Production

Management
Presented by:
Marlon D. Montaño, DBM
 Understanding Production
and Production Management

• Production is an intentional act

of creating something in an
organized manner.
• It involves the transformation of
inputs into goods and services.
• The main inputs include
information, management,
material, land, labor, and capital.
 The Production Process

Regardless of the organization's nature, Inputs are processed and

production involves a transformation transformed into outputs.
process.
Production
Process System
• The main objectives of a
production process are:
(i) Optimum use of Objectives of
the Production
•

resources at optimum cost.

• (ii) Manufacture of the
desired quality and quantity
Process
of goods and services.
 Production management is closely
related to the production function.

Meaning of It involves the conversion of inputs

Production into outputs through planning,

scheduling, and control.
Management
Management is the process of
utilizing factors of production to
achieve desired results.
 (i) "Production management is the process
of effectively planning and regulating the
operations responsible for transforming
materials into finished products."
Definitions
of • This definition focuses on the transformation of
materials.

Production (ii) "Production management deals with

Management decision making related to production
processes to produce goods or services
according to specifications, in the
demanded amounts, and at minimum cost."
• Production management involves decision-making to
meet customer demands efficiently.
 Production management tasks
include:

(i) Specifying and accumulating

Tasks of input resources, such as
management, labor, information,
Production materials, machines, and capital.

Management
(ii) Designing and installing
assembly or conversion processes.

(iii) Coordinating and operating

the production process efficiently
and cost-effectively.
 Effective production
management ensures
customer satisfaction.
Importance
of Effective
Production Failure to plan and control
Management production activities can lead
to unsatisfied customers and
potential operational issues.
 Production management
is an essential part of
manufacturing and
Production operations management.
management
• Its scope has evolved with the
development of factory systems
and changing production
challenges.
 Historical Perspective

In the past, manufacturing was small- The advent of factory systems

scale and managed by individuals, introduced significant production
posing minimal production problems. challenges.
 Early Challenges

Early focus on controlling labor costs Development of devices for cost

as it was a major production cost regulation, quality control,
element. production, and inventory control.
Modern Production Management

In today's competitive environment, the scope of production

management is vast.

It encompasses factors beyond cost control, including human

factors, advanced production techniques, and customer
satisfaction.
Responsibilities of a Production Manager

Assembling and Adapting to external The need for qualitative

directing resources forces and regulations. and quantitative analysis
efficiently. to solve production
problems.
 The Role of production management is to harmonize
all key aspects related to production:

1. Men (Workforce and Labor)

2. Machines (Equipment)
3. Methods (Production Processes, Workstations and Routings)
4. Materials (Raw Materials, Components or Sub Assemblies)
5. Money (Financing and Asset Utilization)
Benefits of Production Management in Manufacturing

1. Better Quality
2. Lower Waste Levels
3. Lower Operating Cost
4. Better Decision-Making
 Some Examples of Industry Case Studies About
Production Planning Practices

Ford Motor Company

The company improved its production planning by implementing
a system called Ford Production System (FPS) that allowed them to
achieve high productivity while maintaining quality standards.

Nike
The company's production planning involves close collaboration
with suppliers and partners to optimize production processes,
reduce lead times, and improve the quality of the finished
products.
 Some Examples of Industry Case Studies About
Production Planning Practices

Samsung
Samsung uses advanced production planning techniques, such as
advanced analytics and data visualization, to optimize its
manufacturing processes, reduce lead times, and improve product
quality.

Coca-Cola
The company has integrated its production planning system with
its supply chain management processes to ensure that its products
are delivered on time, in the right quantities, and to the right
locations.
 The main objective of production
management is to produce goods and
services of the right quality, right
quantity, at the right time and at
minimum cost.
 Production and Operations Management

Aspect Production Management Operations Management

Scope Manufacturing/production processes Broader—covers production & services

Industry Manufacturing-focused Both manufacturing & service industries

Outputs Physical products Products & services

Main Goal Efficiency in production Overall business process optimization

Production Management is a subset of Operations Management focused on

manufacturing.
Operations Management applies to all business processes, including services, supply chains,
and customer experience.
 Evolution of Production and
Operations Management
Craft Production Industrial Revolution Scientific Management
Craft production The Industrial Revolution Frederick Winslow Taylor
relied on skilled introduced machine pioneered scientific
workers and custom- power and mass management principles,
made goods. production in factories. emphasizing efficiency and
systematic approaches to
production.
]
Role of Operation Manager

“Is to guide the system by

decision-making.”
How Decision-Making Guides the System?

