Introduction

Business organizations typically have three basic functional areas; finance, marketing, & operations. It doesnt matter whether the business is a retail store, a hospital, a manufacturing firm, a car wash, or some other type of business; all business organizations have these three basic functions. Finance: responsible for securing financial resources at favorable prices & allocating those resources throughout the organization, as well as budgeting, analyzing investment proposals, & providing funds for operations. Marketing: responsible for assessing consumer wants & needs, & selling & promoting the organizations goods or services. Operations: responsible for producing goods or providing the services offered by the organization.

ORGANIZATION

FINANCE

OPERATIONS

MARKETING

Production: Process by which raw materials & other

inputs are converted in to finished products. Synonymously is Manufacturing. To understand nature of production manufacturing function can be viewed from three angles: Production as a system. Production as an organizational function. Decision making in Production.

Production as System:
A system is understood as a whole which cannot be taken apart. A system is an arrangement of components designed to achieve objectives according to plans.

There are basically three systems: 1. Production system: Whose function is to convert a set of inputs to a set of outputs. 2. Conversion System: A sub-system of the larger production system where inputs are converted into outputs. 3. Control Sub system: A sub system of the larger production system where a portion of the output is monitored for feed back signals to provide corrective action if required. A Production System Model is exhibited.

INPUTS Environmental Legal/Political Social, economic Technological Market Competition Product Info. Customer desire Primary Resource Material & Supplies Personnel Capital Assets Capital Utilities

CONVERSION SUB SYSTEM

OUTPUTS

Physical (Manufacturing) Location Services (Transportation) Exchange Services (Retailing/Wholesaling) Other private services (insurance, finance, utilities, real estate, health, business service & personal service. Government Services (local, state, central)

Goods or Services

FEEDBACK INFORMATION

Control Sub System

Production system receives inputs in the form of materials, personnel, capital, utilities, & information. These inputs are changed in a conversion sub- system into desired products & services, which are called outputs. A portion of the output is maintained in the control sub-system to determine if it is acceptable in terms of quantity, cost & quality. If the output is acceptable, no changes are required in the system. But if, the appropriate standards are not met, managerial corrective actions are required. The control sub-system ensures a uniform level of system performance by providing feedback information so that corrective action may be taken.

PRODUCTION AS AN ORGANIZATIONAL FUNCTION

Core of production system is the conversion sub-system, utilizing men, material & machine to convert inputs into products & services. Conversion Process is the heart of production function & is present in some form in all organizations. Every organization irrespective of its purpose, has a production function where departments & personnel play a central role in achieving the objectives of the organization.

DECISION MAKING IN PRODUCTION

Operation Managers are required to make a series of decisions in the production function. They plan, organize, staff, direct & control all the activities in the process of converting all the inputs into finished products. At each level operations managers are expected to make decisions & implement. These decisions fall in three categories: 1. Strategic decisions: relating to products, processes, & manufacturing facilities. These decisions are major ones having strategic importance & long term significance for the organization. 2. Operating decisions: relating to planning production to meet demand. These decisions are necessary in order to ensure that the ongoing production of goods & services meets the market demand & provides reasonable profits for the organization.

3. Control decisions: relating to planning & controlling operations. These decisions concern the day to day activities of workers, quality of products, & services, production & overheads costs & maintenance of machines.

PRODUCTION MANAGEMENT

&

OPERATIONS

Production Management: Refers to the application of management principles to the production function in a factory. The application of management to the field of production has been the result of three developments.

First: Development of factory system of production. Until the emergence of the concept of manufacturing, there was no such thing as management as we know it. People operating businesses were owners & did not regard themselves as managers. Second: Development of the large corporations with many owners & the necessity to hire people to operate the business. Third: Work of many of the pioneers of scientific management who were able to demonstrate the value, from a performance & profit point of view, of some of the techniques they were developing. Operations: Purposeful actions or activities which are done methodically as part of a plan of work by a process that is designed to achieve the pre decided objectives.

Operations Management: OM is the business

function that manages that part of business that transforms raw materials & human inputs into goods & services of higher value. or OM is understood as the process whereby resources or inputs are converted into more useful products.

