors
• Enhances employee performance and
• Capacity Planning morale, Identifies skill development
• Align production capacity with demand needs, recognizes contributions to
productivity gains
• Decision Making
• Prioritize investments and implement • Cost Management
improvements • Identifies cost-saving opportunities,
Optimizes resource utilization,
Streamlines processes to reduce waste
Techniques applied for Productivity Improvement

1. Value Engineering
2. Quality Circles
3. PERT & CPM
4. Monetary and Non- monetary Incentive Plan
5. Operations Research
6. Training
7. Job Enlargement
8. Job Enrichment
9. Inventory Control
10. Materials Management
11. Quality Control
12. Job Evaluation
13. Human Factor Engineering
Ethics and Social Responsibility in Production Management
• Labor Practices • Community Engagement
• Ensure fair wages, safe working conditions, • Engage with local communities and address
and reasonable hours concerns
• Uphold labor rights and treat workers with
• Contribute positively to community development
dignity
• Environmental Impact • Transparency and Accountability
• Minimize pollution and resource depletion • Maintain open communication with stakeholders
• Implement sustainable practices and waste • Be accountable for decisions and actions
reduction measures • Fair Competition
• Supply Chain Ethics • Adhere to fair competition principles
• Ensure suppliers adhere to ethical standards • Avoid unethical practices that harm competitors
• Verify compliance with labor rights and and consumers
environmental regulations
• Cultural Sensitivity
• Product Safety and Quality
• Adhere to ethical standards and regulatory • Respect local customs and traditions in operations
requirements • Consider cultural differences in business practices
• Deliver safe and reliable products to the market
Managing Global Operations
‘Globalization’ describes businesses’ deployment of facilities and operations around the world
geographic distance becomes a factor of diminishing importance in the establishment and maintenance of cross
border economic, political and socio-cultural relations

Factors driving Globalization of Operations

• Outsourcing: Utilizing global resources for cost-effective task delegation
• Technological Advancements: Leveraging innovations for seamless global operations
• Market Expansion: Growing internationally for diversification and increased revenue
• Global Supply Chains: Establishing efficient networks to meet global demand
• Trade Liberalization: Benefiting from reduced barriers for smoother international trade
• Access to Talent: Leveraging diverse global talent pools for innovation and competitiveness
• Cost Efficiency: Achieving lower production costs through global operations
Global markets impose new challenges such as related to standards on quality and time
Managers should not think about domestic markets first and then global markets later, rather it could be think
globally and act
Key Issues to Focus for Managing Global Operations
• Cross-Cultural Communication
• Addressing communication challenges among diverse teams for effective collaboration
• Logistics and Supply Chain Management
• Ensuring efficient delivery across borders and managing international trade regulations
• Compliance, Risk, and Regulatory Management
• Managing legal compliance, identifying and mitigating global operational risks
• Standardization vs Localization
• Balancing global standards with local adaptations to meet cultural preferences and regulatory requirements
• Talent Development and Management
• Recruiting, developing, and retaining a skilled global workforce
• Technology Integration
• Leveraging technology to streamline operations, enhance communication, and support decision-making
• Sustainability and CSR
• Incorporating environmental sustainability practices and CSR initiatives into operations
• Financial Management and Partnerships
• Managing finances and currency fluctuations, forming strategic alliances to support global expansion
Strategy and Operations
• Strategy is how the mission of a company is accomplished
• The strategic plan focuses on the gap between the firm’s vision and its current position
• It is important that strategy in each of the functional areas be internally consistent as
well as consistent with the firm’s overall strategy
• Operations and supply chain management play an important role in corporate strategy
• Strategy formulation consists of following basic steps
1 Defining a primary task
2 Assessing core competencies
3 Determining order winners and order qualifiers
4 Positioning the firm
5 Deploying the strategy
Core Competencies

• Core competency is what a firm does better than anyone else, its distinctive
competence
• represent sustainable competitive advantages
• A firm’s core competence can be exceptional service, higher quality, faster delivery, or
lower cost
• Products and technologies are seldom core competencies as the advantage they
provide is short-lived
• Core competencies are more likely to be processes,
• For example, while the iPod was a breakthrough product,
• it is Apple’s ability to turn out hit product after hit product (eg, iPhone, iPad,
MacBook, etc) that gives it that competitive advantage
• Core competencies are not static
• They should be nurtured, enhanced, and developed over time
• Kingfisher Airlines - despite initial success, it failed due to financial mismanagement and
operational inefficiencies, such as neglecting route optimization and workforce
development
• Essential approaches to cultivating business core competencies
• Strategic Alignment: Align core competencies with long-term goals
• Talent Development: Invest in developing employee skills and abilities
• Innovation Focus: Foster a culture of creativity and innovation
• Partnerships: Collaborate to leverage additional competencies
• Continuous Improvement: Regularly evaluate and refine competencies to stay competitive
Order Winners and Order Qualifiers
Factors that influence customer's purchasing decision and competitive advantage of a product/service