Productivity:
Efficiency:
Ensuring employees and
Reducing waste, costs, and
resources are utilized
delays.
optimally.

Customer Satisfaction: Profitability:

Meeting service levels and Maximizing output while
delivery expectations. minimizing expenses.
Current Trends in Operation
Management
1 Technology Integration
Operation managers use technology to monitor operations in real-time,
manage inventory, and analyze performance. (ex. 5S System, Six Sigma or
DMAIC (Define, Measure, Analyze, Improve, and Control).

2 Global Coordination
They coordinate with suppliers globally to optimize the supply chain and
minimize costs.

3 Quality Emphasis
Quality management remains a priority, ensuring products or services meet
high standards and customer satisfaction.
Future Trends in Operation
Management
1 Digital Transformation
New technologies driving process automation and data-driven decision-
making.

2 Sustainability
Emphasis on eco-friendly practices and reducing environmental
impact.

3 Agile Operations
Adaptation to rapidly changing market demands and customer
preferences.
Challenges in Business Operations
Economic Conditions Risk Management
Lingering recession and slow recovery Recent events, such as financial crises
in various sectors of the economy and product recalls, emphasize the
make managers cautious about importance of identifying, assessing,
investment and rehiring laid-off and mitigating risks to protect against
workers. potential damage and liability.

Environmental Concerns
Stricter regulations, sustainability goals, and consumer demand for eco-friendly
products drive businesses to adopt environmentally friendly practices.
Globalization and Ethical Conduct
Competing in a Global Economy
Globalization and low labor costs in third-world countries increase
pressure to reduce costs.

Ethical Conduct
Upholding ethical standards in decision-making, financial reporting,
product safety, worker safety, and community relations is essential for
building trust and reputation.

preencoded.png
Supply Chain Management and Innovating

Managing the Supply Chain Innovating

Supply chain management is crucial for Businesses must continually innovate in products,
improving operations, reducing costs, and services, processes, and supply chains to remain
ensuring efficient inventory management to competitive and reduce costs.
meet demand and avoid disruptions.
 Supply Chain- is the sequence of organizations.

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Customers

Figure 1: A simple product supply chain

5-minute break
COMPETITIVENESS, STRATEGY
AND PRODUCTIVITY
 Companies must be competitive to sell their goods and
services in the marketplace.

Competitiveness is an important factor in determining

whether a company prospers, barely gets by, or fails.

Competitiveness - How effectively an organization meets the

wants and needs of customers relative to others that offer
similar goods or services.
 One factor that influences competitiveness is Marketing

Identifying consumer wants

and/or needs Price & Quality Advertising & Promotion

A basic input in an organization’s decision- Key factors in consumer buying decisions. Ways organizations can inform potential
making process, and central to competitiveness. It is important to under- customers about features of their
The ideal is to achieve a perfect match between stand the trade-off decision consumers products or services, and attract buyers.
those wants and needs and the organization’s make between price and quality.
goods and/or services.
 WHY SOME ORGANIZATIONS FAIL?

• 01 • 03
Putting too much emphasis on
Neglecting short-term financial
operations strategy. performance at the expense of
research and development.

• 02 • 04
Failing to take advantage of Placing too much emphasis
strengths and opportunities, on product and service
and/or failing to recognize design and not enough on
competitive threats. process design and
improvement.
 WHY SOME ORGANIZATIONS FAIL?

• 05 • 07
Neglecting investments Failing to consider
in capital and human customer wants and
resources. needs.

• 06
Failing to establish good
internal communications
and cooperation among
different functional
areas.
 An organization’s mission is the reason for its existence. It is
expressed in its mission statement.

A mission statement serves as the basis for organizational goals.

The mission and goals often relate to how an organization wants to be

perceived by the general public, and by its employees, suppliers, and
customers.

Goals serve as a foundation for the development of organizational

strategies.

