Production/Operation Management

Chapter One

Introduction to Production/Operations
Management

By: Dinkisa Keno (PhD)

 Learning objectives
 Define and explain operation management and production
management;
 Explain the strategic role and planning of OM in business;
 Describe the decisions that operations managers make;
 Describe the differences between service and manufacturing
operations;
 Identify major historical developments in OM;
 Describe the scope and objective of OM;
o What is operation?

o What is production?

o What is management?

o What is production management?

o What is operations management (OM)?

 Operation is part of an organization, which is concerned with
the transformation of a range of inputs into the required output
(services) having the requisite quality level.

 Production can be defined as the process of conversion of one

form of material into another form through chemical or
mechanical process to create or enhance the utility of the
product to the user.

 Management is the process, which combines and transforms

various resources used in the operations subsystem of the
organization into value added services in a controlled manner
as per the policies of the organization.
1.1. The Meaning of Operation Management

 The set of interrelated management activities, which are involved

in manufacturing certain products, is called as production
management.

 If the same concept is extended to services management, then the

corresponding set of management activities is called as
operations management.
 Therefore,
 Operation management is the business function responsible for
planning, coordinating, and controlling the resources needed to
produce products and services for a company.

 Operation management is:

A management function

An organization’s core function

In every organization whether Service or

Manufacturing, profit or Not for profit
Typical organizational Structure
 1.2. Historical Development of OM
• Many historical milestones have shaped OM.

• Some of these are the Industrial Revolution, scientific

management, the human relations movement, management
science, and the computer age.

• OM is highly important function in today’s dynamic business

environment.

• Among the trends with significant impact are just-in-time, TQM,

reengineering, flexibility, time-based competition, global
marketplace, and environmental issues.
 Historical Development of OM Cont’d

• Industrial revolution Late 1700s

• Scientific management Early 1900s
• Human relations movement 1930s-60s
• Management science 1940s-60s
• Computer age 1960s
• Environmental Issues 1970s
• JIT & TQM* 1980s

*JIT= Just in Time, TQM= Total Quality Management

 Historical Development of OM Cont’d

 OM development:
• Reengineering 1990s
• Global competition 1980s
• Flexibility 1990s
• Time-Based Competition 1990s
• Supply chain Management 1990s
• Electronic Commerce 2000s
• Outsourcing & flattening of world 2000s

For long-run success, companies must place much importance on their

operations
 1.3. Production Function and Management
1.3.1. Production Function
 Production function is ‘the part of an organization, which is
concerned with the transformation of a range of inputs into
the required outputs (products).

• Production is defined as ‘the step-by-step conversion of one

form of material into another form through chemical or
mechanical process to create or enhance the utility of the
product to the user’.

• Thus production is a value addition process. At each stage of

processing, there will be value addition.
 Production System:

 The production system is the part of an organization,

which produces products of an organization.

 It is that activity whereby resources, flowing within a

defined system, are combined and transformed in a
controlled manner to add value in accordance with the
policies communicated by management.
 A simplified production system is shown below:
 The production system has the following characteristics:

i. Production is an organized activity, so every production

system has an objective;
ii. The system transforms the various inputs to useful
outputs;
iii. It does not operate in isolation from the other
organization system;
iv. There exists a feedback about the activities, which is
essential to control and improve system performance.
 Classification of Production System:

 Production systems can be classified as Job-shop, Batch,

Mass and Continuous production systems
1. Job-Shop Production:

 Job-shop production are characterized by manufacturing one or

few quantity of products designed.

 Products are produced as per the specification of customers

within prefixed time and cost.

 The distinguishing feature of this is low volume and high

variety of products.
2. Batch Production:

 Batch production is a form of manufacturing in which the job

pass through the functional departments in lots or batches
and each lot may have a different routing.

 It is characterized by the manufacture of limited number of

products produced at regular intervals and stocked awaiting
sales.
3. Mass Production:
 Manufacture of discrete parts or assemblies using a
continuous process are called Mass Production.

 This production system is justified by very large volume of

production.

 The machines are arranged in a line or product layout.

 Product and process standardization exists and all outputs

follow the same path.
4. Continuous Production
• Production facilities are arranged as per the sequence
of production operations from the first operations to
the finished product.