Order Qualifiers Order Winners

• The basic criteria that a product/service must • Factors that differentiate a product/service from
meet in order to be considered by a customer those of competitors, making it the preferred
• minimum requirements that a company must choice for customers
fulfill • the attributes that give a company a competitive
• Quality standards, price range, delivery time, edge and lead to a purchase decision
basic features, safety regulations, and • Unique features, superior quality, innovation,
reliability are all examples of order qualifiers brand reputation, customization options,
• A fast-food restaurant must focus on clean excellent customer service, and speed of
environment, quality food, quick service, and delivery can all be examples of order winners
convenient location Failing to meet these • Amul, a dairy cooperative, has built a strong
requirements can result in losing customers to brand reputation for its quality and reliability in
competitors who do meet these standards the dairy products segment, making it a
preferred choice among Indian consumers
Order Winners and Qualifiers

• Order winners and qualifiers can evolve over

time
• Automobile Industry
• Japanese and Korean automakers initially competed
on price but had to ensure certain levels of quality
before the US consumer would consider their product
• Over time, the consumer was willing to pay a higher
price (within reason) for the assurance of a superior-
quality Japanese car
• Price became a qualifier, but quality won the orders
• Presently, high quality, as a standard of the
automotive industry, has become an order qualifier,
and innovative design or superior gas mileage wins
the orders
Order Qualifiers

• Quality Standards: Meeting specific quality benchmarks ensures that products or

services are acceptable to customers This includes factors such as reliability,
durability, and consistency
• Price Competitiveness: Offering competitive pricing relative to similar products or
services in the market is crucial to attracting customers, especially in price-sensitive
segments
• Safety and Compliance: Adhering to safety regulations and industry standards is
essential for ensuring the safety and legality of products, thereby meeting the basic
requirements of customers and regulatory bodies
• Basic Features: Providing essential features or functionalities expected by customers
in a product or service category is necessary for consideration in the purchasing
decision
Order Winners
• Innovation: Introducing novel ideas, technologies, or designs that differentiate a product
or service from competitors can lead to a significant competitive advantage and capture
customers' attention
• Brand Reputation: Building a strong brand identity based on trust, reliability, and
positive associations can influence customers' perceptions and preferences, leading to
increased sales and market share
• Customization and Personalization: Offering tailored solutions or customizable options
that meet the specific needs and preferences of individual customers can enhance
customer satisfaction and loyalty
• Superior Quality: Providing exceptional quality, craftsmanship, or performance
compared to competitors can establish a product or service as a premium offering,
attracting discerning customers willing to pay a premium price
Outsourcing and Offshoring

• Outsourcing involves contracting specific business functions or processes to external

third-party service providers rather than handling them in-house
• The primary goal is to leverage the expertise, resources, and cost advantages of
external vendors to improve efficiency and focus on core business activities

• Offshoring refers to the practice of relocating business activities or processes to a

foreign country, typically to take advantage of lower labor costs, favorable regulatory
environments, or specific market conditions
ODM, OEM and OBM Production Strategies

OEM (Original Equipment Manufacturer)

• OEM companies are responsible for manufacturing products based on specifications
provided by another company, known as the "brand owner" or "original brand
manufacturer
• The OEM company produces the product but does not typically market or sell it under
its own brand name
• OEM companies specialize in manufacturing products according to the design,
features, and quality standards specified by the brand owner
• They often operate based on contracts and supply agreements with the brand owner
• Example: A computer manufacturer that produces laptops based on the
specifications provided by a technology company like Dell or HP is an OEM The
laptops are then branded and sold by Dell or HP under their respective brand names
ODM (Original Design Manufacturer)

• ODM companies are responsible for designing and manufacturing products based on
their own designs or innovations
• The customer choose a product design, add a personal brand name, package and
market and sell them under their own brand names
• ODM companies handle both the design and manufacturing processes of products
• They often have expertise in product development and may offer customization options for their
clients
• Example: An ODM company can designs and manufactures smartphones based on its
own innovative designs and technology and sells them to other brands like Samsung
or Xiaomi, which then market and sell the smartphones under their respective brand
names
OBM (Original Brand Manufacturer)
• OBM companies design and manufacture products under their own brand names.
• They have full control over the branding, marketing, and distribution of the products

• OBM companies develop their brand identity, create product designs, oversee
manufacturing processes, and handle marketing and sales activities
• They are directly responsible for building and promoting their brands in the market
• Example: Apple is a classic example of an OBM
• The company designs its own products (eg, iPhones, MacBooks) and manufactures
them under its brand name Apple controls all aspects of its products, from design to
marketing and distribution
Comparing OEM, ODM, and OBM Business Models

• OEM (Original Equipment Manufacturer)

• Advantages: Access to established markets, focus on manufacturing expertise, lower
marketing costs
• Disadvantages: Limited brand recognition, dependency on brand owners
• ODM (Original Design Manufacturer)
• Advantages: Flexibility and customization, reduced time to market, lower design costs
• Disadvantages: Lack of brand visibility, risk of commoditization
• OBM (Original Brand Manufacturer)
• Advantages: Brand control, higher profit margins, proactive innovation and differentiation
• Disadvantages: Higher investment requirements, marketing and distribution challenges,
greater risk exposure
Skill Development
Visit a fast food restaurant like Pizza hut to understand the concept of this unit by
getting the information for the following questions
1. Identify the type of production system followed
2. Check how production system is managed
3. Find out utilization of the resources namely manpower, capacity and material
4. How the customer services is rendered
Thank You