Organizational strategy is important because it guides the organization

by providing direction for, and alignment of the goals and strategies of
the functional units.
 3 BASIC BUSINESS
STRATEGIES

LOW COST RESPONSIVENESS DIFFERENTIATION FROM

COMPETITORS
STRATEGIES AND TACTICS
 STRATEGIES

Are the roadmaps for reaching the destinations. Strategies provide a focus
for decision-making. Generally speaking, organizations have overall
strategies called organizational strategies, which relate to the entire
organization. They also have functional strategies, that relate to each of
the functional areas of the organization.

TACTICS

Are the methods and actions used to accomplish strategies. They are
more specific than strategies, and they provide guidance and direction
for carrying out actual operations, which need the most specific and
detailed plans and decision-making in an organization.
It should be apparent that the
overall relationship that exists
from the mission down to actual
operations is hierarchical. This is
illustrated in Figure 2.1.
EXAMPLE 1

Rita is a high school student in Southern California. She would like to have a business career,
have a good job, and earn enough income to live comfortably.

MISSION Live a good life.

GOAL A successful career, a good income.

STRATEGY Obtain a college education.

TACTICS Select a college and a major; decide how to finance

college.

OPERATIONS Register, buy books, take courses, study.

 EXAMPLES OF DIFFERENT STRATEGIES

• 01 • 03

Low Cost Specialization

• 02 • 04

Scale-based Newness
strategies
 EXAMPLES OF DIFFERENT STRATEGIES

• 05 • 07

Flexible Service
operations

• 06 • 08

High quality Sustainability

STRATEGY FORMULATION
SWOT Analysis

To formulate an effective strategy, senior managers

must take into account the core competencies of the
organizations, and they must scan the environment.
They must determine what competitors are doing, or
planning to do, and take that into account. They must
critically examine other factors that could have either
positive or negative effects.
 SWOT
STRENGTH OPPORTUNITIES
I What do we do well? What emerging trends can we take E
advantage of?
N In what areas do we outpace our
X
T competitors? Are there geographic locations with T
less competition?
E What’s unique about our product E
R
and services? R
N N
WEAKNESS THREATS
A A
What can we improve? What is our competition doing?
L L
Where do we fall behind our What economic or political
competitors? issues could impact our
business?
Where are we lacking in knowledge
or resources?
STRATEGY FORMULATION
ORDER QUALIFIERS

are those characteristics that potential

customers perceive as minimum standards
of acceptability for a product to be
considered for purchase.

However, that may not be sufficient to get a

potential customer to purchase from the
organization.
STRATEGY FORMULATION
ORDER WINNERS

are those characteristics of an

organization’s goods or services that
cause them to be perceived as better
than the competition.
STRATEGY FORMULATION
ENVIRONMENTAL SCANNING

is the monitoring of events and trends that present

either threats or opportunities for the organization.

Generally, these include competitors’ activities;

changing consumer needs; legal, economic, political,
and environmental issues; the potential for new
markets; and the like.
STRATEGY FORMULATION
TECHNOLOGICAL CHANGE

Technological changes occur in products (high-

definition TV, improved computer chips, improved
cellular telephone systems,
and improved designs for earthquake-proof
structures); in services (faster order processing,
faster delivery); and in processes (robotics,
automation, computer-assisted processing, point-of-
sale scanners, and flexible manufacturing systems).
EXAMPLE OF OPERATIONS STRATEGY
 KEY STEPS IN
STRATEGY FORMULATION

01. 02. 03. 04.

Link strategy directly to Assess strengths, Identify order winners Select one or two
the organization’s weaknesses, threats, and and order qualifiers. strategies (e.g., low cost,
mission or vision opportunities, speed, customer service)
statement. and identify core to focus on.
competencies.
SUPPLY CHAIN STRATEGY
DEFINITION

A supply chain strategy specifies how the

supply chain should function to achieve supply
chain goals.
The supply chain strategy should be aligned
with the business strategy.
If it is well executed, it can create value for the
organization.
It establishes how the organization should work
with suppliers and policies relating to customer
relationships and sustainability.
SUSTAINABILITY STRATEGY
DEFINITION

Society is placing increasing emphasis on corporate sustainability

practices in the form of governmental regulations and interest groups. For

these and other reasons, business organizations are or should be

devoting attention to sustainability goals. To be successful, they will need

a sustainability strategy. That requires elevating sustainability to the level

of organizational governance; formulating goals for products and

services, for processes, and for the entire supply chain; measuring
achievements and striving for improvements; and possibly linking

executive compensation to the achievement of sustainability goals.

