PRODUCTION AND OPERATIONS

MANAGEMENT. Lecture 3 and 4

Topics
Supply Chain Management, Business Logistics and
Productivity concept

PROFESSOR E .S. WICKRAMASINGHE

 OPERATIONS MANAGEMENT –
AN OVERVIEW
Operations Management is the conversion of
inputs into outputs, using physical resources :land
Labour Capital and Technology, so as to provide
the desired utility in the form , to the required
place, while meeting the other organizational
objectives of organizational effectiveness.
 AN OVERVIEW Contd..
POM functions distinguishes itself from other
functions such as HR, marketing and Finance. By
its primary concern is ‘conversion by using
physical resources’.
There should be a number of situations in
marketing or HR or Finance, that are integrated
with Operations Management.
 Three aims of Production and
Operations Management
Three aims of performance of the Production and
Operations Management system.
(a) Effectiveness, (b) Customer satisfaction, (c)
Efficiency.
 .
Starting today’s discussion Part 1
Supply Chain Management
Supply chain management is the management of
the flow of goods and services. It includes all the
processes that transform raw materials into the final
products.
It involves the active streamlining of a business's
supply-side activities to maximize customer value
and gain a competitive advantage in the
marketplace.
 SCM is a integrated planning
process
The integrated planning and execution of
processes that are required to manage the
movement of materials, information and capital in
connection with all activities.
It broadly includes demand planning, sourcing,
production planning, inventory management ,
storage and transportation of raw materials and
also includes returning excess or defective
products back to the production point.
 Supply chain sustainability
prerequisites
Political, Environmental, Social , Technical and
Legal issues are possible to be occurred in the
total procurement process .
Because, corporate social responsibility of a
company or Government effects on the
environment, and especially on the social well-
being and social security.
Ex. Chemical Fertilizer vs Organic Fertilizer issue in
Sri Lanka today
 Next Stages of supply chain
management
Stage 1 – Planning of the Supply Chain.
Organizations must create strategic plans to meet
customer demand for product or service and
avoid bullshit effects that are possible.
strategic plans are to be prepared through
market scenario analysis and industry analysis
 Market Scenario Analysis
Scenario analysis is a way of predicting future
values, based on certain potential events
Economists and statisticians use scenario analysis
to analyze and predict possible future events by
considering alternative worlds – alternative
possible outcomes.
 Industry Analysis
Industry analysis is a tool that facilitates a
company's understanding of its position relative
to other companies that produce similar products
or services.
Understanding the forces at work in the overall
industry is an important component of effective
strategic planning.
 Porter's five forces
Porter's five forces include three forces from
'horizontal' competition – the threat of
substitute products or services, the threat of
established rivals, and the threat of new entrants
– and two others from 'vertical' competition –
the bargaining power of suppliers and the
bargaining power of customers.
 SWOT analysis
SWOT analysis is a strategic planning technique
used to help or organization identify strengths,
weaknesses, opportunities, and threats related to
business competition
is designed for use in the preliminary stages of
decision-making processes and can be used as a
tool for evaluation of the strategic position of
organizations of many kinds
 Strategic Plans
Long range plans that are made logically and
scientifically by identifying organizational
strengths and weaknesses. And also identifying
market opportunities and market threats so as to
implement appropriate strategies for the
organizations to achieve long term goals and
short term objectives through managing the
organizational resources.
 supply chain Stage 2 – Finding Sources
Organizations should identify and select vendors
who can supply materials in a streamlined
process and efficient ways according to
agreements.
“Supply chain collaboration” starts at this stage
and is important throughout the supply chain
management process
 How to Select a Quality
Outsourced Vendor

1.Check the quality of service and availability.

2.See if the vendor has an independent review of
security and services.
3.Ask for testimonials from current clients.
4. Find out about their customer support.
 Stage 3 - Scheduling the
supply chain

production, testing, ensuring

compliance requirements
It includes packing, storaging and releasing.
Multiple machines are likely to be utilized,
especially use technologies efficiently.
 supply chain Stage 4 – Delivery stage.
The delivery stage pertains to logistics and
focuses on getting finished goods to consumers, in
whatever manner of transportation is needed
supply chain leaders working more closely with
customer service. Inventory management
and warehouse management systems are
especially crucial at this stage.
 supply chain Stage 5 – Returning Stage
The return stage includes all product returns,
including defective products and products that will
no longer be supported. This stage also includes
elements from other stages, including inventory
and transportation management
 Next part Logistics management
Logistics management is a supply chain
management component
Logistics management is used to meet customer
demands through the planning, control and
implementation of the effective movement and
storage of related information, goods and services
from origin to destination in both Inbound
logistics and outbound logistics
 Next part Scheduling the production
Scheduling is the process of arranging, controlling
and optimizing work and workloads in a
production process ( Inbound).
Companies use backward and forward scheduling
to allocate plant and machinery resources, plan
human resources, plan production processes and
purchase materials.
Ex. Gasoline Business
 Scheduling is the process of
arranging, controlling and optimizing
work and workloads
in a production process or manufacturing process.
Scheduling is used to allocate plant and machinery
resources, plan human resources, plan production
processes and purchase materials.
 Benefits of production scheduling