INPUTS

PROCESS

OUTPUT

PERFORMANCE MEASUREMENT

DISTINCTION BETWEEN PRODUCTION & OPERATIONS MANAGEMENT

Production management is more used for a system where tangible goods are produced. Operations management comprises of transformation of inputs into goods as well as intangible services. PM precedes OM in the historical growth of the subject. Goods: Tangible items that are usually produced in one location & purchased in another. They can be transformed from one place to another & stored for purchase by a consumer at a later time. Service: Intangible products that are consumed as they are created. Direct customer contact is a key characteristic of service.

TRANSFORMATION PROCESS Food Processor Inputs Raw vegetables Metal Sheets Water Energy Labor Building Equipment Processing Cleaning Cutting Cooking Packing Labeling Output Canned Vegetables

HOSPITAL Inputs Doctors, Nurses Hospital Medical supplies Equipment Laboratories Processing Examination Surgery Monitoring Medication Therapy Output Treated patients

Approaches to OM
Operations Management is viewed in two ways. 1. Traditional view: perceiving OM as a system that is involved with the manufacture & production of goods & services. (Transformation Approach) 2. Modern view: perceiving OM as system of designed to deliver value. (Value Driven approach) Transformation Approach: According to this approach OM transforms inputs into outputs of goods & services. e.g. a manufacturing plant takes raw materials in the form of parts, components, & subassemblies & transforms them into a manufactured product like an automobile, using resources like labor, capital & energy.

Task of OM to set-up & run the system that can produce or provide the required outputs. The specifications of the outputs are the starting point. For getting the desired output, the specifications & quality of the inputs is first determined. OM is responsible to transform these inputs into outputs in such a way that the outputs have greater value than the costs of inputs plus the costs related to investments in the processes. Operations Management has a number of functions to carry out the transformation process effectively. The functions incorporate different roles that are interdependent but which can be grouped under five main headings:

Product: The role of OM is to ensure that the product is manufactured as per specifications & plan. 2. Plant: In order to make the product, plant, & equipment is required; OM has to consider that the plant meets specifications & is in keeping with the requirements. 3. Process: There are many ways of producing the product, & OM has responsibility of choosing the best way. 4. Program: The production programme ensures that the schedules of production are met. 5. People: Production depends on people & their skills & motivation. OM has to ensure that skilled & motivated workers are available. OM seen in this way, is the science of optimizing transformation processes, during which set of inputs are converted efficiently & economically into outputs.
1.

Value Driven Approach: The value driven approach starts by recognizing that a business is a set of processes, each of which has inputs, outputs, & structure. Each process has a job to do & each process should be measured on how effective in it in achieving the desired outcomes. Process Approach: Businesses are organized not on the basis of business functions, but on the basis of business processes. Business processes are outward looking & are based on providing greater value to customers by providing greater value to customers by providing fast responses & exceptional services. Functioning of business can be understood by Core Process Model

SUPPORTING BUSINESS PROCESSES

Determine Customer Needs Monitor competitive environment Market Products & Provide after sales service Measure customer satisfaction Understand customers, market segments& competitive environment Develop new products or product improvements Manage supply chain

C O R E P R O S S E S

Develop Product Strategy

Evaluate Product concept

Create new Build & test products prototypes design or product improvements Manage Product transformatio n processes Manage information systems Manage business logistics

Secure Processes & Material to Satisfy demand Manage Strategic Planning Processes

Operating planning & control process Manage human resource

Manage financial resources

Enterprise management & business support activities

1.Determine Customer Needs: It is critical for the organization to know the customers needs in order to support the firms demand, it forecasting needs & its product design & development activities. In order to do this it is necessary to monitor the competitive environment. The supporting business es in processes are involved in marketing products & providing after sales services. There has to be measure of customer satisfaction. There is also a requirement to understand the specific needs of different market segments & the nature of the competitive environment. For fast pace firms CRM has become important. 2. Develop Product Strategy: This involves marketing, operations, & engineering activities in order to create products that customers desire. This requires an ability to evaluate product concepts so that there is support to design new products or introduce product improvements.

