Production and Industrial

Management: Basics
 Production Management (PM)

• What is production management?

– The part of a business organization that is responsible for
producing goods or services.
– A function or system that transforms inputs into outputs
of greater value.
Production Management
Deals with :
The design and management of;
– Products
– Processes
– Services
– Supply chains
• Strategic growth and competitiveness of any organization depends upon
the effective utilization of the critical productive resources.

• PM is concerned with the productive use of the raw materials, human

resources, equipment and facilities.

• Production is creation of utility.

• Form, time and place utility

• The role of production management to create value. Any activity that do not
add value should be eliminated.

• In PM, it is ensured that the output is of greater value than the input.
• The transformation process can be:

• Physical- as in manufacturing

• Locational- as in transportation or warehouse operations

• Exchange- as in retail operations

• Physiological- as in health care

• Informational- as in communication
• Modern manufacturing enterprises that manage these production
systems must cope with the economic realities of the modern world.
These realities include the following:

Globalization
International outsourcing
Local outsourcing
Contract manufacturing
Trend toward the service sector
Quality expectations
Operational efficiency
Production Management Operation Management

1. It’s concerned with 1. It is concerned with services

manufacturing
2. Out put is tangible 2. Output is intangible

3. Job use less labour and more 3. Job use more labour and
equipment less equipment

4. There is no customer 4. Frequent customer participation

participation
 Characteristics of Production System
1. Production is an organized activity, so every production
system has an objective.
2. The system transforms the various Inputs to useful Outputs.
3. It doesn’t operate in Isolation from the other organization
system.
4. There exists a feedback about the activities, which is essential to
control and improve system performance.
The Transformation Process
 Why Production Management?
• PM is an integrative body of knowledge; whose skills are needed in
industries as diverse as health care, education, telecommunications,
lodging, food service, banking, consulting and manufacturing.

• PM is one of the three major functions of any organization, and its

integrally related to all the other business functions.

• To know how goods and services are produced.

• To understand what operations managers do.

 Product
Design and
Production Development
Models Sales
(JIT, Kanban, Forecasting
MRP, ERP )

Materials
Management Facility
(Inventory Planning and
Control,EQQ) Plant Location
Production
Quality
Management
(TQM, TPM, Facility
Layout and
SQC, Six Plant Layout
Sigma)

Project
Scheduling Production Production
(CPM, PERT) Control Planning
(Scheduling,
Sequencing)
 The Heritage of PM
 Division of labor (Adam Smith 1776; Charles Babbage
1852)
 Standardized parts (Whitney 1800)
 Scientific Management (Taylor 1881)
 Coordinated assembly line (Ford/ Sorenson 1913)
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth 1922)
 Quality control (Shewhart 1924; Deming 1950)
 The Heritage of PM
 Computer (Atanasoff 1938)
 CPM/PERT (DuPont 1957, Navy 1958)
 Material requirements planning (Orlicky 1960)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 Baldrige Quality Awards (1980)
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Internet (1995)
 The historical development of production management

 Production system have existed since earliest days of civilization.

 The wide spread production of consumer goods and thus production

management did not begin till the Industrial Revolution in the 1700s.

 Prior to that, skilled craftsman fashioned goods for individual customers.

 The technology was embedded in minds and hands rather than

equipment.

 Operations were simple, markets were small and distribution was

uncomplicated.
 The availability of coal, iron ore and steam power set into motion a series
of industrial inventions and mechanically operated machines replaced
labour as primary factor of the production and factory came into
existence.

 The traditional view of manufacturing management began in 18th century

when Adam Smith (Wealth of Nation, 1776) recognized the economic
benefits of specialisation of labour. He recommended breaking of jobs
down into subtasks and recognises workers to specialised tasks in which
they would become highly skilled and efficient.
 In the early 20th century, F.W. Taylor developed scientific
management.

 From then till 1930, many techniques were developed prevailing the
traditional view.

 Production management becomes the acceptable term from 1930s

to 1950s. As F.W. Taylor’s works become more widely known,
managers developed techniques that focussed on economic
efficiency in manufacturing.
 Workers were studied in great detail to eliminate wasteful efforts and
achieve greater efficiency. At the same time, psychologists, socialists
and other social scientists began to study people and human behaviour
in the working environment.

