Concept of Production

Any process which involves conversion of raw material into finished product for satisfaction of human
wants is called as production. Production function refers to creation of goods and services in order to
satisfy human needs by converting resources into outputs. Production function is that part of an
organisation, which is concerned with the transformation of a range of inputs into the required outputs
having the requisite quality level.

Definition of Production

Production is defined as “the step-by-step conversion of one form of material into another form through
chemical or mechanical process to create or enhance the utility of the product to the user.” Thus
production is a value addition process. At each stage of processing, there will be value addition.

Edwood Buffa defines production as ‘a process by which goods and services are created’.

Production System

Production System

The production system of an organisation is that part, which produces products of an organisation. It is
that activity whereby resources, flowing within a defined system, are combined and transformed in a
controlled manner to add value in accordance with the policies communicated by management. A
simplified production system is shown in diagram.

The production system has the following characteristics:

1. Production is an organised 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 organisation system.

4. There exists a feedback about the activities, which is essential to control and improve system
performance.

Classification of Production Function

Production systems can be classified as Job Shop, Batch, Mass and Continuous Production systems.

JOB-SHOP PRODUCTION

Job shop production are characterised by manufacturing of one or few quantity of products designed
and produced as per the specification of customers within prefixed time and cost. The distinguishing
feature of this is low volume and high variety of products.

A job shop comprises of general purpose machines arranged into different departments. Each job
demands unique technological requirements, demands processing on machines in a certain sequence.

Characteristics

The Job-shop production system is followed when there is:

1. High variety of products and low volume.

2. Use of general purpose machines and facilities.

3. Highly skilled operators who can take up each job as a challenge because of uniqueness.

4. Large inventory of materials, tools, parts.

5. Detailed planning is essential for sequencing the requirements of each product, capacities for each
work centre and order priorities.

Advantages

Following are the advantages of job shop production:

1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning opportunities.

3. Full potential of operators can be utilised.

4. Opportunity exists for creative methods and innovative ideas.

Limitations

Following are the limitations of job shop production:

1. Higher cost due to frequent set up changes.

2. Higher level of inventory at all levels and hence higher inventory cost.

3. Production planning is complicated.

4. Larger space requirements.

BATCH PRODUCTION

Batch production is defined by American Production and Inventory Control Society (APICS) “as a form of
manufacturing in which the job passes through the functional departments in lots or batches and each
lot may have a different routing.” It is characterised by the manufacture of limited number of products
produced at regular intervals and stocked awaiting sales.

Characteristics

Batch production system is used under the following circumstances:

1. When there is shorter production runs.

2. When plant and machinery are flexible.

3. When plant and machinery set up is used for the production of item in a batch and change of set up is
required for processing the next batch.

4. When manufacturing lead time and cost are lower as compared to job order production.

Advantages

Following are the advantages of batch production:

1. Better utilisation of plant and machinery.

2. Promotes functional specialisation.

3. Cost per unit is lower as compared to job order production.

4. Lower investment in plant and machinery.

5. Flexibility to accommodate and process number of products.

6. Job satisfaction exists for operators.

Limitations

Following are the limitations of batch production:

1. Material handling is complex because of irregular and longer flows.

2. Production planning and control is complex.

3. Work in process inventory is higher compared to continuous production.

4. Higher set up costs due to frequent changes in set up.

MASS PRODUCTION

Manufacture of discrete parts or assemblies using a continuous process are called mass production. This
production system is justified by very large volume of production. The machines are arranged in a line or
product layout. Product and process standardisation exists and all outputs follow the same path.

