Production & Operation

Management
Introduction
BBA 7th Semester
UNIVERSITY OF TURBAT
Introduction:
• Production Management is that part of a business organization that is
responsible for converting raw materials into finished products.
• Operation Management is that part of a business organization that is
responsible for producing goods or services.
• Goods are physical items including raw materials, parts, subassemblies (i.e.)
motherboards that go into computers, and final products such as cell phones
and automobiles.
• Services are activities that provide some combination of time, location and
form of psychological value.
• Example; Goods and services are found around you. Every book you read, every
video you watch, every email you send, every telephone conversation you have,
and every medical treatment you receive involves the operations function of
one or more organizations.
Introduction:
• The ideal situation for a business organization is to achieve a match of
supply and demand. Having excess supply or excess capacity is wasteful and
costly; having too little means losing opportunity and possible customer
dissatisfaction.
• The key considerations on the supply side are operations and supply chain,
and sales and marketing on the demand side.
• While the operations department is responsible for producing products
and/or delivering services, it needs support and input from other areas of
the organization.
• We can define Operation management as “ The management of systems or
processes that create goods and/or provide services”
Business organizations have three basic functional areas as shown
below.
Finance/Accounting
• Securing and allocating
Financial Resources.
• Budgeting
• Analyzing investment
opportunities.
• Providing Funds for
Operation etc.
Organization
Operations Marketing
• Producing Goods • Assessing consumers’
• Providing Service needs, wants and
“ Operations Department demands.
is responsible for • Selling, Promoting the
producing the goods organization’s goods
and/or providing services and services.
offered by the
organization”
• The creation of goods and services involves transformation or converting input into output,
various inputs such as capital, labor, and information are used to create goods and service using
various transformation process.

Value added

Inputs:
Land Transformation/ Outputs:
Labor Conversion Goods
Capital process Service
Information
System Inputs Conversion Output
(desired)
Hospital Patients Health Care Healthy
MDs, Nurses Individuals
Medical Supplies
Equipment
Restaurant Hungry Customers Prepare Food Satisfied
Food, Chef Serve Food Customers
Servers
Atmosphere
Automobile Sheet Steel Fabrication High Quality
Plant Engine Parts and Assembly Automobiles
Tools, Equipment of Cars
Workers
University High School Grads Transferring Educated
Teachers, Books of Knowledge Individuals
Classroom and Skills
IMPORTANCE OF PRODUCTION AND OPERATION
MANAGEMENT

Effective production and operations management

can:
• Lower a firm’s costs of production.
• Boost the quality of its goods and services.
• Allow it to respond dependably to customer
demands.
• Enable it to renew itself by providing new
products.
The Scope & Functions of Operations
Management:
• The scope of operation management ranges across the organization.
In operation management people are involved in product and service
design, process selection, selection and management of technology,
design of work systems, location planning, facilities planning, and
quality improvement of the organization’s products or services.
• The operation function includes many interrelated activities, such as
forecasting, capacity planning, scheduling, managing inventories,
assuring the quality, motivating employees, deciding where to locate
facilities and more.
The Scope & Functions of Operations
Management:
We can use an airline company to illustrate a service organization’s
operation system. The system consists of the airplanes, airport facilities,
maintenance facilities. The activities/functions include:
• Forecasting: such things as weather and landing conditions, seat
demand for flights, and growth in air travel.
• Capacity planning: essential for the airline to maintain cash flow and
make a reasonable profit. (Too few or too many planes, or even the
right number of planes but in wrong places, will hurt profits.)
• Facilities and layout: important in achieving effective use of workers
and equipment.
The Scope & Functions of Operations
Management:
• Scheduling: Scheduling of planes for flights and for routine maintenance,
scheduling of pilots and flight attendants, scheduling of ground crews,
counter staff and baggage handlers.
• Managing inventories: such items as foods and beverages, first aid
equipment, in flight magazines and newspapers, pillow and blankets.
• Assuring qualities: essential in flying and maintenance operations, where the
emphasis is on safety and important in dealing with customers at ticket
counters, check in,
• Motivating and training employees
• Location facilities, involve decisions such as which cities to provide service
for, where to locate maintenance facilities and where to locate major and
minor hub.
Responsibilities of Operations Management
• Planning Controlling
• Inventory
• Capacity, utilization • Quality
• Location • Costs
• Choosing products or services Organizing
• Make or buy
• Layout • Degree of standardization
• Projects • Subcontracting
• Process selection
• Scheduling
• Market share Staffing
• Forecasting
• Hiring/lay off
• Use of overtime
• Incentive plans
In a nutshell, the challenge is
“Matching the Supply with Demand” SUPPLY SIDE DEMAND SIDE
Why do we study Operations?
• Companies need a strong operations function to compete.
• Operations help attract and retain customers by
• Introducing new technology that allows the firm to offer new or better goods
and services
• Participating in product designing teams
• Providing the quality and timeliness that customers want
• Reducing the costs of operations so that products can be sold at a price that
customers will pay.
OM’s Contributions to Society
• Higher Standard of Living
• Ability to increase productivity
• Lower cost of goods and services