• The items are made to flow through the sequence of

operations through material handling devices such as
conveyors, transfer devices, etc.
 1.3.2. Production Management
 Production management is ‘a process of planning, organizing,
directing and controlling the activities of the production
function.
 It combines and transforms various resources used in the
production subsystem of the organization into value added
product in a controlled manner as per the policies of the
organization’.
 Production management also deals with decision-making related
to production processes so that the resulting goods are produced
according to:
 specifications,
 the right amount,
 by the schedule demanded ,
 and of minimum cost.
 Reflection:

 What makes production management different from

operations management?
1.3.3. Objectives of Production Management
 The objective of the production management is ‘to produce
goods and services of:
 Right Quality and Quantity at the Right time and Right
manufacturing cost.
1. Right Quality: The quality of product is established based
upon the customers need.
 The right quality is determined by the cost of the product and the
technical characteristics as suited to the specific requirements .
2. Right Quantity: The manufacturing organization should
produce the products in right number.
 If they are produced in excess of demand, the capital will block up in the
form of inventory and if the quantity is produced in short of demand, leads
to shortage of products.
3. Right Time: Timeliness of delivery is one of the important
parameter to judge the effectiveness of production department.

4. Right Manufacturing Cost: Manufacturing costs are established

before the product is actually manufactured.

 Hence, all attempts should be made to produce the products at pre-

established cost, so as to reduce the variation between actual and the
standard (pre-established) cost.
 1.4. Operations System

 Operation is concerned with the transformation of a range of

inputs into the required output (services) having the requisite
quality level.

 An operation system was defined in terms of the mission it

serves for the organization, technology it employs and the
human and managerial processes it involves.
 Operations in an organization can be categorized into:

1. Manufacturing Operations, and

2. Service Operations.
  Reflection:

 What are the differences and similarities between

manufacturing operations and service operations?
1.Manufacturing Operations: is a conversion process
that includes manufacturing yields a tangible output: a
product.

2.Service operation: is a conversion process that

includes service yields an intangible output: a deed, a
performance, an effort.
 Manufacturers vs Service Organizations

Services: Manufacturers:
• Intangible product • Tangible product
• Product cannot be • Product is inventoried
inventoried
• High customer contact • Low customer contact
• Short response time • Longer response time
• Labor intensive • Capital intensive
 Similarities for Service/Manufacturers

• Both use technology;

• Both have quality, productivity, & response
issues;
• Both must forecast demand;
• Both can have capacity, layout, and location
issues;
• Both have customers, suppliers, scheduling
and staffing issues.
 Operations Management:

 Operation management has been defined as the process

whereby resources, flowing within a defined system, are
combined and transformed by a controlled manner to add
value in accordance with policies communicated by
management.

 The definition of the Operations Management contains the

following keywords: Resources, Systems, transformation
and Value addition activities.
1. Resource:
 Resources are the human, material and capital inputs to
the production process.
 Human resources are the key assets of an organization.

2. Systems:
 Systems are the arrangement of components designed
to achieve objectives according to the plan.
 A systems approach to operations management
recognizes the hierarchical management
responsibilities.
 System design is a predetermined arrangement of
components.
 It establishes the relationships that must exist between
inputs, transformation activities and outputs in order to
achieve the system objectives.
3.Transformation and Value Adding Activities

 The objective of combining resources under controlled

conditions is to transform them into goods and services
having a higher value than the original inputs.

 The transformation process applied will be in the form of

technology to the inputs.

 The effectiveness of the production factors in the

transformation process is known as productivity.
 1.5. Operations Management Objectives
 Objectives of operations management can be categorized
into:
1. Customer Service:
 The first objective of operating systems is to utilize
resources for the satisfaction of customer wants.
 Customer service is a key objective of operations
management.
 The operating system must provide something to a
specification, which can satisfy the customer in terms of
cost and timing.
 Thus, providing the ‘right thing at a right price at the
right time’ can satisfy the primary objective.
2. Resource Utilization:

 Another major objective of operating systems is to utilize

resources for the satisfaction of customer wants effectively.