Characteristics

Mass production is used under the following circumstances:\

1. Standardisation of product and process sequence.

2. Dedicated special purpose machines having higher production capacities and output rates.

3. Large volume of products.

4. Shorter cycle time of production.

5. Lower in process inventory.

6. Perfectly balanced production lines.

7. Flow of materials, components and parts is continuous and without any back tracking.

8. Production planning and control is easy.

9. Material handling can be completely automatic.

Advantages

Following are the advantages of mass production:

1. Higher rate of production with reduced cycle time.

2. Higher capacity utilisation due to line balancing.

3. Less skilled operators are required.

4. Low process inventory.

5. Manufacturing cost per unit is low.

Limitations

Following are the limitations of mass production:

1. Breakdown of one machine will stop an entire production line.

2. Line layout needs major change with the changes in the product design.

3. High investment in production facilities.

4. The cycle time is determined by the slowest operation.

CONTINUOUS PRODUCTION

Production facilities are arranged as per the sequence of production operations from the first operations
to the finished product. The items are made to flow through the sequence of operations through
material handling devices such as conveyors, transfer devices, etc.
Characteristics

Continuous production is used under the following circumstances:

1. Dedicated plant and equipment with zero flexibility.

2. Material handling is fully automated.

3. Process follows a predetermined sequence of operations.

4. Component materials cannot be readily identified with final product.

5. Planning and scheduling is a routine action.

Advantages

Following are the advantages of continuous production:

1. Standardisation of product and process sequence.

2. Higher rate of production with reduced cycle time.

3. Higher capacity utilisation due to line balancing.

4. Manpower is not required for material handling as it is completely automatic.

5. Person with limited skills can be used on the production line.

6. Unit cost is lower due to high volume of production.

Limitations

Introduction of Production and Operations Management,MBA Notes,Production and Operations

Management

Following are the limitations of continuous production:

1. Flexibility to accommodate and process number of products does not exist.

2. Very high investment for setting flow lines.

3. Product differentiation is limited.

Production Management

Production management is a process of planning, organising, directing and controlling the activities of
the production function. It combines and transforms various resources used in the production
subsystem of the organisation into value added product in a controlled manner as per the policies of the
organisation.

E.S. Buffa defines production management as, “Production management deals with decision making
related to production processes so that the resulting goods or services are produced according to
specifications, in the amount and by the schedule demanded and out of minimum cost.”

Objectives of Production Management

The objective of the production management is ‘to produce goods services of right quality and quantity
at the right time and right manufacturing cost’.

1. RIGHT QUALITY

The quality of product is established based upon the customers needs. The right quality is not
necessarily best quality. It is determined by the cost of the product and the technical characteristics as
suited to the specific requirements.

2. RIGHT QUANTITY

The manufacturing organisation should produce the products in right number. If they are produced in
excess of demand the capital will block up in the form of inventory and if the quantity is produced in
short of demand, leads to shortage of products.

3. RIGHT TIME

Timeliness of delivery is one of the important parameter to judge the effectiveness of production
department. So, the production department has to make the optimal utilisation of input resources to
achieve its objective.
4. RIGHT MANUFACTURING COST

Manufacturing costs are established before the product is actually manufactured. Hence, all attempts
should be made to produce the products at pre-established cost, so as to reduce the variation between
actual and the standard (pre-established) cost.

Operating System

Operating system converts inputs in order to provide outputs which are required by a customer. It
converts physical resources into outputs, the function of which is to satisfy customer wants i.e., to
provide some utility for the customer. In some of the organisation the product is a physical good (hotels)
while in others it is a service (hospitals). Bus and taxi services, tailors, hospital and builders are the
examples of an operating system.

Everett E. Adam & Ronald J. Ebert define operating system as, “An operating system ( function) of an
organisation is the part of an organisation that produces the organisation’s physical goods and services.”

Ray Wild defines operating system as, “An operating system is a configuration of resources combined for
the provision of goods or services.”

Concept of Operations

An operation is defined in terms of the mission it serves for the organisation, technology it employs and
the human and managerial processes it involves. Operations in an organisation can be categorised into
manufacturing operations and service operations. Manufacturing operations is a conversion process
that includes manufacturing yields a tangible output: a product, whereas, a conversion process that
includes service yields an intangible output: a deed, a performance, an effort.

Difference Between Manufacturing Operations and Service Operations

Following characteristics can be considered for distinguishing manufacturing operations with service
operations:

1. Tangible/Intangible nature of output

2. Consumption of output

3. Nature of work (job)

4. Degree of customer contact

5. Customer participation in conversion

6. Measurement of performance.

Manufacturing is characterised by tangible outputs (products), outputs that customers consume

overtime, jobs that use less labour and more equipment, little customer contact, no customer
participation in the conversion process (in production), and sophisticated methods for measuring
production activities and resource consumption as product are made.

