PRODUCTION OPERATION MANAGEMENT

Module Code; BDFT 605-DSE P01

Nature; Theory
Credit; 4
Total Hrs; 64

MODULE CONTENTS;

Unit 1- Overview of Production & Operation Management

 Introduction
 Concept of Production and Operation Management
 Role and Responsibilities of a Production and Operations Manager
 Recent Trends in production and Operation Management
 Management Strategy Framework
 Understanding Similarities and Difference among Products , Goods , Services
 Historical evolution of Operations Management-Changes & Challenges
Unit 2;- Capacity Planning
 Introduction
 Concept of Capacity
 Concept of capacity Management
 Estimation of Equipment Requirement
 Concept of Capacity Planning
 Method of Measuring Capacity
Unit3;- Facility & Layout Planning
 Introduction
 Objective of Layout
 Classification of Facilities
 Basis for Types of Layouts
 Why layout Decisions are important
 Nature of Layout Problems
 Re-designing of a Layout
 Manufacturing facility Layout
 Types of Layout
 Layout Planning
 Evaluating Plant layout
 Assembly Line Balancing
 Material Handling
Unit 4;- Production Processes
 Production System Models
 Product vs Services
 Process focused & Product Focused System
 Product Strategies
 Product life Cycle
 Production Function
Unit 5;- Operation Strategy
 Operation Strategy
 Comparative Capabilities & Core Competencies
 Operation Strategy as a Competitive weapon
 Linkage Between Corporate ,Business & Operation Strategy
 Developing Operation Strategy
 Elements or Components of Operation strategy
 Competitive Priorities
 Manufacturing Strategies, service Strategies, Global Strategies and Role of Operation
Strategy
Unit 6;- Material Management
 Introduction
 Material Management
 Material Planning & Control
 Purchase Management
 Store Management
 Material Handling
 Supply Chain Management
Unit 7;- Inventory Management
 Introduction
 Concept of Inventory Management
 Re-order Point
 Safety
 Techniques of Inventory Management
 Solved Illustrations

SUGGESTIVE READINGS;
1-Production system; planning, Analysis & Control by Riggs, LJ (4th Edition ) John Wiley &
sons
2. Modern Production/ Operation Managemnet;Buffa, ES & Sarin (8 th Edition), John Wiley
& Sons
3- Production & Operation management; By Panneer Saivem, R (21 st edition)PHI
4-Production & Operation management; By Chary, S.N (TMH)

MODULE ASSESSMENT;
Nature of assessment; Theory

In Term (40%); Project

Project 1; Inventory management system & Vendor rating-30% weightage
Project 2; Layout Planning -50% weightage
Project 3; Transportation syatem in manufacturing unit- 20% weightage

End Term (60%); Written Test

 UNIT-01-Production and Operations Management—An Overview
• (i) Introduction;
• Production, the creation of products and services, is an essential function in
every firm. Production turns inputs, such as natural resources, raw materials,
human resources, and capital, into outputs, which are products and services.
This process is shown in (Figure). Managing this conversion process is the role of
operations management.
• With new oil reserves now available through “fracking,” the United States is
challenging Saudi Arabia and is set to become a vast supplier of oil worldwide.
Unlike the smooth petroleum that gushes from Arabian wells, however,
America’s black gold in the Marcellus, Bakken, and other shale regions has to be
drilled horizontally through new technology. The process is rigorous: oil and gas
companies drill into the ground to extract crude oil and natural gas from the
shale rock that lies thousands of feet under the ground. Once the formation is
reached, gallons of water, sand, and an extensive list of man-made chemicals are
injected into the well under high pressure. This combination inserted in the well
will fracture the rock and release crude oil and natural gas. It is estimated that
the gas within these rock formations could supply the United States for
generations to come as technologies evolve to drill below the earth’s surface.
• charged with managing and supervising the conversion process, play a vital
role in today’s firm. They control about three-fourths of a firm’s assets,
including inventories, wages, and benefits. They also work closely with other
major divisions of the firm, suchStronger links between marketing and
manufacturing also encourage production managers to be more outwardly
focused and to consider decisions in light of their effect on customer
satisfaction. Service companies find that making operating decisions with
customer satisfaction in mind can be a competitive advantage.