GLOBAL STRATEGY
DEFINITION

As globalization increased, many companies realized

that strategic decisions concerning globalization must
be made. One issue companies must face is that
what works in one country or region will not
necessarily work in another, and strategies must be
carefully crafted to take these variabilities into
account. Another issue is the threat of political or
social upheaval. Still, another issue is the difficulty of
coordinating and managing far-flung operations.
 Operations strategy is the approach, consistent with the organization
strategy, that is used to guide the operations function.

Operations strategy relates to products, processes, methods, operating resources,

quality, costs, lead times, and scheduling.

In the 1970s and early 1980s, operations strategy in the United States was often
neglected in favor of marketing and financial strategies.
In the late 1980s and early 1990s, many companies began to realize this
approach was not working. They recognized that they were less competitive than
other companies. This caused them to focus attention on operations strategy.

Operations strategy can have a major influence on the competitiveness of an

organization. If it is well designed and well executed, there is a good chance that
the organization will be successful; if it is not well designed or executed, the
chances are much less that the organization will be successful.
 STRATEGIC OPERATIONS MANAGEMENT DECISION
AREAS
DEFINITION

Operations management people play

a strategic role in many strategic
decisions in a business organization.

Table 2.4 highlights some key decision

areas. Notice that most of the decision
areas have cost implications.
 QUALITY AND TIME STRATEGIES

Quality-Based Time-Based
Strategies Strategies

Focus on maintaining or improving the quality of an Focus on reducing the time required to accomplish
organization’s products or services. Quality is various activities (e.g., develop new products or
generally a factor in both attracting and retaining services and market them, respond to a change in
customers. customer demand, or deliver a product or perform a
service).
Quality-based strategies may be motivated by a
variety of factors. They may reflect an effort to By doing so, organizations seek to improve service
overcome an image of poor quality, a desire to to the customer and to gain a competitive
catch up with the competition, a desire to maintain advantage over rivals who take more time to
an existing image of high quality, or some accomplish the same tasks.
combination of these and other factors.
Organizational strategy has a major impact on operations and supply chain
management strategies. For example, organizations that use a low-cost,
high-volume strategy limit the amount of variety offered to customers.

As a result, variations in operations and the supply chain are minimal, so they
are easier to deal with. Conversely, a strategy to offer a wide variety of
products or services, or to perform customized work, creates substantial
operational and supply chain variations and, hence, more challenges in
achieving a smooth flow of goods and services throughout the supply chain,
thus making the matching of supply to demand more difficult
ILLUSTRATION
The Balanced Scorecard (BSC) is a top-down management system that
organizations can use to clarify their vision and strategy and transform them
into action.

It was introduced in the early 1990s by Robert Kaplan and David Norton, and
it has been revised and improved since then. The idea was to move away
from a purely financial perspective of the organization and integrate other
perspectives such as customers, internal business processes, and learning
and growth.

Using this approach, managers develop objectives, metrics, and targets for
each objective and initiative to achieve objectives, and they identify links
among the various perspectives.
 “To satisfy our
“To succeed
shareholders and
financially, how
customers, what
should we appear
business processes
to our
must we excel
shareholders?”
at?”