The slower the pace, the more is the focus on delighting customers by finding better ways to incrementally improve products that already exist. But as the pace of business increases, the greater is the need to be aware of the competitive challenges that new technologies & competitors introduce to the marketplace. The organization has to develop the ability to understand the potential customer & consequences associated with change. An aggressive competitive market exploits the limitations of an organization; as such, it has to posses the ability to design, build & test prototypes, & develop new products or product improvements before competition. 3. Secure Processes & Materials to satisfy Demand: Management activities involve selection of raw materials from vendors & the ultimate delivering & servicing of the product for the customer. These activities include operations planning & control processes & managing the

Product transformation processes. In addition, the business logistics & the supply chain process play a critical part & have to be managed effectively. 4. Manage Strategic Planning Processes: Support business processes are essential to all organizations. The strategic planning process defines the firms as well as its own OM function. It also specifies what it must do to achieve its corporate goals. The HRM function creates an organization design that is suited to the competitive environment & enhances the human capital needed by other functions to effectively carry out their tasks. The MIS groups provide timely information that is needed to asses the competitive environment & the performance of its business functions. The accounting & finance groups monitor the use of financial assets & take steps to ensure that the financial base of the organization is both adequate & efficiently utilized.

There has to be an adequate interface between all these functions. The operations function contributes to the value delivery to the customers by significant improvements in the cost, quality, timeliness, & availability of products & services. Organizations can use effective OM either to show improvements in performance & quality, coupled with lower prices in real value, or to help raise their bottom-line. Thus essence of operations function is to add value during transformation process. Value added: The difference between the cost of inputs & the value or price of outputs.

Characteristics of Modern Production & Operations function

Todays production system is characterized by four features: 1. Manufacturing as Competitive Advantage: In past production was like any other function of any organization. When demand was high & production capacities were inadequate, the concern was to muster all inputs & use them to produce goods which would be grabbed by market. But todays scenario is contrasting. Plants have excess capacities, competition is mounting & firms look & gain competitive advantage to survive & succeed. Production system offers vast scope to gain competitive edge & firms intend to exploit the potential. To gain competitive advantages companies follow techniques like:

Total Quality Management (TQM) Time Based Competition Business Process Re-engineering (BPRE) Just In Time (JIT) Focused Factory Flexible Manufacturing Systems (FMS) Computer Integrated Manufacturing (CIM) The Virtual Corporation 2.Service Orientation: The service sector is gaining greater relevance these days. The production system, therefore needs to be organized keeping in mind the peculiar requirements of the service component. The entire manufacturing needs to be geared to serve: 1. intangible & perishable nature of the services.

2. Constant interaction with clients or customers. 3. Small volumes of production to serve local markets. 4. Need to locate facilities to serve local markets. There is increased presence of professionals on the production, instead of technicians & engineers. 3. Disappearance of Smokestacks: In past the production system was dominated by smokestacks. These smokestacks represented industrial establishments which ejected thick smoke polluting the environment around. Smokestacks not only disgorged reek, they produced nauseating smell, generated dust, created sound & in general were resembling ghosts. But now they are disappearing gradually. Protective labour legislation, environmental movement & gradual emergence of knowledge based organizations have brought total transformation in production system.

Todays factories are aesthetically designed & built, environment friendly. 4. Small has become Beautiful: E.F. Schumacher in his book SMALL IS BEAUTIFUL opposed giant organization & increased specialization. He advocated intermediate technology based on smaller working units, community ownership, & regional workplaces utilizing local labour & resources. But economics of scale, promoted for huge organizations & mass production systems. But now things have changed as small & tiny manufacturing units are sprouting everywhere. Increasing customization, flexible manufacturing system & similar other developments have made economics of scale outdated & giant organizations irrelevant.

Types of Production Systems

The production system of a company mainly uses facilities, equipments, & operating methods to produce goods that satisfy customers demands. The requirements of a production system depend on the type of product that company offers & the strategy that it employs to serve its customers. The various types of production systems are: 1.Flow Shop: A conversion process in which successive units of output undergo the same sequence of operations, using specialized equipments usually positioned along a production line ( assembly line). e.g. auto assembly, TV set assembly, electric motor assembly, computer assembly Extreme form of flow shop having constant flow of materials is called continues process. Like: chemical plant, power plant, postal services & communications.