• Operations managers, the people as marketing, finance, accounting, and

human resources, to ensure that the firm produces its goods profitably and
satisfies its customers. Marketing personnel help them decide which products
to make or which services to offer. Accounting and human resources help
them face the challenge of combining people and resources to produce high-
quality goods on time and at reasonable cost. They are involved in the
development and design of goods and determine what production processes
will be most effective.
• Production and operations management involve three main types of
decisions, typically made at three different stages:

• Production planning. The first decisions facing operation managers come at

the planning stage. At this stage, managers decide where, when, and how
production will occur. They determine site locations and obtain the necessary
resources.

• Production control. At this stage, the decision-making process focuses on

controlling quality and costs, scheduling, and the actual day-to-day operations
of running a factory or service facility.

• Improving production and operations. The final stage of operations

management focuses on developing more efficient methods of producing the
firm’s goods or services.

• All three decisions are ongoing and may occur simultaneously. In the following
sections, we will take a closer look at the decisions and considerations firms
face in each stage of production and operations management.
• An important part of operations management is production planning.
Production planning allows the firm to consider the competitive environment
and its own strategic goals to find the best production methods. Good
production planning has to balance goals that may conflict, such as providing
high-quality service while keeping operating costs low, or keeping profits high
while maintaining adequate inventories of finished products. Sometimes
accomplishing all these goals is difficult.

• From its storied creation in post-war Italy to its big-screen immortalization in

movies such as Roman Holiday and Quadrophenia, the Vespa scooter has a
reputation for romance, rebellion, and style. Manufactured by Italy’s Piaggio
Group, the Vespa’s svelte, stainless-steel chassis and aeronautic-inspired
designs are seen everywhere in Europe and more and more in the United
States. The Piaggio Group presently operates factories in Italy, Vietnam, India,
and China. What important production-planning decisions does Piaggio need to
make as it considers expanding into more overseas markets?
• Production planning involves three phases.
• Long-term planning has a time frame of three to five years. It focuses on which
goods to produce, how many to produce, and where they should be produced.
Medium-term planning decisions cover about two years. They concern the
layout of factory or service facilities, where and how to obtain the resources
needed for production, and labor issues.
• Short-term planning, within a one-year time frame, converts these broader
goals into specific production plans and materials management strategies.

• Four important decisions must be made in production planning. They involve

the type of production process that will be used, site selection, facility layout,
and resource planning.

• What are the three types of decisions that must be made in production
planning?
• What are the three phases of production planning?
• Why is production and operations management important in both
manufacturing and service firms?

• In the 1980s, many U.S. manufacturers lost customers to foreign competitors

because their production and operations management systems did not support
the high-quality, reasonably priced products consumers demanded. Service
organizations also rely on effective operations management in order to satisfy
consumers. Operations managers, the personnel charged with managing and
supervising the conversion of inputs into outputs, work closely with other
functions in organizations to help ensure quality, customer satisfaction, and
financial success.
 (ii) Concept of Production Management and Its Functions
The Concept of Production Management and its Functions;
Concept Of Production management refers to the application of management and
principles to the production function in a factory. In simple words production
management involves planning, organizing, directing and controlling in the
production process.

Definition of Production Management

“It is also called operations management, planning, and control of industrial

processes to ensure that they move smoothly at the required level.

Production “Management deals with decision–making related to the production

process. So that the resulting goods and services are produced in accordance with
the quantitative specifications and demand schedule with minimum cost”.

The main activities of production management can be listed as:

• (i) procurement of input resources namely material, and land, labor, equipment, and
capital.
• (ii) Product design and development to determine the production process for
transforming the input factors into the output of goods and services.
• (iii) Supervision and control of the transformation process for the efficient production
of goods and services.

Characteristics of Production Management

1. Production Management is the process of effective planning
• It helps in regulating the operations of that section of an enterprise which is
responsible for the actual transformation of materials into finished products.

2. Related to the production process.

• goods and services are produced in accordance with the quantitative specifications
and demand schedule with minimum cost.

3. Production Management is a set of general principles for production

• Production management has a set of certain principles like economies, facility design,
job design, schedule design, quality control, inventory control, work-study and cost,
and budgetary control.
Functions of Production Management
• In modern times production management has to perform a variety of
functions.
• (i) Design and development of the production process.
• (ii) Production planning and control.
• (iii) Implementation of the plan and related activities to produce the
desired output.
• (iv) Administration and coordination of the activities of various
components and departments responsible for producing the necessary
goods and services.
• v) Get real-time insight into the production.
• vi)Improve performance with flexible routing.
• vii)Monitor production costs with ease.
 (iii) The Role and Responsibility of a Production Manager
As production is a very crucial element in an organization. In the same way, the
production manager plays an important role in the workplace.