• Better Quality Goods and Services

• Competition increases quality

• Improved Working Conditions

• Better job design and employee participation
Historical Milestones in POM

• The Industrial Revolution

• Post-Civil War Period
• Scientific Management
• Human Relations and Behaviorism
• The Service Revolution
The Industrial Revolution
• The industrial revolution developed in England in the 1700s.
• The steam engine, invented by James Watt in 1764, largely replaced
human and water power for factories.
https://www.youtube.com/watch?v=1jVOTBZWkY4
• Adam Smith’s The Wealth of Nations in 1776 touted the economic
benefits of the specialization of labor.
• Thus the 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.
• The first great industry in the U.S. 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
• 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 U.S. markets
• an effective national transportation system
Scientific Management
• Frederick Taylor is known as the father of scientific management. His
shop system employed these steps:
• Each worker’s skills, strengths, and learning abilities were
determined.
• Stopwatch studies were conducted to precisely set standard
output per worker on each task.
• Material specifications, work methods, and routing sequences
were used to organize the shop.
• Supervisors were carefully selected and trained.
• Incentive pay systems were initiated.
Scientific Management
• 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
Human Relations and Behaviorism
• 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.
The Service Revolution
• The creation of service organizations accelerated sharply after World
War II.
• Today, more than two-thirds of the U.S. workforce is employed in
services.
• About two-thirds of U.S. GDP is from services.
• There is a huge trade surplus in services.
• Investment per office worker now exceeds the investment per factory
worker.
• Thus there is a growing need for service operations management.
Top-down Approach to OM Strategy
• Operations Strategy Decisions
• Strategic (long-range)
• Needs of customers
(capacity planning)
• Tactical (medium-range)
• Efficient scheduling of
resources
• Operational planning
and control (short-range)
• Immediate tasks and
activities
THE JOB OF PRODUCTION MANAGERS

• Oversee the work of people and machinery to

convert inputs (materials and resources) into
finished goods and services.

• Four main tasks:

Planning the Production Process

Begins by choosing what goods or services to offer customers.

• Plan to convert original product ideas into final
specifications.

Selecting the most appropriate layout

• Design the most efficient facilities to produce those
products.
• Selecting the resources of the plan.
• Routing
• Determining the sequence of work throughout the facility and
specifying who will perform each aspect of the work at what
location.
Implementing the Production Plan
• Make, Buy, or Lease Decision
• Choosing whether to manufacture a needed
product or component in house, purchase it from
an outside supplier, or lease it.
• Factors in the decision include cost,
availability of reliable outside suppliers, and
the need for confidentiality.
• Selection of Suppliers
• Based on comparison of quality, prices,
dependability of delivery, and services offered
Implementing the Production Plan (Cont.)
• Inventory Control
•  Perpetual inventory Systems continuously monitor the
amounts and locations of stocks.
• Just-in-Time Systems
• Management philosophy aimed at improving profits and return
on investment by minimizing costs and eliminating waste
through cutting inventory on hand.
• Materials Requirement Planning
• Computer-based production planning system by which a firm
can ensure that it has needed parts and materials available
at the right time and place in the correct amounts.
Controlling the Production Process
• Production control Creates a well-defined set
of procedures for coordinating people,
materials, and machinery to provide maximum
production efficiency.
• Production Planning
• Determining the amount of resources (including
raw materials and other components) an
organization needs to produce a certain output.
Supply Does Not Naturally Match Demand
• Inventory results from a mismatch between supply and demand
• Mismatch can take one of the following two forms
• Supply waits for Demand
• Inventory = Finished goods and resources
• Demand waits for Supply
• Inventory is negative or said to be backordered in manufacturing
• Inventory = Waiting customers in services
• Mismatch happens because
• the demand varies
• the capacity is rigid and finite.
• If the capacity is infinite, products (or services) can be provided at an infinite rate and
instantaneously as the demand happens. Then there is no mismatch.
Particular Examples of Demand-Supply Mismatch

• Compaq estimated that it lost $0.5 B to $1 B in sales in 1995 because

laptops were not available when and where needed

• British Airways had seat utilization of 70.3% in the early 2000s. If it

could increase utilization by 0.33% (by flying one more person on a
300 seat aircraft), it would create additional revenues equal to $65 M.