MEM375

PRODUCTION MANAGEMENT
Diploma in Mechanical Engineering

Chapter 1
Management Fundamentals
Management Functions
 OUTLINE
• Overview of Organisation Management
– management, manager, leader
– organisation process & function
– planning, organising, leading and controlling
– structure and forms of organisation
– span of control, delegation, divisionalisation &
decentralization.
• Introduction to Production/Operation Management
• Manufacturing Competitiveness, Strategy and
Productivity
• Incentive schemes
• Safety and health
 Learning Objectives
• Define the term operations management
• Identify the three major functional areas of
organizations and describe how they
interrelate
• Compare and contrast service and
manufacturing operations
• Describe the operations function and the
nature of the operations manager’s job

1-3
 Learning Objectives
• Discuss and compare organization strategy and
operations strategy, and explain why it is important to
link the two.
• Define the term productivity and explain why it is
important to organizations and to countries.
• List some of the reasons for poor productivity and some
ways of improving it.
• Discuss and compare financial and non financial
incentive schemes
• Describe factors in designing good working condition
2-4
 What is Management?
A set of activities directed at an organisation’s resources
with the aim of achieving organisational goals in an
efficient and effective manner.

• A set of activities
– planning, organizing, leading, and
controlling
directed at an organisation’s
resources
– human, financial, physical, and
information
with the aim of achieving
organisational goals in an efficient
and effective manner.

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 organisational resources
• Human resources
– Managerial talent and labor
– Human capital
• Financial resources
– Capital investments to support
ongoing and long-term
operations
• Physical Assets
– Raw materials; office and
production facilities, and
equipment
• Information
– Usable data, information
linkages
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 the basic purpose of management

EFFICIENTLY
Using resources wisely and
in a cost-effective way
And

EFFECTIVELY
Making the right decisions and
successfully implementing them

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 managing in organisations
• For-Profit organisations
– Large businesses
• Industrial firms, commercial banks, insurance firms,
retailers, transportation firms, utilities,
communication firms, service organisations
– Small businesses and start-up businesses
– International management
• Not-for-Profit organisations
– Governmental organisations—local, state, and federal
– Educational organisations—public and private schools,
colleges, and universities
– Healthcare facilities—public hospitals and HMOs
– Nontraditional settings—community, social, spiritual
groups

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 what is a manager
• Someone whose
– primary responsibility is to carry out the
management process
– give organisations a sense of purpose and
direction
• Someone who plans and makes decisions,
organizes, leads, and controls human,
financial, physical, and information resources.

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 the manager’s job

• Plan:
– A manager cannot operate effectively unless he or
she has long range plans.
• Organise
– When there is more than one employee needed to
carry out a plan, then organisation is needed.
• Control
– Develop a method to know how well employees
are performing to determine what has been and
what still must be done.

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 The Management Process

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 an overview of planning
• Planning
– the conscious, systematic process of making
decisions about goals and activities to be
pursued in the future
– importance of formal planning has grown
dramatically
• Decision making
– Is the cornerstone of planning.
– Is the catalyst that drives the planning process.
– Underlies every aspect of setting goals and formulating
plans.
 1 - 14

Organizing

Organizing involves deciding:

• Who will perform the task?
• Where will decisions be made?
• Who reports to whom?
• How will different parts of the organisation fit
together to accomplish the common goal?
 1 - 15

Organizing

- The deployment of organizational resources to achieve strategic goals

- follow from strategy (strategy define what to do, organizing defines how to do

Organizing process
- leads to the creation of organization structure which defines how task are divided
and resources deployment

Organizational structure
- is defined as
1. The set of formal tasks assigned to individuals and department
2. Formal reporting relationships, including lines of authority, decision responsibility,
number of hierarchical levels, span of manager’s control
3. The design systems to ensure effective coordination of employees across department

Organization chart
- The visual representation of an organization’s structure.
1 - 16
 1 - 17

Chain of command
- is an unbroken line of authority that links all persons in an organization and shows
who report to whom.
- illustrates the authority structure of the organization

Unity of command
- each of employee is held accountable to only one supervisor.

Scalar principle
- refer to a clearly defines line of authority in the organization that includes all
employee
 1 - 18

Authority
- the formal and legitimate right of the manager to make a decisions, issue
orders, and allocate resources to achieve organizationally desired outcomes.

Responsibility
- The duty to perform the task or activity an employee has been assigned.
- typically, managers are assigned authority proportionate with responsibility.
- Authority << responsibility ???
- Authority >> responsibility ???

Accountability
- The mechanism through which authority and responsibility are brought into
alignment.
- means that the people with authority and responsibility are subject to reporting and
justifying task outcomes to those above them in the chain of command.

For organization to function well everyone need to know what they are
accountable for and accept the responsibility and authority
 1 - 19

Delegation
-Is the process managers use to transfer authority and responsibility to positions below
them in their hierarchy

Span of control
-The number of employees reporting to a supervisor.
- varies widely and that several factors influence the span
-Factors that are associated with less supervisor involvement (larger spans of control)
i. Work performed by the subordinates is stable and routine
ii. Subordinates performed similar work task
iii. Subordinates are concentrated in a single location
iv. Subordinates are highly trained and need little direction in performing task
v. Rules and procedures defining task activities are available
- The average span of control used in an organization determines whether the structure is
tall or flat.