“To achieve our

“To achieve our vision, how will we
vision, how should sustain our ability
we appear to our to change and
customers?” improve?”
Productivity is an index that measures output (goods and services) relative to
the input (labor, materials, energy, and other resources) used to produce it. It
is usually expressed as the ratio of output to input:

Productivity = Output
Input

Although productivity is important for all business organizations, it is

particularly important for organizations that use a strategy of low cost,
because the higher the productivity, the lower the cost of the output.
Productivity has important implications for business organizations and entire
nations. For nonprofit organizations, higher productivity means lower costs; for
profit-based organizations, productivity is an important factor in determining
how competitive a company is. For a nation, the rate of productivity growth is
of great importance. Productivity growth is the increase in productivity from
one period to the next relative to the productivity in the preceding period.
Thus

Productivity Growth = Current productivity - Previous productivity x 100

Previous Productivity

For example, if productivity increased from 80 to 84, the growth rate would
be:

84 – 80 x 100 = 5%
80
 COMPUTING PRODUCTIVITY
Productivity measures can be based on a single input (partial productivity), on more than one input
(multifactor productivity), or all inputs (total productivity). Table 2.6 lists some examples of productivity
measures. The choice of productivity measure depends primarily on the purpose of the measurement.
If the purpose is to track improvements in labor productivity, then labor becomes the obvious input
measure.
 COMPUTING PRODUCTIVITY
Partial measures are often of greatest use in operations management. Table 2.7 provides some
examples of partial productivity measures.

The units of output used in productivity measures depend on the type of job performed. The following
are examples of labor productivity:
 LET’S Determine the productivity for these cases:

a. Four workers installed 720 square yards of carpeting in

PRACTICE eight hours.

b. A machine produced 70 pieces in two hours. However, two

pieces were unusable.
 COMPUTING PRODUCTIVITY
Calculations of multifactor productivity measure inputs and outputs using a common unit of
measurement, such as cost. For instance, the measure might use cost of inputs and units of the output:

LET’S Determine the multifactor productivity for the combined input of labor and machine time using the
following data:

PRACTICE Output: 7,040 units

Input:
Labor: $1,000
Materials: $520
Overhead: $2,000
 COMPUTING PRODUCTIVITY

Productivity measures are useful on several levels. For an individual department or

organization, productivity measures can be used to track performance over time. This
allows managers to judge performance and to decide where improvements are
needed. For example, if productivity has slipped in a certain area, operations staff
can examine the factors used to compute productivity to determine what has
changed and then devise a means of improving productivity in subsequent periods.

In essence, productivity measurements serve as scorecards for the effective use of

resources. Business leaders are concerned with productivity as it relates to
competitiveness: If two firms both have the same level of output but one requires less
input because of higher productivity, that one will be able to charge a lower price
and consequently increase its share of the market. Or that firm might elect to charge
the same price, thereby reaping a greater profit. G
 PRODUCTIVITY IN THE SERVICE SECTOR
Service productivity is more problematic than manufacturing productivity. In many situations, it
is more difficult to measure, and thus to manage, because it involves intellectual activities and
a high degree of variability.

Nonetheless, because service is becoming an increasingly large portion of our economy, the
issues related to service productivity will have to be dealt with.

A useful measure closely related to productivity is process yield. Where products are involved,
process yield is defined as the ratio of the output of a good product (i.e., a defective product is
not included) to the quantity of raw material input.

Where services are involved, process yield measurement is often dependent on the particular
process. For example, in a car rental agency, a measure of yield is the ratio of cars rented to
cars available for a given day.

In education, a measure for college and university admission yield is the ratio of student
acceptances to the total number of students approved for admission.

However, not all services lend themselves to a simple yield measurement. For example,
services such as automotive, appliance, and computer repair don’t readily lend themselves to
such measures.
 FACTORS THAT AFFECT PRODUCTIVITY
Numerous factors affect productivity. Generally, they are methods, capital, quality,
technology, and management. A commonly held misconception is that workers are the
main determinant of productivity. According to that theory, the route to productivity gains
involves getting employees to work harder. However, the fact is that many productivity
gains in the past have come from technological improvements.

Technology alone won’t guarantee productivity gains; it must be used wisely and
thoughtfully. Without careful planning, technology can reduce productivity, especially if it
leads to inflexibility, high costs, or mismatched operations.