AUTO ASSEMBLY

COMPUTER ASSEMBLY

CHEMICAL PLANT

OIL REFINING

Flow shop can be classified as Continuous Flow Shop: producing same type of output like cement, cigarettes, salt, fertilizers & so on. Intermittent flow shop: process interrupted to set up different specifications of the same basic design. In each run all units will follow the same sequence. Like bottling plants, cloth mass production, TV sets & so on. 2. Job Shop: A conversion process in which units of different types of products follow different sequences through different shops. The system has more flexibility but requires more set-up time, more in process inventory, complex scheduling, varying quality & so on. e.g. Hospitals, auto repairs, machine shops, furniture company.

Machine Job Shop

Molding Shop

3. Batch Manufacturing: A batch production facility produces some intermediate varieties of products with intermediate volumes. The volume of any single product may not be sufficient to justify the use of a dedicated set of equipments for its production. Under this condition, a few or several products will have to share the production resources to balance utilization. 4. The Project: Refers to the process of creating a complex one of a kind product or service with a set of well defined tasks in terms of resources required & time phasing. E.g. Civil constructions, establishing new industries, boiler fabrications & so on.

Batch Production Units

PROJECTS

Functions of Production Managers

The production managers hold following responsibilities & performs the following duties: 1. Planning the geographical location of the factory. 2. Purchasing production equipments. 3. Layout of equipments within the factory. 4. Designing production processes & equipments. 5. Product design. 6. Designing production work & establishing work standards. 7. Capacity Planning 8. Production planning & scheduling 9.Production control 10. Inventory Management

11. Supply Chain management 12. Quality Control 13. Production equipment maintenance & repair. 14. Measurement & monitoring of productivity 15. Industrial relations 16. Health & safety 17. Staff selection & liaisoning. 18. Budgeting & capacity planning

Emerging Roles of Production & Operations Manager:

1. Take part in strategic decision making. 2. Take part in the implementation & use of Enterprise Resource Planning (ERP) in the company.

3. Automate processes as per the requirements of the company. 4. Enhance the Research & Development effort in developing self relevant new technologies. 5. Reduce lag in implementation of projects due to increased competition. 6. Protect the environment by implementing environment & pollution norms established by the government from time to time. 7. Act as member of the concurrent engineering teams in new product design & old product development. 8. Develop long term strategic relationship with supplies by acting as supply chain managers. 9. Give more attention to technology management, in view of joint ventures of multinational companies with domestic companies.

10. Be an internal quality auditor in quality certification programming such as ISO 9000 series & ISO 14000.

ORGANIZATION OF PRODUCTION FUNCTION

The POM department is headed by a senior vice president of operations, who organizes the department with the help of plant manger as well as heads, who are reporting to him/ her. Organization chart

PRESIDENT/CEO VP MANUFACTURING

VP MATERIALS

VP QUALITY

GM

INDUSTRIAL ENGG

INVENTORY MGT

DISTRIBUTI ON MGT

PURCHASI NG

PLANT MAINTENA NCE

WORK STANDARD

PROCESS MGT

SUPERVISO R

SUPERVISO R

SUPERVISO R

SUPERVISO R

Trends in Production/Operations Mgt

1.Global Market Place: Globalization of business has compelled many manufacturing firms to have operations in many countries where they have certain economic advantage. This has resulted in a steep increase in the level of competition among manufacturing firms throughout the world. 2. Production/Operations Strategy: More & more firms are recognizing the importance of production/operations strategy for the overall success of their business & the necessity for relating it to their overall business strategy. 3. Total Quality Management (TQM): TQM approach has been adopted by many firms to achieve customer satisfaction by a never ending quest for improving the quality of goods & services.

4. Flexibility: The ability to adapt quickly to changes in volume of demand, in the product mix demanded, and in product design or in delivery schedules, has become a major competitive strategy & competitive advantage to the firms. This is also known as agile manufacturing. 5. Time Reduction: Reduction of manufacturing cycle time & speed to market for a new product provide competitive edge to a firm over other firms. When companies provide products at the same price & quality, quicker delivery provide one firm competitive edge over the other. 6. Technology: Advances in technology have led to a vast array of new products, new processes & new materials & components. Automation, computerization, information & communication technologies have revolutionized the way companies operate. Technological changes in products & processes can have great impact on competitiveness &