Service is characterised by intangible outputs, outputs that customers consumes immediately, jobs that
use more labour and less equipment, direct consumer contact, frequent customer participation in the
conversion process, and elementary methods for measuring conversion activities and resource
consumption. Some services are equipment based namely rail-road services, telephone services and
some are people based namely tax consultant services, hair styling.

Operations Management

Operation Management is a way or means through which the listed objectives of an operating system is
achieved. There is always a confusion between the word Operations Management and Production
Management. It is accepted norm that Operations Management includes techniques which are enabling
the achievement of operational objectives in an operation system.

The operation system includes both manufacturing sector as well as service sector, but when you use
the word Production Management, you should be careful to note that it refers to the manufacturing
sector but not the service sector. Suppose, you are designing a layout for the hospital you should say
that you are applying Operations Management Technique not the Production Management Technique.

When you design a layout for a manufacturing sector you can say that you are applying Production
Management Technique or Operation Management Technique or vice versa.
From, the above discussion we can come to a conclusion that Production Management is a subset of
Operations Management.

Framework for Managing Operations

General Model for Managing Operations

Managing operations can be enclosed in a frame of general management function as shown in Diagram.

Operation managers are concerned with planning, organising, and controlling the activities which affect
human behaviour through models.

PLANNING

Activities that establishes a course of action and guide future decision-making is planning. The
operations manager defines the objectives for the operations subsystem of the organisation, and the
policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of
operations in the organisation’s overall strategy. It also involves product planning, facility designing and
using the conversion process.

ORGANISING

Activities that establishes a structure of tasks and authority. Operation managers establish a structure of
roles and the flow of information within the operations subsystem. They determine the activities
required to achieve the goals and assign authority and responsibility for carrying them out.

CONTROLLING

Activities that assure the actual performance in accordance with planned performance. To ensure that
the plans for the operations subsystems are accomplished, the operations manager must exercise
control by measuring actual outputs and comparing them to planned operations management.
Controlling costs, quality, and schedules are the important functions here.

BEHAVIOUR
Operation managers are concerned with how their efforts to plan, organise, and control affect human
behaviour. They also want to know how the behaviour of subordinates can affect management’s
planning, organising, and controlling actions. Their interest lies in decision-making behaviour.

MODELS

As operation managers plan, organise, and control the conversion process, they encounter many
problems and must make many decisions. They can simplify their difficulties using models like aggregate
planning models for examining how best to use existing capacity in short-term, break even analysis to
identify break even volumes, linear programming and computer simulation for capacity utilisation,
decision tree analysis for long-term capacity problem of facility expansion, simple median model for
determining best locations of facilities etc.

Objectives of Operations Management

Objectives of operations management can be categorised into customer service and resource utilisation.

CUSTOMER SERVICE

The first objective of operating systems is the customer service to the satisfaction of customer wants.
Therefore, customer service is a key objective of operations management. The operating system must
provide something to a specification which can satisfy the customer in terms of cost and timing. Thus,
primary objective can be satisfied by providing the ‘right thing at a right price at the right time’.

Generally an organisation will aim reliably and consistently to achieve certain standards and operations
manager will be influential in attempting to achieve these standards. Hence, this objective will influence
the operations manager’s decisions to achieve the required customer service.

RESOURCE UTILISATION

Another major objective of operating systems is to utilise resources for the satisfaction of customer
wants effectively, i.e., customer service must be provided with the achievement of effective operations
through efficient use of resources. Inefficient use of resources or inadequate customer service leads to
commercial failure of an operating system.
Operations management is concerned essentially with the utilisation of resources, i.e., obtaining
maximum effect from resources or minimising their loss, under utilisation or waste. The extent of the
utilisation of the resources’ potential might be expressed in terms of the proportion of available time
used or occupied, space utilisation, levels of activity, etc. Each measure indicates the extent to which the
potential or capacity of such resources is utilised. This is referred as the objective of resource utilisation.