 In addition, economists, mathematicians, and computer socialists

contributed more sophisticated analytical newer approaches.

Standardization:

 Eli Whitney (1790s) brought an important innovation in operations that

made mass production possible was the system of standardized and
interchangeable parts known as the ‘American system of manufacture’,
which developed in the United States and spread to the United Kingdom
and other countries.
Mass Production

 In many industries, craft manufacturing began to be replaced by mass

production in the 19th century. Mass production involves producing
goods in high volume with low variety – the opposite of craft
manufacturing.

Moving Assembly Line:

 A third innovation was the development of the moving assembly line by

Henry Ford. Instead of workers bringing all the parts and tools to a fixed
location where one car was put together at a time, the assembly line
brought the cars to the workers.
Japanese Production System

 During 1970s, Japanese companies became significant players in the

world economy, especially in products such as automobile and
electronics.

 Their production philosophy is embedded in:

 Quality comes first

 Improve product and process quality continuously
 Eliminate all forms of waste
Production Management- Today

 Mass production can produce large volumes of product but cannot

adapt change in demand quickly.

 Today’s market is characterized by shortened product life cycle and

development time, changes in technology, customized products, etc.

 Using a concept known as just in time, Japanese manufacturers

changed the rules of production from mass production to lean
production characterized by flexibility and quality.
Objectives of Operation Management

• Right Quality
• Right Quantity
• Predetermined time
• Pre established cost (manufacturing cost)
RIGHT QUALITY:

The quality of product is established based upon the customers

needs. The right quality is not necessarily best quality. It is
determined by the cost of the product and the technical
characteristics as suited to the specific requirements.

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.
RIGHT TIME:

Timeliness of delivery is one of the important parameter to judge

the effectiveness of production department. So, the production
department has to make the optimal utilization of input resources to
achieve its objective.

RIGHT MANUFACTURING COST:

Manufacturing costs are established before the product is actually

manufactured.

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.
Intermediate objectives stated in terms of:-

• Machinery and equipment

• Materials
• Manpower
• Supporting services
 Functions and scope of Production
Department

 Convert available capital into physical resources

 Convert the physical resources into saleable goods

and services
 Activities of Production Department
Additional activities required to fulfill the previous
activities

 Production of goods at the right time and sufficient quantity

to meet the demand
 Production of goods at minimum cost
 Production of goods of acceptable quality
 Function of Operation personnel

• Forecasting the demand for the products

• Arranging for the procurement of required factors of
production
• Arranging for the services such as maintenance, store keeping
material handling, inspection and quality control etc.
• Utilizing effectively the factors of production and service
facilities available to produce the product.
 Scope of Production Management

 Strategic decisions – set the direction for the entire

company; they are broad in scope and long-term in nature

 Tactical/operations decisions: focus on specific day-to-

day issues like resource needs, schedules, and quantities
to produce
 Scope of Production Management
 Scope of production management depends on decisions
(strategic and tactical decision)

 The strategic level decisions are:

- New product identification and design

- Process design and planning
- Facilities location and layout planning
- Design of material handling system
- Capacity planning
 The tactical (operational) level decisions are:

- Production planning
- Production Control

 Other activities such as Inventory control, maintenance and

replacement cost reduction and cost control and work system
design
 Production Management Frame Work
 Production Management framework is divided into
5 p’s
- Product
- Plant
- Programme
- Processes
- People
Product
- It is link between production and marketing.

A product should have:

- Performance
- Quality and reliability
- Aesthetics and ergonomics
- Quantity and selling price
- Delivery schedule
Plant
• The plant accounts for major investment (fixed assets)
• The plant is concerned with;
- Design and layout of building and offices
- Reliability and maintenance of equipment
- Safety of operations
• Plant layout must allow smooth movement of men and
material.
• Type of layout dependent on production type, volume of
demand etc.
Process
• Methods used to create a product
Selection of a particular process depends on following factors;

- Available capacity
- Manpower skills available
- Type of production
- Layout of plant
- Safety
- Maintenance required
- Manufacturing cost
Programme
• Programme refers to the timetable of production.