1. Need to be Focused

In every organization, the Production Manager is responsible for producing the

required quantity of the product in time in accordance with the delivery date.
The quantity to be produced depends on the demand whereas of the time by
which the product should be completed is determined by delivering date.

2. Production Control

It is the duty of the production manager to use the resources at his disposal in
the best possible manner as well as to regulate the operation in such a way
that the desired delivery schedule is maintained. It is been done by routing,
scheduling, and inspection during the production process.
3. Quality Control

The major responsibility of the production manager is to manufacture the goods

and services within the desired specifications. Though the quality of the finished
goods can be ensured by the inspection of finished goods it is better to employ
measures, which minimize the likelihood of producing defective items.

4. Analysis & Selection of Production Method

There can be a number of ways in which manufacturing operation can be executed.

Production manager should select the most efficient and economical method to
perform the operation.

5. Plant Layout and Material Handling

The physical arrangement of manufacturing components and the equipment for

handling the material during the production process has a considerable effect on
the cost of production. The material handling system and the plant layout
should be most efficient for the given situation.
6. Proper Inventory Control

Inventory implies all the materials, parts, supplies, tools, and in-process or finished products
kept in stocks for some time. The procurement policy of these items requires careful
consideration and analysis. The purchases should be planned in economic lot sizes and the
time of purchase should be so scheduled that the investment in the inventory is at the lowest
possible level. This implies the determination of economic lot sizes and re-order level.

7. Work-Study

Work measurement & method study and techniques are applied to find the relationship
between the output of goods and services and the input of human and material resources.
The production manager should try to find the most appropriate method of performing
various operations involved in a particular production process so as to obtain the optimum
use of the resource as well as increasing productivity.

8. Motivation

Production manager should be able to generate the interest of the workers to increase their
efforts by providing them wage incentives. This will result, an increase in labor productivity.
 (iv) Recent Trends in Operations Management
Day by day latest trends keeps changing the entire world. I would like to share few those
latest trends in Supply Chain Management, Operations Management and Research.

The trends in Operations Management are never fads. They have very good reasons to be
in existence. They incorporate a lot of lessons from the past and can affect the future in
several ways. From the Industrial Revolution in 1769 up to the recent Internet Revolution,
Operations Management has seen trends, which designed and redesigned the processes in
order to make them more efficient, and businesses more profitable.

This paper will focus on a very few of such recent trends which have come up as the need
of the hour and will dictate the future of the businesses. In the course of discussion, the
paper discovers how Lean Operations influences all other trends popular in the field of
Operations Management at the moment. Different aspects of Lean philosophy go on to
define all the various trends as inseparable parts of lean operations. This makes an
interesting study as to how the Operations.

Management has evolved in the face of changing businesses and the recent trends give a
very clear idea about what to expect in the near future, with respect to Operations
Management.
• Recent Trends
From Division of Labour to Scientific Management and Mass Production,
Operations has always tried to adjust to the need of the businesses by
improvising and innovating with several trends. Similarly, the following discussion
illustrates how Operations are strategized these days and what are the recent
trends, which are affecting Operations Management.
1. Computer-aided Design and Manufacturing (CAD/CAM):

After the trend of Scientific Management and automation, the next big step was
CAD/CAM. These computer-aided operations meant that all the designing and
manufacturing of the product would be done with the help of computers making
the operations way more efficient (Groover, 1997).These systems immensely
helped in new product development and redesigning the processes.

General Motors had its first brush with computer-aided systems in 1996 and
ended up saving time and money by using these systems. It helped the company
launch new vehicles faster and more efficiently by making the process much
smoother (ICMR, 2002).
 2.Supply-Chain Management:
• Supply Chain partners are required to be more in tune with the needs of the
end users as a result of shorter product life cycles, demanding customers, fast
changes in technology, material and processes (Davis, 1993). And because
suppliers can contribute unique expertise, operations managers are
outsourcing and building long-term partnerships with critical players in the
supply chain (Christopher, 1998).
3. Mass Customization:
• In the past, there used to be large-scale standardized mass production to gain
economies of scale. Now with increased flexibility and competition, companies
are forced to respond with creative product designs and flexible production
processes that cater to the individual whims of consumers (Stevenson, 2005).
The trend has now been changing towards customised production of goods,
whenever and wherever needed. This has led to change in the way operations
were designed earlier leading to better and more efficient processes (Beaty,
1996).
4.Employee Involvement:
• In the past, employees were treated as just another input to the production
process where they were treated more or less like machines and worker
concerns were generally ignored.
• The knowledge explosion and more technical workplace have combined to
require more competence in the workplace (Hanna, 2000).
• Operations managers now respond by moving more decision making to
individual workers (Hutchins, 1998). With the development of HRM alongside,
firms tend to focus more on employee empowerment, treating employees as
resources that bring competitive edge to the firm. Quality management training
based on lean philosophy has been very popular recently, making employee
involvement an essential part of the improvement process (Clegg et al, 2010).