Quality, if advanced technology is carefully integrated into the existing system. 7. Worker Involvement: The recent trend in assign responsibility for decision making & problem solving to the lower levels in the organization. This is known as employee involvement & empowerment. 8. Re-engineering: This involves drastic measures or break through improvements to improve the performance of a firm. It involves the concept of clean slate approach or starting from scratch in redesigning the business process. 9. Environmental Issues: Todays production manager are concerned more & more with pollution control & waste disposals which are key issues in protection of environment & social responsibilities. There is increasing emphasis on reducing waste, recycling

Waste, using less toxic chemicals & using biodegradable materials for packaging. 10. Corporate Downsizing (Right Sizing) : Downsizing or rightsizing has been forced on firms to shed their obesity. This has become necessary due to competition, lowering productivity, need for improved profit & for higher dividend payment to shareholders. 11. Supply Chain Management: Management of supply chain, from suppliers to final customers reduces the cost of transportation, warehousing & distribution throughout the supply chain. 12. Lean Production: Production systems using minimum amounts of resources to produce a high volume of high quality goods with some variety. These systems use flexible manufacturing systems & multi- skilled workforce to have advantages of both mass production & job production or craft production.

TQM

FMS

LEAN PRODUCTION

SCM

RE-ENGINEERING

PRODUCTIVITY
Productivity is an index that measures the effective use of resources, usually expressed as the ratio of output to input. Productivity = output/input Output = goods & services Input = labor, materials, energy & other resources. A productivity ratio can be calculated for a single operation, a department, an organization, or an entire country.

Computing productivity Productivity measures can be based on a single input (partial productivity), on more than one input (multifactor productivity), or on all inputs (total productivity). Partial measures = Output / labor Output / machine Output / capital Output / energy Multifactor measure = Output / labor + machine = Output / labor + capital + energy Total measure = goods or services produced / all inputs

Types of Productivity 1. Labor Productivity = Units of output per labor hour Units of output per shift Value added per labor hour Money value of output per labor hour 2. Machine Productivity = Units of output per machine hour Money value of output per machine hour 3. Capital Productivity = Units output per rupee input Rupee value of output per rupee input

4. Energy Productivity = units of output per kilowatt hour rupee value of output per kilowatt hour Productivity Growth : Increase in productivity from one period to the next relative to the productivity in the proceeding period. Productivity growth = Current productivity previous productivity / previous productivity

) * 100

FACTORS AFFECTING PRODUCTIVITY

The major factors that affect productivity are: Methods Capital Quality Technology Management Other factors affecting productivity are: 1. Standardizing processes and procedures wherever possible to reduce variability can have a significant benefit for both productivity & quality.

2.

3. 4. 5. 6. 7.

Quality Difference may distort productivity measurements. One way this can happen is when comparisons are made over time. Use of Internet can lower costs of wide range of transactions, thereby increasing productivity. Computer viruses can have an immense negative impact on productivity. Searching for lost or misplaced items waste time, hence negatively affecting productivity. Scrap rates have an adverse effect on productivity, signaling inefficient use of resources. New workers tend to have a lower productivity than seasoned workers. Thus growing companies may experience a productivity lag.

8. Safety should be addressed. Accidents can take a toll on productivity. 9. A shortage of information technology workers and other technical workers hamper the ability & of companies to update computing resources, generate & sustain growth, and take advantage of new opportunities. 10. Layoffs often affect productivity. The effect can be positive or negative. 11. Labor turnover has a negative effect on productivity; replacements need time to get up to speed. 12. Design of the workplace can impact productivity. For example having tools & other work items within easy reach can positively impact productivity. 13. Incentive plans that reward productivity increases.

PRODUTIVITY IMPROVEMENTS
A number of steps can be taken by an organization to improve productivity: 1. Develop productivity measures for all operations. Measurement is the first step in managing and controlling an operation. 2. System must be viewed as a whole in deciding the most critical operations. Overall productivity is most important. 3. Develop methods for achieving productivity improvements, such as soliciting ideas from workers, studying how other firms have increased productivity, and reexamining the way work is done. 4. Establish reasonable goals for improvement.

5. Make it clear that management supports and encourages productivity improvement. Consider incentives to reward workers for contributions. 6. Measure improvements and publicize them.