• Programme prepares schedule for;

- Purchasing
- Transforming
- Maintenance
- Cash
- Storage and transport
People
• People are part of organization. Progress of organization
depends on attitude and skills of working people
• Job satisfaction of people depends on good match between
people and jobs

• It is possible by:-

- Motivation
- Training of employees
- Condition of work/safety
- Proper wages/salary
 Components of a production system
There are two components for a production system such
as:

1. Facilities – the factory and equipment in the facility

and the way the facility is organized (plant layout)

2. Manufacturing support systems – the set of procedures

used by a company to manage production and to solve
technical and logistics problems in ordering materials,
moving work through the factory, and ensuring that
products meet quality standards
 Facilities include the factory, production machines and tooling,
material handling equipment, inspection equipment, and
computer systems that control the manufacturing operations. For
the facilities, plant layout is a significant factor for the production
system to be efficient. The plant layout is the way in which the
equipment is physically arranged in the factory.

 Manufacturing systems include the logical groupings of

equipment and workers in the factory. A combination of a group
of workers and machines are termed as Production line. There
can be instances where there is only one worker and a machine.
This arrangement is called as Stand-alone workstation and
worker.
Manufacturing support systems:

 To operate the production facilities efficiently, a company must

organize itself to design the processes and equipment, plan and
control the orders and satisfy product quality requirements.

 The support systems have no direct contact with the product, but
they plan and control its progress throughout the factory. The
manufacturing support system involves a cycle of information-
processing activities that consists of four functions.
Manufacturing support systems
Business functions - sales and marketing, order entry, cost accounting,
customer billing

 This function is the principal means of communication with the customer

 This represents the beginning and the end of the information-processing cycle
 It is at this function, the customer comes in contact with the company and places an
order
 The production (or customer) order will be (1) order to manufacture an item to
customer’s specifications (2) customer order to buy one or more of the
manufacture’s product and (3) an internal company order based on a forecast of
future demand.

Product design - research and development, design engineering, prototype

shop
 The role of the product design team depends on the production order. As mentioned
above, the production order may change.
Manufacturing planning - process planning, production planning, MRP, capacity
planning

 Process planning is the sequence of individual processing and assembly

operations needed to produce the part.
 Production planning considers the logistics issues in the production process
 The authorization to produce the product must be translated into the Master
Production Schedule (MPS)
 MPS is a list of products to be made, the dates on which they are to be
delivered, and the quantities of each are included
 Based on the MPS, individual components and the sub-assemblies that make up
each product must be planned.
 MPS must not list more quantities of products than the factory capacity for a
period.
 Capacity planning plans the manpower and machine resources of the firm.
Manufacturing control - shop floor control, inventory control, quality control

 Managing and controlling physical operations in the factory to implement plans.

 Shop floor control monitors the progress of the product as it is being processed,
assembled, moved and inspected in the factory
- Materials being processed in the factory are called as Work-in-process (WIP) inventory.
- Both shop floor control and inventory control overlap each other.

 Inventory control tries to strike a balance between the risk of too little inventory
(stock-out situation) and the carrying cost of too much inventory.
- Right quantity to order and when to re-order a given item

 Quality control ensures the quality of product and its components meet the standards
specified by the product designer.
- Raw materials and component parts from outside sources are inspected when they are received
and final inspection and testing is done to ensure functional quality and appearance.
 Classification of production system
The production system can be classified on the basis of the following:

 Type of production – Job shop production, Batch production, Mass

production
 Size of the plant – Large size plant (eg. Oil refinery), Medium size plant,
Small size plant (eg. Printing press)
 Type of product- Complex to manufacture (Aircraft) and simple to
manufacture
 Physical flow of material – Automated flow, Semi-automated flow and
Manual flow
 Nature of order/demand pattern – Stable demand, Unstable demand
 Variety of jobs – More variety (eg. Automobiles/electronic goods), One
variety (eg. Oil refinery)
 Types of Production system based on strategy:
Make to stock

Industry stocks the finished goods in inventory for immediate shipment. The system
ensures immediate delivery of products. For example, bearings, ready to wear
garments, motors, TVs, medicines, etc.

Situations for make to stoke production system:

 Fairly constant and predictable demand

 Products are very few and they are standardised

 Shorter delivery time expected by the customer

 Products having higher self life

Information needed to make a production plan:

 Forecasted demand for the planning period

 Starting inventory level

 Desired ending inventory level

 Any previous orders to be fulfilled

Most of the data about the customer is not known and hence, feed back from
distribution channel will act as an important source of information.
Make to order

Products are manufactured after the receipt of firm order from the customer and
hence, the lead time is long. For example, special purpose machinery, heat
exchangers, pressure vessels, aircraft, submarine, nuclear reactor, etc.