5.Sustainability, Environmentally sensitive production (Green Manufacturing):

• In the past, the focus of the production was aimed on obtaining resources at
lowest possible cost ignoring the damage made to the environment.
Operations’ managers now are increasingly getting concerned with design of
products and processes that are ecologically sustainable (Johnson, 2006). That
means designing and packaging products that minimize resource use, are
biodegradable, can be recycled and generally environment friendly (Heizer and
Render, 2010). In other words, Green production has been seen as a recent
trend in operations management concerning ecological sustainability.
 6.Operations Turning Lean:
• Interestingly, all the trends discussed above can boil down to the “Lean”
philosophy. Be it Sustainability or Mass Customization, both the trends are
two different aspects of lean operations. Businesses can lead to successful
Sustainable Management, only by following a part of lean philosophy:
continuous improvement or Kaizan (Johnson, 2006). In fact, Mass
Customization has been possible just because JIT, since it helps customize the
products according to the customers’ needs or preferences without increasing
costs or manufacturing time (Beaty, 1996).
• Same is the case of Employee Involvement. Lean philosophy considers
employees to be the most important asset of the organization and successful
implementation of this philosophy depends on
• the people to a very large extent (Hutchins, 1998). Inevitably, involving them
at every step of the process, helps make the system leaner (Hanna, 2000).
• Even Computer-aided systems and Supply-chain Management fall under the
Lean philosophy since the main aim of these concepts is to make the process
faster, reduce costs and avoid any waste (Groover, 1997). Continuous
improvements, as an aspect of lean, help face the challenge of shrinking
product life cycle by making the system more efficient and reducing waste at
every step (Nersesian, 2000).
Following, the paper will discuss the lean philosophy in general touching upon all
the major aspects of Lean Operations and concepts related to it, with Toyota
being the case in point.
 Lean Operations – Just In Time
7. Principles of Lean and JIT

• JIT is a method of planning and control and an operations philosophy that aims to meet
demand instantaneously with perfect quality and no waste (Slack et al, 2007). Lean
Operations philosophy replaces the past methods of mass production where there were
batches of produced goods sold at mass, generating economies of scale. The recent trend in
operations management era has shifted this to Just in Time production where goods and
services are produced upon the receipt of order with customizations, resultant being a
drastic reduction of inventory cost (Hutchins, 1998).

• Lean philosophy is based on the principle of moving towards the elimination of all the waste
in order to develop an operation that is faster, more dependable, produces higher-quality
products and services and above all, operates at low cost. An understanding of lean
operations can be developed through the phrase that is often used interchangeably with
‘lean’ – just in time or sometimes lean synchronization. This is because apparently the
means to achieve the lean state are less easily explained and sometimes counterintuitive
(Slack et al, 2007).

• Just-in-Time and Lean Operations are often used interchangeably. However, if there is any
distinction between JIT and Lean Operations, it is that JIT emphasizes forced problem solving
where as Lean operations emphasize on customer understanding (Brian J. Carroll, 2009).
 8. Lean Operations and the Toyota Production System
•Research suggests that the more JIT is comprehensive in its breadth and depth, greater the
overall returns will be (Fullerton and Watters, 2001)

•Toyota Motor Corporation is amongst the largest vehicle manufacturers in the world with
annual sales of over 9 million cars and trucks. Post WWII, Just-in-Time (JIT) and the Toyota
Production System (TPS) have served as techniques instrumental in the growth of this company.
TPS has always laid emphasis on continuous improvement, respect for people and standard
work practices. It accentuates employee learning and empowerment in an assembly-line
environment. JIT, TPS and Lean systems, when implemented as a comprehensive manufacturing
strategy, sustain competitive advantage and result in increased overall returns (Heizer and
Render, 2010).
•The term “Lean” in the manufacturing environment in itself refers to the Toyota Production
System, established by the Toyota Corporation. Taiichi Ohno, the Father of the Kanban System
and one of the former vice president of Toyota, created the basic framework for JIT and TPS:
one of the world’s most discussed systems for improving productivity (Ronald M. Becker, 1998).