The benefits of production scheduling include:

•Process change-over reduction
•Inventory reduction
•leveling
•Reduced scheduling effort
•Increased production efficiency
•Labour load leveling
•Accurate delivery date quotes
•Real time information
 production scheduling
This is an important tool for manufacturing
the purpose of scheduling is to minimize the
production time and costs, when to make, with
which staff, and on which equipment.
Production scheduling aims to maximize the
efficiency of the operation and reduce costs.
In some situations, scheduling can involve random
attributes, such as random processing times,
random due dates, random weights, and stochastic
machine breakdowns. In this case, the scheduling
problems are referred to as "stochastic scheduling."
 Part 2.Transport
management and
related Logistics ( Outbound)
This includes Selecting appropriate vendors with
the ability to provide transportation facilities to
distribute.
Choosing the most effective routes for
transportation
Discovering the most competent delivery method
Use software to proficiently handle this processes
 Distribution Networks and whole
selling
The network consists of storage facilities,
warehouses, and transportation systems that
support the movement of goods until they reach
the end consumer.
The process ensure the consumer receives the
product and direct whole sellers to retail networks.
 Building the Ideal Distribution
Network or Model
Distribution networks transform over time as
businesses expand and aim to reach more
consumers or users. Therefore, they need to be
set up in a way that allows for long-term
optimization. In order to determine the ideal and
efficient distribution network and supply chain
must be essential.
 Distribution networks are built
by considering all the key
services and cost drivers
This part of Supply chain process is the entire
system of delivering a product or service to the
final destinations.
Transportation costs and mode of
transportation required are key
drivers in building a distribution
model
Determining the order frequencies and the
locations of demands in determining the right
type of transport needed and the costs
associated with the transportation modes .
 Warehousing
Warehousing is also an important driver in
designing an efficient distribution network.
The business must determine the ideal warehouse
locations, size, ease of access, and costs, to ensure
that the right selection is made to best suit the
distribution needs and ensure overall demand.
 Transportation and Distribution
Models
1.North West corner Model
2. Lowest cost first Model
3.Stepping Stone to Stone Model
 W1 W2 W3 Supply

NWC Model

Deliver the demand starting from the

5 4 7
NWC = 100 for W1 F1 100 50 150
Next to 50 for W2

Next to 150 from F2 for W2

4 6 10
Next to 100 from F3 for W3 F2 150 150

6 8 7
F3 100 100

Demand 100 200 100 400

 W1 W2 W3 W4 Supply

LCF Model
Deliver the Maximum to the lowest
cost Destination first
F1 5 4 7 3

50 200 250

f2 4 6 10 5

100 50 150

F3 6 8 7 5 200

100 100

Deman 100 200 100 200 600

d
Stepping Stone to Stone Model

TC = Ui + Vj for Routes
Ui + Vj = TC for Non Routes
 Benefits of making use of existing
distribution networks
Direct distribution is a direct sale from the
manufacturer to the end consumer, whereas the
indirect distribution involves setting up or linking
to an existing distribution network, which
normally encompasses warehousing, etc.
The benefits of making use of existing
distribution networks or setting one up include
Reduction in costs
Greater customer reach
 .Network Analysis for Scheduling
Part 4
and Controlling ( For both inbound and
Outbound)

Network diagram is a visual representation of the

workflow of any kind of projects. A network
diagram is a chart that is populated with boxes
noting tasks and responsibilities, and then arrows
that map the schedule and the sequence of that
the work must be completed.
 Types of Network Diagrams
There are two main types of network diagrams in
Operations Management: the arrow diagramming
method (ADM), also known as “activity network
diagram” or “activity on arrow”;
and the precedence diagramming method (PDM),
also known as “node network” or “activity on
node.”
 Activity Network Diagrams