Situations for make to stoke production system:

 Products are manufactured to customer specification

 Customer can wait till the order is being processed

 Product is non standard and expensive to store

Assemble to order

 When number of alternatives available to customers as in automobiles,

consumer electronics and customer is not ready to wait until product is made,
manufacturers produce and stock standard components and parts.

 Since the components are manufactured, the only time to assemble is needed
before delivering product to the customer.

 It is the system with low cost and shorter lead time.

 Types of Production system based on quantity :
 Production quantity refers to the number of units of a given part or
product produced on an annual basis.

 Three ranges can be calculated based upon production quantity, Q.

 Low production (Q = 1 to 100 units) e.g. aircraft or ships; Medium

production (Q = 100 to 10,000 units) e.g. buses or stents; High
production (Q = 10,000 to millions of units produced) e.g. cars or
paper clips.

 Depending on product-type these arbitrary boundaries between

production quantities may shift.
 At this stage product variety, P, becomes important. Some factories may
produce more than one product, so they may be forced—owing to the fact that
resources are being shared across products—to produce in low, or medium
volumes.

 Product variety (P) refers to the number of different product designs or types
that are produced in a plant. Product type refers to differences in geometries,
shapes and sizes between products.

 Thus, when the number of product types made in a factory is high, there is a
corresponding likelihood that product variety is high also; and there is also the
likelihood that production quantity (Q) is low, as there is an inverse correlation
between product variety and production quantity.
 Fixed position layout

COMPONENTS

MATERIAL LABOUR

PRODUCT

LABOUR MATERIAL

COMPONENTS
Process Layout:
Product Layout:
 Combination Layout

L M ASSEMBLY

D G CELL 1

M M ASSEMBLY

D G CELL 2

L L ASSEMBLY

L G CELL 3
 Cellular Layout
Process (Functional) Layout Group (Cellular) Layout
A cluster
or cell
T T T CG CG T T T
M
T T T SG SG M M T

D D M D
M M D D D
SG CG CG D

M M D D D SG

Similar resources placed Resources to produce similar

together products placed together
Low quantity production
 Range: between 1-100 units per year. Job-shop production specialising in the
creation of customised, specialised and complex products.

 Equipment is general-purpose, and labour force is highly skilled. Production

system lay-out is flexible to deal with high and hard product variety.

 Product can remain stationary if it is heavy, with work being performed upon it in
the one location. This is called the fixed-position layout.

 In other cases, production facilities may be arranged according to function or type

in a process layout; this layout is especially favoured for large products created in
modules that are subsequently assembled together. Equipment is generally
arranged into different departments based upon their functionality in the process
layout, which is noted for its flexibility, but has limitations in the fact that there is
generally high material handling between the general-purpose equipment.
Medium quantity production

 Range: between 100-10,000 units per year. Batch production or cellular

manufacturing specialising in the creation of either hard or soft product varieties,
respectively.

 Batch production used for hard product varieties, in make-to-stock situations.

Typically a batch of product is made before production facilities undergo a change-
over for the next batch, and so on, with repeat orders being frequent.

 Equipment is shared among multiple products. Change-over time (set-up time)

may be significant, and is deemed as lost production time: this is considered the
greatest disadvantage of batch production.
 Cellular manufacturing favoured for soft product varieties, where
extensive change-overs between similar part styles is not required.

 Equipment configured so that groups of similar parts or products can be

made without significant lost time for change-overs.

 General layout is in cells consisting of several workstations or machines,

with each cell producing a limited number of similar parts or products,
using the principles of group technology.
High quantity production
 Range: between 10,000-millions units per year. Mass production specialising in
the creation of high demand products under two production types: quantity
production, and flow-line production.

 Quantity production is the mass production of single parts or single pieces of

equipment, using dedicated and specialised equipment, in a process layout
production facility.

 Flow-line production uses multiple workstations, arranged in sequence, while

parts or assemblies ‘flow’ through the production system from the start of the
sequence to the end.

 Workstations consist of workers, specialised equipment and specialised tools,

with workstation design and layout planned for maximum efficiency.