•JIT is based on the philosophy of continued problem solving via a focus on throughput and
reduced inventory. In practice, JIT means to make only what is needed, whenever needed. It
provides an excellent way for finding and eliminating problems because it is easier to find
problems in a system with no slack. Quality, layout, scheduling, supplier issues and excess
production become immediately evident when excess inventory is eliminated.
• The continuing effort to create and produce products under ideal conditions is a
concept central to TPS. Generally ideal conditions would exist only if facilities,
machines and people are brought together to add value without waste.

• Toyota’s latest implementation of TPS and JIT are present at its new San Antonio
plant, which is the largest Toyota land site for an automobile assembly plant in
the US. The building itself is one of the smallest in the industry despite its
annual production of 200,000 Tundra pick-up trucks. Generally modern
automobiles have around 30,000 parts, but at Toyota, many of these parts are
combined into sub-assemblies by independent suppliers. Twenty-one of these
suppliers are on site at the San Antonio facility and transfer components to the
assembly line on a Just-in-Time basis (Heizer & Render, 2010). It is because of
these operations that take place in the new San Antonio plant that Toyota still
continues to perform near the top in quality and maintain the lowest labour-
hour assembly time in the industry.

• This is how JIT, TPS, and Lean operations work and provide a competitive
advantage at Toyota Motor Corporation.
 9. Elimination of Waste:

• This is the most significant part of the lean philosophy. Waste is defined as any activity that
does not add value. Toyota has identified seven categories of waste, which have become
popular in lean organisations and cover many of the ways organisations waste or lose
money. Ohno’s seven wastes are: Overproduction, Waiting Time (Queues), Transportation,
Inventory, Motion, Over- processing, Defectives.

• To eliminate the above mentioned categories of waste, the Japanese developed the initial
5S’s as a checklist for lean operations where they provide an easy vehicle with which to
assist the culture change that is often necessary to bring about lean operations. The 5S’s
are: Segregate/Sort(Seiri),
Simplify/Straighten(Seiton),Sweep/Shine(Seiso),Standardize(Seiketsu) & Self-
Discipline/Sustain (Shitsuke) (Slack et al, 2007).

• The 5S’s can be thought of as a simple housekeeping methodology to organise work areas
that focus on visual order, organisation, cleanliness and standardization. It helps to
eliminate all types of waste related to uncertainty, waiting, searching for relevant
information, creating variation and so on. The 5S’s provide a vehicle for continuous
improvement (Heizer & Render, 2010). Offices, retail stores, manufacturers etc have
successfully implemented the 5S’s in their respective efforts to eliminate waste and adapt
the lean philosophy.
 10. Involvement of Everyone:
• Lean philosophy is often put forward as a ‘total’ system. Its aim is to provide
guidelines which embrace everyone and every process in the organisation. The
lean approach to people management is sometimes also called as respect-for-
humans system. It encourages and often requires team-based problem solving,
job enrichment, job rotation and multi-skilling. The intention is to encourage a
high degree of personal responsibility, engagement and ownership of the job
(Slack et al, 2007).

• At Toyota, people are recruited, trained and treated as knowledge workers.

Aided by aggressive cross-training and job-classifications, the Toyota Production
System engages the mental as well as physical capacities of employees in the
challenging task of improving operations. Employees are empowered to make
improvements, thereby respecting them by giving them the opportunity to
enrich both their jobs and their lives (Ronald M. Becker, 1998).
 11. Continuous improvement:
• It is called ‘Kaizen’ in Japanese. Lean objectives are often expressed as ideals, such
as ‘to meet demand instantaneously with perfect quality and no waste’. It is a
fundamental belief that getting closer to ideal lean objectives over time would lead
to continuous improvement and this is why this concept is such an important part
of lean philosophy. If its aims are set in terms of ideals which individual
organisations may never achieve fully, then the emphasis must be on the way in
which an organisation moves closer to the ideal state (Slack et al, 2007).
• Under Toyota Production System, continuous improvement means building an
organisational culture and instilling in its people a value system stressing that
processes can be improved and improvement, indeed is an integral part of every
employee’s job.
• Conclusion
• Lean Operation has affected the Operations Management is many different ways
and continues to shape the future in this area. But implementation of the lean
management is always not very successful because of the inseparable principles of
this philosophy.
• Toyota Production System goes on to depict the benefits and scope of lean
management and provides other businesses a perfect case in point. An important
aspect to it is the way all the principles are associated to each other, and how this
concept is best seen as a way of thinking.
 (v) Business Frameworks
• Business Frameworks are useful tools that help you analyze business issues and
structure your thinking. Strategy consultants and business analysts often use these
frameworks in order to clearly communicate their recommendations to their clients.
There have been thousands of scientific articles trying to come up with innovative
and useful frameworks in business, management and strategy. This article will cover
the five most used and most helpful frameworks in today’s business world
according to strategy consultants.

