Production and Operations

Management

Dr. R K Singh
Professor (Operations Management)
M D I, Gurgaon

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 What Is Production and
Operations Management?

Production is the creation of goods

and services
Operations management (OM) is
the set of activities that creates
value in the form of goods and
services by transforming inputs
into outputs
 The Organization

The Three Basic Functions

Organization

Finance Operations Marketing

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Business Operations Overlap

Operations

Marketing Finance

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 Organizational Charts
Manufacturing

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply chain management research
Funds Management
Manufacturing
Tooling; fabrication; assembly Money market
International
Design exchange
Product development and design
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment

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Operations as a Transformation Process

The operations function involves the conversion of

inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

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 Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

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Product-Process Matrix

Source: Adapted from

Robert Hayes and
Steven Wheelwright,
Restoring the
Competitive Edge:
Competing Through
Manufacturing (New
York: John Wiley &
Sons, 1984), p. 209

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 Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction
Characteristics of Service
 Intangible product
 Produced and consumed
at same time
 Often unique
 High customer interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
Manufacturing or Service?

Tangible Act

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 Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

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 Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual1-13
 Ten Critical Decisions
Ten Decision Areas
 Design of goods and services
 Managing quality
 Process and capacity
design
 Location strategy
 Layout strategy
 Human resources and
job design
 Supply chain
management
 Inventory management
 Scheduling
 Maintenance
 Operations Management
Functions

Design of Operations Operational Control of Operations

Product Design & Development Forecasting

Process Design Production Planning and Control
Quality Management Supply Chain Management
Location and Layout of facilities Maintenance Management
Capacity Planning Continuous improvement of operations

• Design issues in Operations Management lay down overall

constraints under which the operations system functions.
• Operational Control issues focuses on optimising the use of
available resources in the short-term while delivering goods
and services as per plan.
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 Operations Management
Impact of Economic Reforms in India
 Tariff reduction has exposed Indian companies to global
competition
 Abolition of licensing policies had enabled several new
players to enter into business increasing domestic
competition and capacity build up
 Examples include liberalisation of two wheelers and
passenger car segment in early 1990’s
 Indian customers are more demanding in terms of quality,
cost and delivery of goods & services
 New Trends in OM
Past Causes Future
Local or Reliable worldwide Global focus,
national focus communication and moving
transportation networks production
offshore
Batch (large) Short product life cycles and Just-in-time
shipments cost of capital put pressure performance
on reducing inventory

Low-bid Supply chain competition Supply chain

purchasing requires that suppliers be partners,
engaged in a focus on the collaboration,
end customer alliances,
outsourcing

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 New Trends in OM
Past Causes Future
Lengthy Shorter life cycles, Internet, Rapid product
product rapid international development,
development communication, computer- alliances,
aided design, and collaborative
international collaboration designs
Standardized Affluence and worldwide Mass
products markets; increasingly flexible customization
production processes with added
emphasis on
quality
Job Changing socioculture Empowered
specialization milieu; increasingly a employees,
knowledge and information teams, and lean
society production

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 New Trends in OM
Past Causes Future
Low-cost Environmental issues, ISO Environmentally
focus 14000, increasing disposal sensitive
costs production, green
manufacturing,
recycled materials,
remanufacturing
Ethics not Businesses operate more High ethical
at forefront openly; public and global standards and
review of ethics; opposition to social responsibility
child labor, bribery, pollution expected

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 Productivity

Units produced
Productivity =
Input used

 Measure of process improvement

 Represents output relative to input

 Measures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

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 Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

=
productivity 32 labor-hrs

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

=
productivity 32 labor-hrs = .25 titles/labor-hr

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

=
productivity 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

=
productivity 32 labor-hrs

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

=
productivity 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

= = .4375 titles/labor-hr
productivity 32 labor-hrs

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

=
productivity $640 + 400

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

New multifactor 14 titles/day

=
productivity $640 + 800

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 Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

New multifactor 14 titles/day

= = .0097 titles/dollar
productivity $640 + 800

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 Service Productivity

 Typically labor intensive

 Frequently focused on unique individual
attributes or desires
 Often an intellectual task performed by
professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
 Productivity at Restaurant

Improvements:

 Revised the menu

 Designed meals for easy preparation
 Shifted some preparation to suppliers
 Efficient layout and automation
 Training and employee empowerment

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Results:

 Preparation time cut to 8 seconds

 Management span of control increased
from 5 to 30
 Stores handle twice the volume with
half the labor
 Fast-food low-cost leader

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THANK YOU

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