Operations management is also concerned with the achievement of both satisfactory customer service
and resource utilisation. An improvement in one will often give rise to deterioration in the other. Often
both cannot be maximised, and hence a satisfactory performance must be achieved on both objectives.
All the activities of operations management must be tackled with these two objectives in mind, and
many of the problems will be faced by operations managers because of this conflict. Hence, operations
managers must attempt to balance these basic objectives.

Managing Global Operations

The term ‘Globalisation’ describes businesses’ deployment of facilities and operations around the world.
Globalisation can be defined as a process in which geographic distance becomes a factor of diminishing
importance in the establishment and maintenance of cross border economic, political and socio-cultural
relations. It can also be defined as worldwide drive toward a globalised economic system dominated by
supranational corporate trade and banking institutions that are not accountable to democratic
processes or national governments.

There are four developments, which have spurred the trend toward globalisation. These are:

1. Improved transportation and communication technologies;

2. Opened financial systems;

3. Increased demand for imports; and

4. Reduced import quotas and other trade barriers.

When a firm sets up facilities abroad it involve some added complexities in its operation. Global markets
impose new standards on quality and time. Managers should not think about domestic markets first and
then global markets later, rather it could be think globally and act locally. Also, they must have a good
understanding of their competitors.
Some other important challenges of managing multinational operations include other languages and
customs, different management style, unfamiliar laws and regulations, and different costs. Managing
global operations would focus on the following key issues:

To acquire and properly utilise the following concepts and those related to global operations, supply
chain, logistics, etc.

To associate global historical events to key drivers in global operations from different perspectives.

To develop criteria for conceptualisation and evaluation of different global operations.

To associate success and failure cases of global operations to political, social, economical and
technological environments.

To envision trends in global operations.

To develop an understanding of the world vision regardless of their country of origin, residence or
studies in a respectful way of perspectives of people from different races, studies, preferences, religion,
politic affiliation, place of origin, etc.

Scope of Production and Operations Management

Production and operations management concern with the conversion of inputs into outputs, using
physical resources, so as to provide the desired utilities to the customer while meeting the other
organisational objectives of effectiveness, efficiency and adoptability. It distinguishes itself from other
functions such as personnel, marketing, finance, etc., by its primary concern for ‘conversion by using
physical resources.’

Following are the activities which are listed under production and operations management functions:

1. Location of facilities

2. Plant layouts and material handling

3. Product design

4. Process design

5. Production and planning control

6. Quality control

7. Materials management

8. Maintenance management.

LOCATION OF FACILITIES

Location of facilities for operations is a long-term capacity decision which involves a long term
commitment about the geographically static factors that affect a business organisation. It is an
important strategic level decision-making for an organisation. It deals with the questions such as ‘where
our main operations should be based?’

The selection of location is a key-decision as large investment is made in building plant and machinery.
An improper location of plant may lead to waste of all the investments made in plant and machinery
equipments. Hence, location of plant should be based on the company’s expansion plan and policy,
diversification plan for the products, changing sources of raw materials and many other factors. The
purpose of the location study is to find the optimal location that will results in the greatest advantage to
the organisation.

PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration of departments, work
centres and equipment in the conversion process. The overall objective of the plant layout is to design a
physical arrangement that meets the required output quality and quantity most economically.

According to James Moore, “Plant layout is a plan of an optimum arrangement of facilities including
personnel, operating equipment, storage space, material handling equipments and all other supporting
services along with the design of best structure to contain all these facilities”.

‘Material Handling’ refers to the ‘moving of materials from the store room to the machine and from one
machine to the next during the process of manufacture’. It is also defined as the ‘art and science of
moving, packing and storing of products in any form’. It is a specialised activity for a modern
manufacturing concern, with 50 to 75% of the cost of production. This cost can be reduced by proper
section, operation and maintenance of material handling devices.
Material handling devices increases the output, improves quality, speeds up the deliveries and
decreases the cost of production. Hence, material handling is a prime consideration in the designing new
plant and several existing plants.

PRODUCT DESIGN

Product design deals with conversion of ideas into reality. Every business organisation have to design,
develop and introduce new products as a survival and growth strategy. Developing the new products
and launching them in the market is the biggest challenge faced by the organisations.