1. Porter’s Five Forces Model

• Michael Porter’s Five Forces model is probably the best-known strategy framework
out there. It is especially used when analysing industries. The Five Forces model
helps determining how competitive an industry is based on five different factors:
the rivalry among existing competitors, the threat of new entrants (potential
competitors), the threat of substitute products (alternatives), the bargaining power
of suppliers, and the bargaining power of buyers. If these forces are strong,
competition can be considered high. In that case, a company might want to think
twice before entering that specific industry. According to this framework, industries
with little competition allow for greater margins and are therefore more attractive
to enter. For more information and examples on using Porter’s Five Forces,
Figure 1: Five Forces Model
 2. Hambrick and Fredrickson’s Strategy Diamond

• Unfortunately, Hambrick and Fredrickson’s Strategy Diamond hasn’t received

the attention it deserves. The Strategy Diamond is an attempt to explain what
strategy truly means and is a great framework to distinguish the different
elements that make up a good strategy.

• According to this model, a strategy consist of five essential parts that together
should form a unified whole: Arenas, Vehicles, Differentiators, Staging and
Economic Logic. For each element concrete and deliberate choices have to be
made on what to do and more importantly what NOT to do. In addition,
choices made within one element should reinforce and match choices made in
the other four elements.

• Only that way companies can achieve a sound and sustainable strategy. More
information and examples on using the Strategy Diamond can be found
Figure 2: Strategy Diamond
 3. Treacy and Wiersema’s Value Disciplines
• The Value Disciplines framework builds upon the key message of Porter’s
Generic Strategies (i.e. companies should have a clear focus in what they want
to be known for and what they want to excel in).

• If a comany tries to excel in multiple (often contradicting) disciplines, it is likely

to end up stuck somewhere in the middle. Treacy and Wiersema propose three
value disciplines from which companies can choose from in order to become a
market leader: Product Leadership (the best and most innovative product
offering), Operational Excellence (the cheapest products through a cost-efficient
production process), and Customer Intimacy (amazing customer service and
customer relationship management).

• Choosing each one of the disciplines has tremendous consequences on how the
company should be operating in terms of structure, processes and culture.
More information on the Value Disciplines can be found
Figure 3: Value Disciplines
 4. Ansoff Matrix
• There are different ways of growing a business. Igor Ansoff identified four
strategies for growth and summarized them in the so called Ansoff Matrix. The
Ansoff Matrix (also known as the Product/Market Expansion Grid) allows
managers to quickly summarize these potential growth strategies and compare
them to the risk associated with each one.

• The four growth strategies are Market Penetration (offering more of the existing
products to existing markets), Market Development (offering the existing
products to new markets), Product Development (offering new products to
existing markets) and Diversification (launching new products in new markets).

• The idea is that each time you move into a new quadrant (horizontally or
vertically), risk increases. More information on the Ansoff Matrix can be found
Figure 4: Ansoff Matrix
 5.BCG Growth-Share Matrix
• The Boston Consulting Group’s product portfolio matrix (also known as BCG Growth-
Share Matrix) is designed to help companies consider growth opportunities by
reviewing its portfolio of products or business units in order to decide where to
invest and where to divest. The matrix is divided into four quadrants based on two
factors: market growth and relative market share. The four types of business units
(or products) are Dogs, Question Marks, Cash Cows and Stars. Most business units
start off as Question Marks with a relatively small market share in a high growth
market. Depending on how well the unit and the industry is doing, it might end up
as a Star or Dog. Eventually when industry growth is flattening, the unit becomes a
Cash Cow that can be ‘milked’ in order to invest in more promising businesses.
• The BCG Matrix is therefore a great tool for portfolio analysis and corporate strategy
purposes. More information and examples on using the BCG Matrix can be found.

• Together these five frameworks cover a wide variety of purposes in strategic

management consulting. For a more extended list of business frameworks, check
out this page. Let us know what your favorite business framework is in the comment
section below and perhaps we will cover your framework next time as well!
Figure 5: BCG Matrix
 (v) Difference Between Goods and Services

In economics, goods and services are often pronounced in the same breath. These are
offered by the companies to the customers to provide utility and satisfy their wants. At
present, the success of the business lies in the combination of best quality of goods and
customer oriented services. ‘Goods’ are the physical objects while ‘Services’ is an activity
of performing work for others.