The activity network diagram uses arrows to

represent activities associated with the project.
It’s important to note that, due to the ADM’s
limitations, it is no longer widely used in project
management. However, it’s still useful to
understand ADMs, so that you can recognize
these diagrams if they arise in your work
environment.
 Arrows and Nodes
The tail of the arrow represents the start of the
activity and the head represents the finish.
The length of the arrow typically denotes the
duration of the activity.
Each arrow connects two boxes, known as “nodes.”
The nodes are used to represent the start or end of
an activity in a sequence. The starting node of an
activity is sometimes called the “i - node,” with the
final node of a sequence sometimes called the “j-
node.”
 Activity schedule
PRDECESSOR SUCCESSOR TIME NEEDED MANPOWER COST . RS
A 4 5 2M
B 3 5 3M
C A 5 5 1M
D B 4 5 1.3M
E C,D 10 5 5M
F E 11 5 2M
TOTAL PROJECT 30 WEEKS 5 PER EVERY 15.3 M
COMPLETION DAY
TIME
 Activities and Activity times
Activities are known as A,B,C,D,E AND F .
Activity Times are respectively, A needs 4 weeks. B
needs 3 Weeks, C needs 5 weeks, D needs 4
weeks, E needs 10 weeks F needs 11 weeks.
 activity network diagram
Activities A,B,C,D,E AND F . A needs 4 weeks. B
needs 3 4
weeks

START 9 19 30

3
 Precedence Activity Diagrams

• precedence activity diagram

START END
 Calculations
1.What is the total project completion time ?
2.Find the Critical path
3. What are the Critical Activities
4.What are the Non Critical Activities
5 If project is crashed by 4 weeks, what activities
you take first to be crashed
 Part 5 – productivity Concept
Productivity is the efficiency of production of
goods or services expressed by some measure.
Measurements of productivity are often expressed
as a ratio of an aggregate output to a single input
or an aggregate input used in a production process,
i.e. output per unit of input, typically over a
specific period of time
The most common example is the labour
Productivity measures the performance
of a firm and or a nation
Productivity is a crucial factor in the production
performance of firms and nations. Increasing
national productivity can raise living standards
because more real income improves people's
ability to purchase goods and services, enjoy
leisure, improve housing and education and
contribute to social and environmental programs.
Productivity growth can also help businesses to
be more profitable.
 Partial productivity
Productivity measures that use one class of inputs
or factors, but not multiple factors, are called partial
productivities. In practice, measurement in production
means measures of partial productivity. Interpreted
correctly, these components are indicative of productivity
development, and approximate the efficiency with which
inputs are used in an economy to produce goods and
services. However, productivity is only measured partially –
or approximately.
In a way, the measurements are defective because they do
not measure everything, but it is possible to interpret
correctly the results of partial productivity and to benefit
from them in practical situations. At the company level,
typical partial productivity measures are such things as
worker hours, materials or energy used per unit of
production.
 Productivity uses to process control
Before the widespread use of computer networks,
partial productivity was tracked in tabular form and
with hand-drawn graphs. Tabulating machines for
data processing began being widely used in the
1920s and 1930s and remained in use until
mainframe computers became widespread in the late
1960s through the 1970s. By the late 1970s
inexpensive computers allowed industrial operations
to perform process control and track productivity.
Today data collection is largely computerized and
almost any variable can be viewed graphically in real
time or retrieved for selected time periods.
 Labour Productivity
In macroeconomics, a common partial productivity
measure is labour productivity. Labour productivity is a
revealing indicator of several economic indicators as it
offers a dynamic measure of economic
growth, competitiveness, and living standards within
an economy. It is the measure of labour productivity
which helps explain the principal economic
foundations that are necessary for both economic
growth and social development. In general labour
productivity is equal to the ratio between a measure of
output volume (gross domestic product or gross value
added) and a measure of input use (the total number
of hours worked or total employment).
 Capital intensity
Capital efficiency is the ratio between spend and
growth.
For example, a 1:1 capital efficiency ratio means
you're earning one dollar for every dollar you
invest into company growth.
If you're earning three dollars for every one dollar
spent on growth, that's a capital efficiency ratio of
3:1.
 Material Intensity
Material intensity is a globally recognized
measure of materials needed for the production,
processing and disposal of a unit of a good or
service. ... On a national or global level, material
intensity measures factor in the amount of
materials used per unit of economic output,
primarily gross domestic product.
 Multi-factor productivity
When multiple inputs are considered, the measure
is called multi-factor productivity . Multi-factor
productivity is typically estimated using growth
accounting. If the inputs specifically are labor and
capital, and material, the outputs are value
added intermediate outputs, the measure is
called total factor productivity . TFP measures the
residual growth that cannot be explained by the
rate of change in the services of labour technology
and capital. TFP used in the earlier literature, and
both terms continue in use
 Team Productivity
The manager or leader of a team can significantly increase
productivity in various ways. The outcome of this can produce
certain benefits.
Team/Individual Reaction:
Team or individual have positive reaction to a good manager.
Creating efficiencies for the team or individual.
The individual or team will gain more confidence having a strong
manager/leader and in turn be more productive.
Individuals having trust in their manager/leader which creates a
better overall work environment and promotes productivity.
Positive moral in the work environment, promoting productivity.
Having a good manager/leader reduces turnover. Creating a
stronger and more knowledgeable workforce that moves the
productivity forward.
 Total Productivity
When all outputs and inputs are included in the
productivity measure it is called total productivity.
A valid measurement of total productivity
necessitates considering all production inputs. total
productivity includes all production inputs, it is
used as an integrated variable when we want to
explain the production process.
 productivity growth
The most immediate sense, productivity is
determined by the available technology or know-how
for converting resources into outputs, and the way in
which resources are organized to produce goods and
services. Historically, productivity has improved
through evolution as processes with poor productivity
performance are abandoned.Process improvements
may include organizational structures (e.g. core
functions and supplier relationships), management
systems, work arrangements, manufacturing
techniques, and changing market structure. A famous
example is the assembly line and the process of mass
production that appeared in the decade following
commercial introduction of the automobile
 Concept Mass production
Mass production dramatically reduced the labor in
producing parts for and assembling the automobile,
but after its widespread adoption productivity gains
in automobile production were much lower. A similar
pattern was observed with electrification, which saw
the highest productivity gains in the early decades
after introduction.
Many other industries show similar patterns. The
pattern was again followed by the computer,
information and communications industries in the
late 1990s when much of the national productivity
gains occurred in these industries.
 Main Determinants
•Investment in physical capital
•Innovation
•Skills
•Entrepreneurship
•Competition .
 Investment is in physical capital
Investment is in physical capital : machinery,
equipment and buildings. The more capital
workers have at their disposal, generally the
better they are able to do their jobs, producing
more and better quality output.
 Innovation
Innovation is the successful exploitation of new
ideas. New ideas can take the form of new
technologies, new products or new corporate
structures and ways of working. Speeding up
the diffusion of innovations can boost
productivity.
 Skills
Skills are defined as the quantity and quality of
labour of different types available in an economy.
Skills complement physical capital, and are needed
to take advantage of investment in new
technologies and organizational structures.
 Entrepreneurs
Enterprise is defined as the seizing of new
business opportunities by both start-ups and
existing firms. New enterprises compete with
existing firms by new ideas and technologies
increasing competition. Entrepreneurs are able
to combine factors of production and new
technologies forcing existing firms to adapt or
exit the market
 Competition

