Chapter 1

Productive Systems And

Management
 Introduction
• A system which produces value added product is a productive system.
• Human needs are divided into two categories 1) Materials and goods 2)
Services
• All productive systems including production systems require some
management tools to achieve an efficient and economically sustainable
operation.
• The cost incurred to produce a product and the value that product has for the
customer for its utility and for which customer is willing to pay are important
for economic sustainability.
• Cost reduction of products and productivity improvements are very important
due to international competitiveness.
 Definitions
• Production- an activity or group of activities carried out to
produce a tangible output in the form of materials and goods.
• Production Process- The process of producing goods or
materials.
• Production System- The system that transforms the resources
into material goods of value. A production system is only
feasible if the product value is significantly higher than the
value of the input resources.
Production system is a type of productive system.
• Productive system has a broader scope and includes service
system. Service system do not produce goods but provides
services
 Role Of Production System
Production systems provide the tangible output necessary to meet the basic
needs of human society and also provide the infra-structure and supplies for
service system.
The demand of materials and products is increasing due to following
reasons:
i. Increasing population
ii. Better living standards
iii. Innovation and technology explosion

Available resources are limited and thus need to be used in an efficient way.
This is where production system come in to play
 Inputs Of A Production System
• There are two types of inputs of a production system , fixed and
recurring.
Fixed Inputs:
i. Land
ii. Building
iii. Plant and machinery
Recurring Inputs:
i. Materials
ii. Labour
iii. Utilities
iv. Energy
v. Information and technology
 Inputs

Land

Building

Plant &
Machinery Transformation Outputs Evaluation
Materials
Production Goods or
Users
Labour system materials

Utilities

Energy

Information &
Technology
Feed Back

Fig 1.1 Schematic model of a productive system

 Management-Concept and History
• Production management developed as a science as the cottage industries grew
into larger factories and organizations. The factories presented unique
problems including :
i. planning
ii. Co-ordination
iii. Productivity of plant and people
iv. Quality fluctuations
v. Desire of the workforce
vi. Better quality life with less work and more wages
 Management Styles
• Organizational climate is set by the system of management
practiced by the senior executives. Organizational climate is a
composite of
i. Organization structure
ii. System of motivation
iii. Leadership style
iv. Communication system peer group relation
v. Quality of discipline and general treatment of
employees.
The system of management determine employee satisfaction,
costs, output and profits.
 Systems Of Management
• Rensis Likert divided the systems of management into four
types
System – 1 : An exploitive authoritarian system(Theory X), in
which the management forces the workers through tight
discipline to achieve and maintain required output. The
employees fear the bosses. All decisions are made at the top
and for mistakes punishments are practiced rather than a
scientific investigation and correction
System - 2 : Management style is benevolent autocracy or
paternalistic. Employees are expected to be loyal, subservient,
compliant and co-operative. Decision making is centralized at
the top and employees are not involved. Management behavior
is decent and kind.
 Management Style (Cont’d)

System – 3 : Management type is consultative Employees are

allowed to give suggestions but final decision is made by
management. Motivation through reward is practiced but
punishment with ego involvement is also practiced. Control is
primarily exercised by top management with some sharing of
resposibility at middle and lower level

System – 4 : System advocates participative management style.

Management behavior is supportive (Theory Y). Extensive
involvement between management, supervisors and employees
with mutual trust. Employees are given incentives. Employees
are motivated, goal oriented and
 Japanese System Of Management
• Japan’s economic performance in the 70’s & 80’s with high
quality products and reasonable prices have attracted attention
of manufacturing executives from all over the world.
• The salient features of Japanese management system are :

Long Term Employment- workers enjoy long term employment,

and lay-offs are almost non-existent. This non- layoff policy
builds trust and loyalty. Workers readily accept labor saving
technologies because their employment is secured.
Promotion and Pay Increase- Employees hired at the same time
will receive same pay. There is no incentive for individuals to
get ahead of each other . High weightage is given to loyalty,
enthusiasm and co-operation.
Job Rotation- Employees are moved from one department to
another during their careers, the idea is to develop employees
having a variety of skills and broad vision for improving
production technology.
Continuing Education- A heavy emphasis is placed to provide
opportunities in specialized courses arranged by company. The
purpose is the same as job rotation to develop variety of skills
and knowledge.
Group Consciousness- More emphasis is given on projection
and significance on the group or department than the individual.
Teamwork is developed through co-operation loyalty and trust
Implicit Informal Controls- The control mechanism are
ingenious implied but not expressed and are developed through
mental training and beliefs. Group culture prevails and group
culture controls the behavior of the individuals
Wholistic Concern For People- Japanese companies are
concerned with behavior of the employee as a whole on and off
the job. The company provides extensive educational,
recreational, housing, health and insurance benefits.