The entire process of need identification to physical manufactures of product involves three functions:
marketing, product development, manufacturing. Product development translates the needs of
customers given by marketing into technical specifications and designing the various features into the
product to these specifications. Manufacturing has the responsibility of selecting the processes by which
the product can be manufactured. Product design and development provides link between marketing,
customer needs and expectations and the activities required to manufacture the product.

PROCESS DESIGN

Process design is a macroscopic decision-making of an overall process route for converting the raw
material into finished goods. These decisions encompass the selection of a process, choice of
technology, process flow analysis and layout of the facilities. Hence, the important decisions in process
design are to analyse the workflow for converting raw material into finished product and to select the
workstation for each included in the workflow.

PRODUCTION PLANNING AND CONTROL

Production planning and control can be defined as the process of planning the production in advance,
setting the exact route of each item, fixing the starting and finishing dates for each item, to give
production orders to shops and to follow up the progress of products according to orders.

The principle of production planning and control lies in the statement ‘First Plan Your Work and then
Work on Your Plan’. Main functions of production planning and control includes planning, routing,
scheduling, dispatching and follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning
bridges the gap from where we are, to where we want to go. It makes it possible for things to occur
which would not otherwise happen.

Routing may be defined as the selection of path which each part of the product will follow, which being
transformed from raw material to finished products. Routing determines the most advantageous path to
be followed from department to department and machine to machine till raw material gets its final
shape.

Scheduling determines the programme for the operations. Scheduling may be defined as ‘the fixation of
time and date for each operation’ as well as it determines the sequence of operations to be followed.

Dispatching is concerned with the starting the processes. It gives necessary authority so as to start a
particular work, which has already been planned under ‘Routing’ and ‘Scheduling’. Therefore,
dispatching is ‘release of orders and instruction for the starting of production for any item in acceptance
with the route sheet and schedule charts’.

The function of follow-up is to report daily the progress of work in each shop in a prescribed proforma
and to investigate the causes of deviations from the planned performance.

QUALITY CONTROL

Quality Control (QC) may be defined as ‘a system that is used to maintain a desired level of quality in a
product or service’. It is a systematic control of various factors that affect the quality of the product.
Quality control aims at prevention of defects at the source, relies on effective feed back system and
corrective action procedure.

Quality control can also be defined as ‘that industrial management technique by means of which
product of uniform acceptable quality is manufactured’. It is the entire collection of activities which
ensures that the operation will produce the optimum quality products at minimum cost.

The main objectives of quality control are:

To improve the companies income by making the production more acceptable to the customers i.e., by
providing long life, greater usefulness, maintainability, etc.

To reduce companies cost through reduction of losses due to defects.

To achieve interchangeability of manufacture in large scale production.

To produce optimal quality at reduced price.

To ensure satisfaction of customers with productions or services or high quality level, to build customer
goodwill, confidence and reputation of manufacturer.

To make inspection prompt to ensure quality control.

To check the variation during manufacturing.

MATERIALS MANAGEMENT

Materials management is that aspect of management function which is primarily concerned with the
acquisition, control and use of materials needed and flow of goods and services connected with the
production process having some predetermined objectives in view.

The main objectives of materials management are:

To minimise material cost.

To purchase, receive, transport and store materials efficiently and to reduce the related cost.

To cut down costs through simplification, standardisation, value analysis, import substitution, etc.

To trace new sources of supply and to develop cordial relations with them in order to ensure continuous
supply at reasonable rates.

To reduce investment tied in the inventories for use in other productive purposes and to develop high
inventory turnover ratios.

MAINTENANCE MANAGEMENT

In modern industry, equipment and machinery are a very important part of the total productive effort.
Therefore, their idleness or downtime becomes are very expensive. Hence, it is very important that the
plant machinery should be properly maintained.
The main objectives of maintenance management are:

To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible
cost.

To keep the machines and other facilities in such a condition that permits them to be used at their
optimal capacity without interruption.

To ensure the availability of the machines, buildings and services required by other sections of the
factory for the performance of their functions at optimal return on investment.