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Production and Operations

Management
James Kaconco
0772 653191
Chapter 1 Objectives
• By end of the chapter students should be in position to:
1. Define Operations (Production) activity and define Operations
(Production) Management
2. Explain the Productive system elements
a. List and explain inputs to a productive system
b. List and explain common transformation processes
c. List and explain common outputs of a productive system
3. Explain the common production environments
4. Explain roles and objectives of production / Operations management
5. Explain the responsibilities of Production / Operations Managers
6. Explain the 10 key decision areas in Production / Operations
Management
7. Explain the challenges and new trends in production / operations
management
Definitions
• Production / Operation:
– The part of a business organization responsible for producing goods or
services; transforms inputs into outputs that are of greater value

• Production / Operations Management:


– The management of systems or processes that create goods or services
– The business function responsible for planning, leading, organizing,
scheduling, coordinating, and controlling the resources (at different stages)
needed to produce a company’s products and services
– Control takes care of both internal and external influences

 Production / Operations Management is one of three major functions


(marketing, finance, and operations) of any organization
 Every aspect of a business is affected by production or operations
 Production / Operations Management is a costly part of an organization
Scope of Operations / Production
Management
Ten Decision Areas Five Ps Decision Levels
1. Product / Service design 1. Plant: a facility that 1. Strategic Decisions: are long
houses the term, senior management,
2. Process design and transformation activities decision difficult to change
Capacity management 2. Product: the market (location, layout, capacity, new
3. Supply Chain management offer (good or service) products / service)
to provide total
4. Quality management 2. Tactical Decisions: these are
customer value
5. Location analysis intermediate term plans, middle
3. Process: one or more managers, (aggregate planning,
6. Layout analysis (line activities that transform
master production scheduling,
balancing) input into output
materials requirement planning)
4. People: the resource or
7. Short term Scheduling 3. Operational Decisions: these are
asset responsible for the
8. Inventory management management of short term decisions, first line
business activities managers, involve day to day
9. Maintenance management
5. Programme: A plan used activities (receiving, storing,
10. Human Resource dispatching, scheduling,
to achieve organization
Management goals; it can be repeated input/output control)
overtime
Productive System
• A productive system can be defined as a transformation unit in
which a saleable (demanded) product or service is created by
working upon a set of inputs.
 Open loop – interacts with the external environment
 Closed loop – does not interact with external environment (self
sustaining)
• The production system characteristics:
1. Production is an organized activity, so every production system has
an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization
system.
4. There exists a feedback about the activities, which is essential to
control and improve system performance.
Productive system and Environment
ENVIRONMENT
Micro factors
Macro factors
INPUT
TRANSFORMED OPERATIONS
RESOURCES STRATEGY
• MATERIALS
• INFROMATION
• CUSTOMERS
IMPROVEMENT
DESIGN GOODS
INPUT OUTPUT AND
SERVICES
PLANNING AND
• FACILITIES CONTROL
• STAFF
INPUT
TRANSFORMING
RESOURCES
Up Stream Flow
• Referred to as Demand Chain
Down Stream Flow
• Cash
• Referred to as Supply Demand Chain
• Information (feedback)
Productive System - Inputs

I. Transformed resources – the resources that are treated,


transformed or converted in some way. The transformed
resources which operations take in are usually a mixture
of materials, information and customers.

II. Transforming resources – the resources that act upon the


transformed resources. Facilities and staff are the two
types of transforming resources.
a. Facilities include building, equipment, plant and process
technology etc.,
b. Staff includes all those who operate, maintain, plan and manage
the operation.
Productive System: Transformation
Processes
• Transformation processes includes the following:
a) physical, as in manufacturing operations;
b) locational, as in transportation or warehouse
operations;
c) exchange, as in retail operations;
d) physiological, as in health care;
e) psychological, as in entertainment;
f) informational, as in communications.
Productive System - Outputs

• They are basically two


1. Desired outputs:
a. Good or Product – Production Department (Production
Management)
• Goods are physical items that include raw materials, subassemblies,
assemblies, parts, components, final products eg car, shampoo,
computer
a. Service – Operations Department (Operations Management)
• Services are activities that provide a combination of time, location, or
form or psychological value; eg hair cut, education, air travel
2. Undesired output
Waste occurs at all stages and should be reduced or eliminated along
the whole value chain.
Productive System - Hybrid

• These are a combination of Operations (Service)


and Production (Goods) productive systems
– Normally manufacturing / production provides
products - goods
– Normally operations provides services
– Mostly organizations are a blend of operations /
manufacturing or Quasi-Manufacturing (QM)
organizations
– QM characteristics include
• Low customer contact & Capital Intensive
The output from most operations is a
mixture of goods and services
PURE GOODS
Tangible
CRUDE OIL PRODUCTION