Paternalistic Employers- the behavior of the management

towards the employees is paternalistic . In return for accepting
the company’s way of doing things the company takes care of
the workers.

Respect For Humanity- Japanese executives do not give orders

directly, when dealing with subordinates they tactfully ask
questions, make suggestions and provide encouragement.
• Consensual Decision Making - Long discussions and
meetings are a common feature at all levels of the company.
The mode of participative decision making at worker and
foreman level is through quality circles. The quality circles
consist of volunteers and they work on problems like product
quality, safety procedures, cost reduction and employee
morale, there are more than a million quality circles registered
throughout Japanese industry
MANAGEMENT SYSTEMS

Raw Materials Production System Product

Resources
 Management System and Productivity

In developing countries like Pakistan, Management is influenced by:

• Low education level
• Poor technology level
• Financial constraints
• Social and political constraints

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 Factors Affecting Production Policy
External Factors:
• Competitors influence
• Consumer Culture
• Economics
• Political environment
• Suppliers constraints
• Labor unions and industrial peace
• Government policies and taxation rules
Internal Factors
• Plant capacity and capability
• Skills available
• Working capital
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Functional Areas of Management Roles
The
Produc
t

Functional
The
Sales Areas of Plant
Management

Production

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 1. The Product

It concerns with
Types of products
Quantity of each product
Type and quantity depend upon market research and demand forecast.
• Once type and quantity of the product are decided, detailed design
specifications are prepared.

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 2. The Plant

The installation of the plant requires following steps:

1. Necessary data to decide the type and size of plant (according to product)
2. Procurement schedule
3. Financial resources to dictate make or buy decisions

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 3. Production

Middle management role covers the area of production. It includes

o Details of materials and part requirements
o Preparation of procurement schedule
o Issuance of orders according to plan
o Control is implied on workers for planned schedule and maintain the quality
Factors affecting the Scheduled Production:
 Customer delivery
 Inventory policy
 Working capital limitations 21
 4.Sales

• It creates capital flow back to the organization

• Customer need satisfaction is monitored
• Design and Quality are improved according to customer need

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 Operation Model of a Production System

Product
Identify Evaluate Design

Plant
Procur
Plan Install
e

Production
Transfor
Parts Compare
m

Sales
23
Consume
Market Need
r
 Objectives of the Organization

Common Objective:
To earn Profit
Profit of Sole Proprietor:
• compensation of capital invested
• Profit and loss is only in one hand
• Proprietor desires to be respected
Profit of Corporations:
To obtain social, political, economical, health, housing needs and to optimize profit,
corporations must achieve
Customer satisfaction 24

Investor satisfaction
 Customer Satisfaction
Customer satisfaction is important for the promotion of sales
Factors affecting Customer satisfaction:
Product Quality:
Physical appearance, surface quality, aesthetic design
Product Reliability:
Must perform desired function without interruptions
Product Price:
Optimum and competitive
Delivery Schedule:
• Meet the delivery schedule
• Delay results in financial loss especially in seasonal products 25

• A closed liaison is to be established between marketing and production

 Investor’s Satisfaction
• Profit is the only consideration
• Indirect expenses must be reduced to maximize profit to achieve investor’s
satisfaction

Employee Satisfaction
To achieve the goal of higher profit, HR can get employees satisfaction by:
Better wages
Incentives
Job security
Excellent work environment
Motivation
Opportunities of career planning 26
 Advantages of Objectives
• They provide a criteria to evaluate performance of whole organization
• Employees work with a goal
• Management does not need tight control over employees
• Self regulated behavior of workers
Functions of Management
Herbison and Mayers describe functions of management as:
1) Undertaking of risks and handling of uncertainty
2) Planning and Innovation
3) Co-ordination, administration and control
4) Routine supervision 27
 Functional Divisions of Management

The general classification of management functions applies to various functions.

The functional division may be classified as:
Policy Making
 Labor skills and capital constraints
Product Design and specifications
Finance Management (Accounting)
Procurement (The desired parts and materials)
Inventory (Procurement stock)
Logistics
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 Functional Divisions of Management (Cont’d)

Maintenance (Plant’s efficient working)

Planning
Scheduling
Controlling
Quality Assurance and Quality Control (QC and QA)
Marketing
Human Resources (HR)
Sales
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 Basic Principles of Production Management
• Customer Satisfaction
• Product Quality
• Global Competition
• Minimize the rework and rejections
• Staff Training
• Optimum production rate
• Reduction of unnecessary variety
• Reduction of set-up time and idle-time
• Reduction of unnecessary operations
• Combining operations
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 Basic Principles of Production Management (Cont’d)

• Using low cost production equipment

• Economic Justification
• Reliability of new equipment
• Layout of new equipment
• Layout of workplaces
• Job rotation for multiple skills
• Reduce inventories
• Selection of best vendor and supplier
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