Other factors that affect productivity include the following:

a. Standardizing processes and procedures wherever possible to reduce variability
can have a significant benefit for both productivity and quality.
b. Quality differences may distort productivity measurements. One way this can
happen is when comparisons are made over time, such as comparing the productivity of a
factory now with one 30 years ago.
c. Use of the Internet can lower costs of a wide range of transactions, thereby
increasing productivity. This effect will likely continue to increase productivity in the
foreseeable future.
d. Computer viruses can have an immense negative impact on productivity.
 FACTORS THAT AFFECT PRODUCTIVITY
Other factors that affect productivity include the following:
e. Searching for lost or misplaced items wastes time, hence negatively affecting productivity.

f. Scrap rates harm productivity, signaling inefficient use of resources.

g. New workers tend to have lower productivity than seasoned workers. Thus, growing
companies may experience a productivity lag.

h. Safety should be addressed. Accidents can take a toll on productivity.

i. A shortage of information technology workers and other technical workers hampers the
ability of companies to update computing resources, generate and sustain growth, and take
advantage of new opportunities.

j. Layoffs often affect productivity. The effect can be positive and negative.

k. Labor turnover harms productivity; replacements need time to get up to speed.

l. Design of the workspace can impact productivity. For example, having tools and other
work items within easy reach can positively impact productivity.

m. Incentive plans that reward productivity increases can boost productivity.

 IMPROVING PRODUCTIVITY
A company or a department can take several key steps toward improving productivity:

1. Develop productivity measures for all operations. Measurement is the first step in
managing and controlling an operation.

2. Look at the system as a whole in deciding which operations are most critical.

3. Develop methods for achieving productivity improvements.

4. Establish reasonable goals for improvement.

5. Make it clear that management supports and encourages productivity

improvement.

6. Measure improvements and publicize them.

 KEY POINTS
1. Competitive pressure often means that business organizations must frequently assess
their competitors’ strengths and weaknesses, as well as their own, to remain
competitive.

2. Strategy formulation is critical because strategies provide direction for the organization,
so they can play a role in the success or failure of a business organization.

3. Functional strategies and supply chain strategies need to be aligned with the goals and
strategies of the overall organization.

4. The three primary business strategies are low cost, responsiveness, and differentiation.

5. Productivity is a key factor in the cost of goods and services. Productivity increases can
become a competitive advantage.

6. High productivity is particularly important for organizations that have a strategy of low
costs.
CASE ANALYSIS

Company Background:

✓ A gardening business established 5 years ago

✓ An average of about 10 new clients and one new
employee per year
✓ Currently with 8 seasonal employees
✓ Crew sizes range from 2 to 4
✓ Largest job took longer time to complete
QUESTION 1

Which crew size had the highest

productivity? Which crew size had
the lowest productivity? What are
some possible explanations for these
results?
ANSWER
Compute for Productivity Ratio:

Productivity = Output = Average Productivity per Crew

Input Crew Size

Crew Size Average Productivity per Crew Productivity Ratio Remarks

2 4,234 square feet per day 2117 Highest
3 5,352 square feet per day 1784 Lowest
4 7,860 square feet per day 1965

Explanation:
1. Skill level and experience
2. Equipment and Tools
3. Communication and Coordination
4. Division of Labor
QUESTION 2

After a recent storm, a customer called in a panic,

saying that she had planned a garden party for
the upcoming weekend and her garden was in
shambles. The owner decided to send a crew of
four workers, even though a two-worker crew
would have a higher productivity. Explain the
rationale for this decision.
ANSWER

1. Urgency and Time Sensitivity: The customer's

garden being in shambles just before a planned
garden party creates a sense of urgency.

2. Customer Satisfaction and Reputation: Providing

exceptional customer service is crucial for
maintaining customer satisfaction and
preserving the company's reputation.
QUESTION 3

What is a possible qualitative issue that may very

well influence productivity levels that the
productivity ratios fail to take into account?
 ANSWER
Employee Morale and Motivation are critical factors in determining productivity levels in any organization,
even a small business like "Your Garden Gloves."

a. Job Satisfaction - Employees who are satisfied with their work are more likely to be productive.
b. Team Cohesion - Positive relationships among team members promote camaraderie and
collaboration, which can boost productivity.
c. Communication and Feedback - Employees and management can exchange ideas, feedback,
and concerns more effectively when communication channels are open and transparent.
d. Incentives and Rewards - Incentives and rewards for meeting performance targets or
demonstrating exceptional effort can help employees maintain high levels of productivity.
e. Work Environment - The physical work environment and organizational culture can have a big
impact on employee morale and drive.
END
Thank you!