improves productivity by creating incentives to

innovate and ensures that resources are allocated
to the most efficient firms. It also forces existing
firms to organize work more effectively through
imitations of organizational structures and
technology
Other Related Concepts of POM

Location of facilities.
Plant layouts and material handling.
Product design.
Process design.
Production and planning control.
Quality control.
Materials management.
Maintenance management.
 Location of facilities
Facility Location is the right location for the
manufacturing facility, it will have sufficient access
to the customers, workers, transportation, etc. A
manufacturing unit is the place where all inputs
such as raw material, equipment, skilled labors, etc.
come together and manufacture products for
customers.
 plant layout and material handling
There is a close relationship between plant
layout and material handling. The material
handling technique to be used definitely effects
the plant layout and the factory building. A
sound low cost method can be designed and
installed only if material handling is considered
an integral part of plant layout.
 product design
The definition of product design describes the
process of imagining, creating, and iterating
products that solve users' problems or address
specific needs .
 Materials management
Materials management is a core supply chain function and
includes supply chain planning and supply chain execution
capabilities. Specifically, materials management is the
capability firms use to plan total material requirements. The
material requirements are communicated
to procurement and other functions for sourcing. Materials
management is also responsible for determining the
amount of material to be deployed at each stocking
location across the supply chain, establishing material
replenishment plans, determining inventory levels to hold
for each type of inventory (raw material, WIP, finished
goods), and communicating information regarding material
needs throughout the extended supply chain.
 Process Design
Process Design is the act of transforming an
organization's vision, goals, and available
resources into a discernible, measureable
means of achieving the organization's vision.
Process design focuses on defining what the
organization will do to achieve its financial and
other goals.
 Production planning
Production planning is required for scheduling,
dispatch, inspection, quality management,
inventory management,
supply management and
equipment management.
 Quality control
Quality control consists of inspection,
measurement and testing to verify that the
project outputs meet acceptance criteria
defined during quality planning. It is focused on
preventing problems being passed on to the
internal or external customer.
 Maintenance management
Maintenance management is the process of
maintaining a company's assets and resources.
Maintenance management is defined as the process
of maintaining the assets and resources of a
company, which has as main objective to control and
reduce costs, times, and resources. It goes through
the regular monitoring of the functioning of
machines, equipment, facilities, and tools.
End of the Discussion

Thank You