Goods implies the tangible commodity or product, which can be delivered to the
customer. It involves the transfer of ownership and possession from seller to the buyer.
On the other hand, services alludes to the intangible activities which are separately
identifiable and provides satisfaction of wants.

One of the main difference between goods and services is that the former is produced
and the latter is performed. To know more differences on the two, take a read of the
article presented to you.
Content: Goods Vs Services
1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion
Comparison Chart

BASIS FOR
GOODS SERVICES
COMPARISON

Meaning Goods are the material items Services are amenities,

that can be seen, touched or facilities, benefits or help
felt and are ready for sale to provided by other people.
the customers.

Nature Tangible Intangible

Transfer of Yes No
ownership

Evaluation Very simple and easy Complicated

Return Goods can be returned. Services cannot be

returned back once they
are provided.

Separable Yes, goods can be separated No, services cannot be

from the seller. separated from the service
provider.

Variability Identical Diversified

Storage Goods can be stored for use Services cannot be stored.

in future or multiple use.

Production and There is a time lag between Production and

Consumption production and consumption Consumption of services
of goods. occurs simultaneously.
Definition of Goods
Goods refer to the tangible consumable products, articles, commodities that are
offered by the companies to the customers in exchange for money. They are the
items that have physical characteristics, i.e. shape, appearance, size, weight, etc. It
is capable of satisfying human wants by providing them utility. Some items are
made for one-time use by the consumer while some can repeatedly be used.

Goods are the products which are traded on the market. There is a time gap in the
production, distribution, and consumption of goods. When the buyer purchases
goods and pays the price, the ownership is passed from seller to buyer.

Products are manufactured in batches, which produces identical units. In this way,
a particular product offered by the company will have the same specifications and
characteristics all over the market.
Example: Books, pen, bottles, bags, etc.
Definition of Services
Services are the intangible economic product that is provided by a person on the
other person’s demand. It is an activity carried out for someone else.

They can only be delivered at a particular moment, and hence they are perishable
in nature. They lack physical identity. Services cannot be distinguished from the
service provider. The point of sale is the basis for consumption of services. Services
cannot be owned but can only be utilized. You can understand this by an example:
If you buy a ticket for watching a movie at the multiplex, it doesn’t mean that you
purchased the multiplex, but you have paid the price of availing services.

Service receiver should fully participate when the service is provided. Evaluation of
services is a relatively tough task because different service providers offer the same
services but charges a different amount. It may be due to the method they provide
services is different or the parameters they consider in valuing their services vary.

Example: Postal services, banking, insurance, transport, communication, etc.

Key Differences Between Goods and Services
The basic differences between goods and services are mentioned below:
1.Goods are the material items that the customers are ready to purchase for a price.
Services are the amenities, benefits or facilities provided by the other persons.

2.Goods are tangible items i.e. they can be seen or touched whereas services are intangible
items.

3.When the buyer purchases the goods by paying the consideration, the ownership of
goods moves from the seller to the buyer. Conversely, the ownership of services is non-
transferable.

4.The evaluation of services is difficult because every service provider has a different
approach of carrying out services, so it is hard to judge whose services are better than the
other as compared to goods.

5.Goods can be returned to or exchanged with the seller, but it is not possible to return or
exchange services, once they are provided.

6.Goods can be distinguished from the seller. On the other hand, services and service
provider are inseparable.
7.A particular product will remain same regarding physical characteristics and
specifications, but services can never remain same.

8.Goods can be stored for future use, but services are time bound, i.e. if not
availed in the given time, then it cannot be stored.

9.First of all the goods are produced, then they are traded and finally consumed,
whereas services are produced and consumed at the same time.

Conclusion
Generally, companies keep a stock of goods with itself to fulfill an urgent
requirement of goods. It also keeps track of the quantity of goods at the beginning
and the end. In contrast to services are delivered as per the request of the
customer itself. In short, the production of services depends on the customer’s
demand. Both are subject to tax like Value Added Tax (VAT) is levied on goods
while service tax on services provided.
Sometimes products offered by the companies in such a way that it ‘s hard to
segregate goods and services like in the case of a restaurant, you pay for the food
you eat as well as for the add-on services of the waiters, chef, watchman and so
on.
 Similarities Between Goods and Services
Goods are tangible things while services are intangible. In light of this, a service
refers to an act of doing something for another person. Different companies offer
either goods or services to satisfy customer’s needs. The success of every business
lies in the combination of the best value for goods and customer oriented services.
Human beings depend on both of them for survival.
Definition of Goods
Goods;
Goods are the tangible expendable products, articles, and commodities offered by
companies in exchange for cash. Goods have physical characteristics, for instance,
shape, appearance, size, weight, and other visible characters. Goods satisfy human
wants thereby providing utility.