Can be stored
ALUMINIUM SMELTING Production precedes
consumption
SPECIALIST MACHINE TOOL
Low customer
contact
MANUFACTURER
Can be transported
Quality is evident
RESTAURANT

COMPUTER SYSTEMS
SERVICES

PSYCHOTHERAPY CLINIC
CONSULTANCY
MANAGEMENT
Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge
PURE SERVICES
Source: Slack, 2001
Production / Operations Management Control
• Control is all about comparing actual against set goals or standards, and involves
1.Determining goals or standards to be achieved
2.Measuring actual performance and comparing to set goals or standards
3.Corrective action
• Production / Operations Control is a mechanism to monitor the execution of the production /
operations plans, and then provide feedback.
Feedback measurements taken at various points in the production or operations system or
process
Control is performed at key points (areas) since it is costly
Control is exercised at the input, transformation and output stages
Control is achieved through use of:
•Behavioral Models: Help managers in knowing how to deal with staff
•Mathematical models: Tools used for decision making in production / operations management
• The factors that affect execution or achievement of production or operations goals are:
1.Non-availability of materials (due to shortage, etc.);
2.Plant, equipment and machine breakdown;
3.Changes in demand and rush orders;
4.Absenteeism of workers; and
5.Lack of coordination and communication between various functional areas of business.
Product and Service Productive Systems:
Similarities
1. All use technology
2. Both have quality, productivity, & response
issues
3. All must forecast demand
4. Each will have capacity, layout, and location
issues
5. All have customers, suppliers, scheduling and
staffing issues
Product and Service Productive Systems:
Differences

Characteristic Manufacturing Service


Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct quality problems High Low
Production or Operations Function at the
core of Businesses and Interface with
other Functions
Roles of Production / Operations
Management
1. Transforms inputs to outputs

2. To add value to inputs


• Value-added services differentiate the organization from competitors and build
relationships that bind customers to the firm in a positive way
• Value added service categories include: sales support, field support, information
and problem solving

3. Provide an efficient transformation

– Efficiency – perform activities well at lowest possible cost

4. To maintain a competitive edge against competitors

a. Value, b. Imitation, c. Rare, d. Organization support


Production / Operations Management
Objectives: External and Internal Effects
Production / Operations systems
Segmentation Factors
Productive Systems Classification
• Productive systems can be classified on the basis of the
following:
– Manufacturing / Production environment
– Type of Production processes
• Job shop, batch and project; mass and process.
– Intermittent or Continuous.
– Product or Process Layout
– Other ways of classifying productive systems
• Size of plant
• Type of product
• Physical flow of materials
• Nature of order / demand pattern
• Variety of jobs
Classification of Productive Systems:
Production Environments
• Make-to-stock
– Means that the supplier manufactures the goods and sells
from inventory. Here the products are made ready before
receipt of customer orders. Customer orders are filled
from existing stock and production orders are used to
replenish sold off stock.
– Products must be manufactured a head of need and in
quantities based on forecasted demand.
– Management concern is the accuracy of the forecast in
terms of quantity and timing. Forecast below / above
demand have serious consequences on the firm
Production Environments Cont’

• Make-to-order
– Means that the manufacturer does not start to manufacture
the product until a customer order is received. Sometimes this
strategy requires design engineering and is then called
engineer-to-order. In this case, the cumulative lead time is
increased by the time needed to design the product.
– Forecasts may be used to plan for predictable raw materials
with long lead times and the capacity that will be needed.
Detailed materials planning and production are performed after
receiving an order.
– Management concern is the due date or delivery date; and
volume of the common components to keep in stock.
Production Environments Cont’

• Assemble-to-order
– Means that the product is made from standard components
that the manufacturer can inventory and assemble according
to a customer order. The subassemblies or components are
planned and possibly stocked in anticipation of customer
order.
– Assemble to order is useful where a large number of end
products can be assembled from common components.
– Management concern is the accuracy of the forecast in terms
of quantity and timing of the common components; as
forecasts below or above demand have serious consequences
to the firm.
Functions and Responsibility of
Production / Operations Management
 Controlling
– Inventory
 Planning – Quality
– Capacity, utilization

– Costs
Location
– Choosing products or services
 Organization
– Make or buy – Degree of standardization
– Layout – Subcontracting
– Projects – Process selection
– Scheduling  Staffing
– Market share – Hiring/lay off
– Plan for risk reduction, plan – Use of overtime
B?
– Forecasting – Incentive plans

In a nutshell, the challenge is


“Matching the Supply with Demand”
SUPPLY SIDE DEMAND SIDE
Career Opportunities in Production /
Operations Management
Education, Engineering / Product Design
Maintenance, Quality Control,
Demand Management
Challenges and New Trends in OM
From (challenges) To (new trends)
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass
customization
 Job specialization  Empowered
employees, teams
Significant Events (Industrial Revolution) in
Production / Operations Management

Industry 4.0 Smart


Manufacturing – Era: Present

Figure 1.3

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