 Customer service must be provided with the achievement of

effective operations through efficient use of resources.

 Inefficient use of resources or inadequate customer service leads

to commercial failure of an operating system.
 Operations management is concerned essentially with the
utilization of resources, i.e. obtaining maximum effect from
resources or minimizing their loss, under utilization or waste.

 The extent of the utilization of the resources’ potential might be

expressed in terms of the proportion of available time used or
occupied, space utilization, levels of activity, etc.

 Each measure indicates the extent to which the potential or

capacity of such resources is utilized.
 The twin objectives of operations management:
The customer service The resource utilizations
objective objective
To provide agreed/adequate To achieve adequate levels of
levels of customer resource utilizations (or
service (and hence customer productivity) :
satisfaction) by providing e.g. to achieve agreed levels
goods or services with the : of utilizations of materials,
 right specification, machines and labor.
 at the right cost, and
 at the right time.
1.6. Scope of Operations Management
 Operations Management distinguishes itself from other functions such
as personnel, marketing, finance, etc. by its primary concern for
‘conversion by using physical resources’.
 Following are the scope of activities, which are listed under
Production and Operations Management functions:
1. Location of facilities: is a long-term capacity decision, which involves
a long-term commitment about the geographically static factors that
affect a business organization.
2. Plant layouts and Material Handling: Plant layout refers to the
physical arrangement of facilities.
 It is the configuration of departments, work centers and equipment in the
conversion process.
 The overall objective of the plant layout is to design a physical arrangement that
meets the required output quality and quantity most economically.
  ‘Material Handling’ refers to the ‘moving of materials from the store
room to the machine and from one machine to the next during the
process of manufacturing’.

 It is also defined as the ‘art and science of moving, packing and

storing of products in any form.

3. Product Design: deals with conversion of ideas into reality.

 Every business organization have to design, develop and introduce new
products as a survival and growth strategy.

4. Process Design: is a macroscopic decision-making of an overall

process route for converting the raw material into finished goods.
 These decisions encompass the selection of a process, choice of
technology, process flow analysis and layout of the facilities.
5. Production and Planning Control: Production planning and
control can be defined as the process of planning the production
in advance, setting the exact route of each item, fixing the
starting and finishing dates for each item, to give production
orders to shops and to follow-up the progress of products
according to orders.

 The principle of production planning and control lies in the

statement ‘First Plan Your Work and then Work on Your
Plan’.

 The main functions of production planning and control

include Planning, Routing, Scheduling, dispatching and
Follow-up.
6. Quality Control: Quality Control may be defined as ‘a system that is used
to maintain a desired level of quality in a product or service’.
 It is a systematic control of various factors that affect the quality of the
product.
 Quality Control aims at prevention of defects at the source, relies on
effective feedback system and corrective action procedure.

7. Materials Management: is the aspect of management function,

which is primarily concerned with the acquisition, control, and
use of materials needed and flow of goods and services connected
with the production process having some predetermined
objectives.
8. Maintenance Management:

 The main objectives of Maintenance Management are:

1. To achieve minimum breakdown and to keep the plant in
good working condition at the lowest possible cost.
2. To keep the machines and other facilities in such a
condition that permits them to be used at their optimal
capacity without interruption.
3. To ensure the availability of the machines, buildings and
services required by other sections of the factory for the
performance of their functions at optimal return on
investment.
1.7. The Strategic Role of OM
1. OM transforms inputs to outputs
 Inputs are resources such as:

• People, Material, and Money

 Outputs are: goods and services

 OM’s Transformation Process:
2. OM plays transformation role:
 To add value

 Increase product value at each stage

 Value added is the net increase between output product value

and input material value
 Provide an efficient transformation

 Efficiency – means performing activities well for least

possible cost.
3. OM makes decisions:
 All organizations make decisions and follow a similar path:

 First decisions are very broad: – Strategic decisions

• Strategic Decisions – set the direction for the entire

company; they are broad in scope and long-term in
nature
 Tactical decisions: focus on specific day-to-day
issues like resource needs, schedules, & quantities
to produce.

o Are frequent decisions

o Strategic decisions are less frequent

 Tactical and Strategic decisions must align

End of chapter one

Any question?