Goods are different in that some re disposable after using for once. Other goods
are usable for more than once. Goods have a time gap between production,
distribution, and consumption. The ownership of goods is transferable meaning
once a person buys, the ownership moves from the seller to the buyer.
Characteristics of Goods
Goods are tangible. They have physical properties which allow for marketability in a physical
sense. Companies also produce goods either in identical or non-identical units. When identical,
the specific goods offered by a production company will have many unchangeable
characteristics.

These characteristics stay the same, and they do not change even when the product reaches
the marketplace. Example of goods includes books, bags, pen, and bottles. On the other hand,
companies or businesses offer their services at a go and they do not last for future use since
you cannot consume them. For goods, ownership changes from the producer to the consumer
once they you buy them.

Definition of Services
Services refer to the intangible economic products offered to a consumer by a producer, on
demand. Services are perishable, they do not have a physical identity and the ownership of
Services is not transferable. The point of sale for a service is the base for consumption.
Services are only consumable or usable by a buyer, but they are not sellable for ownership.

An example of a service is when you buy a ticket to watch a movie at the cinema hall, it does
not mean the cinema hall becomes yours, it means you paid for the available service. The
evaluation of services is tough since there are so many service providers offering the same task
at a different amount.
The difference in amount is because different firms use different methods or
parameters to value their services. Examples include banking services,
communication, postal services, and many more.

Similarities Between Goods and Services

1. Similarities in “Position Choice” of Goods and Services
The manufacturers of goods and services are the determinants of the position and
location of the company or service provider. The consumer cannot determine the
location in any way.

2. Similarities in “Design Layouts and Production Facilities” of Goods and Services

For both goods and services, manufacturers are the decision makers on
production. They determine the outlook for the output and come up with
production facilities to make products and services.
you must involve inputs.

3 .Similarities in “Use of Technology” of Goods and Services

Both goods and services need the use of some technology in production, one way
or the other. Without technology, production cannot happen.
4. Similarities in “Concern for Quality” of Goods and Services
Quality is the aptitude of the goods and services to fit for its purpose. Whether
goods or services, quality is vital. Failure to consider quality in production can lead
to huge losses.

5. Similarities in “Productivity” of Goods and Services

Businesses make both goods and services with the aim of helping the customers’
productivity by meeting their daily needs and wants.

6. Similarities in “Customer Satisfaction” of Goods and Services

Both goods and services aim at fulfilling customers need and in return generate
customer satisfaction.

7. Similarities in “Capacity Choice” of Goods and Services

The producers of both goods and services choose the production capacity.
Consumers cannot influence the capacity choice of the producer.
Summary points on Similarities between Goods and Services
In conclusion, goods and services are two different things but have so many
similarities. Goods are tangible and expandable objects. On the other hand,
services are an intangible economic product offered by a person to another.

In the production of both goods and services, the producer decides on the location
and the production facilities. They both require technology. The main aim of both
goods and services is to create productivity amongst the users. In addition, both
goods and services aim at fulfilling human needs. Human beings cannot live
without either goods or services and therefore they are both crucial. In both goods
and services, customers cannot influence the capacity choice.
(vii) Historical Evolution of Operation Management-Changes
For over two centuries operations and production management has been recognized as an
important factor in a country’s economic growth. The traditional view of manufacturing
management began in eighteenth century when Adam Smith recognized the economic
benefits of specialization of labor. He recommended breaking of jobs down into sub tasks
and recognizes workers to specialized tasks in which they would become highly skilled and
efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories and
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 focused
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 behavior in the working
environment. In addition, economists, mathematicians, and computer socialists
contributed newer, more sophisticated analytical approaches.
With the 1970s emerges two distinct changes in our views. The most obvious of these,
reflected in the new name operations management was a shift in the service and
manufacturing sectors of the economy. As service sector became more prominent, the
change from ‘production’ to ‘operations’ emphasized the broadening of our field to
service organizations. The second, more suitable change was the beginning of an emphasis
on synthesis, rather than just analysis, in management practices.
UNIT-02 Capacity Planning