A tall structure has an overall narrow span and more hierarchical levels.
A flat structure has a wide span, is horizontally dispersed and has fewer hierarchical
level
 1 - 20

Centralization
-The decision authority is located near the top of the organization

Decentralization
-Decision authority is pushed down to lower organization level.
-Organization have to find the correct hierarchy level at which to make decisions
- advantages :
i. Relieve the burden on top managers
ii. Make greater use of employees skill and abilities
iii. Ensure decisions are made close to the action by well informed people
iv. Rapid response to external change
Example : army

However, in reality, not all organization decentralize decisions. Managers should

diagnose the organizational situation and select decision making level that will best meet
the organizational’s needs.

Example :
in times of crisis or risk of company failure
- authority may be centralized at the top
 1 - 21

Controlling

• The process of monitoring

performance against goals,
intervening when goals are not met,
and taking corrective action
• First step – Drafting plans
• Important aspect is creating
incentives that align employees’ and
organisation’s interests
 1 - 22

Leading & Developing

• Leading – is the process of motivating, influencing,

and directing others in the organisation to work
productively in pursuit of organisation goals.

• Developing employees – the task of hiring, training,

mentoring, and rewarding employees in an
organisation, including other managers.
 1 - 23

Skilled Leaders:

• Drive strategic thinking

• Have a plan for organisation
• Proactively structure the organisation
• Exercise control with a deft hand
• Use the right kind of incentives
• Get the best out of people
• Build a high-quality team
 1 - 24

Leaders versus Managers

Process Management Leadership

Vision * Plans and budgets * Set the direction and develops
Establishment * Develops process steps the vision
and set timelines * Develops strategic plans to
achieve the vision
Development * Organizes and staffs * Aligns organisation
and * Maintain structure * Communicates the vision,
Networking mission, and direction
Vision * Controls processes * Motivates and inspires
Execution * Identifies problems * Energizes employees to
overcome barriers to change
Vision Outcome * Manages vision order * Promotes useful and dramatic
and predictability changes
* Provides expected results
Source: Adapted from “Leadership versus management: What’s the difference?”, The Journal for Quality and Participation, 2006
 kinds of managers by level and area

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 major areas of management
organisation

Finance Operations Marketing

Operations

Marketing Finance
 areas of management
• Marketing
– work in areas related to getting consumers and
clients to buy the organisation’s products or
services
– new product development, promotion, and
distribution.

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 areas of management
• Financial
– deal primarily with an organisation’s financial
resources, cash management, and investments.
– deals with financial reports, accounting

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• Financial Reports
– is a set of documents of the financial activities of a
business, government agencies, NGOs, person,
or other entity at the end of an accounting period.
– Four types of Financial Reports
1. Balance Sheet.
2. Income Statement.
3. Cash Flow Statement.
4. Statement of Retained Earnings.

Asset = Liabilities + Equity

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 areas of management
• Operations/Productions
– Production is the creation of goods and services
– Production and/or Operations Management are the activities
that transform resources into goods and services
– design, operation, and improvement of productive systems

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production/operation management
• What is ‘Operations’?
– a function or system that transforms inputs
into outputs of greater value
• What is a Transformation Process?
– a series of activities along a value chain
extending from supplier to customer
– activities that do not add value are superfluous
and should be eliminated
• What is Operations Management?
– design, operation, and improvement of
productive systems
 Types of Operations

Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
 scope of operations management
• Operations Management includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– HR management
– Deciding where to locate facilities
– And more . . .
 Value-Added
The difference between the cost of inputs
and the value or price of outputs.

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
 Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
 Goods vs. Services

Tangible Act
Characteristics of Goods

 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction © 1995 Corel Corp.
Characteristics of Services
 Intangible product
 Produced & consumed at
same time
 Often unique
 High customer interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
© 1995 Corel Corp.
Goods vs. Services
Goods Service
 Can be resold  Reselling unusual
 Can be  Difficult to
inventoried inventory
 Some aspects of  Quality difficult to
quality measure
measurable
 Selling is distinct  Selling is part of
from production service
Goods vs. Services - Continued
Goods Service
 Product is  Provider, not product
transportable is transportable
 Site of facility  Site of facility
important for cost important for
customer contact
 Often easy to  Often difficult to
automate automate
 Revenue generated  Revenue generated
primarily from primarily from
tangible product intangible service
 Goods-service Continuum

Steel production Home remodeling Auto Repair Maid Service Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage goods

Low percentage service High percentage service
 Goods-service Continuum

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of
Service Operations (Boston: Allyn Bacon, 1978), p.11.
Goods Contain Services / Services
Contain Goods
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
Percent of Product that is a Good Percent of Product that is a Service
1-45 Introduction to Operations Management

Key Differences

1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
1-46 Introduction to Operations Management

Manufacturing vs Service

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 High Low
quality problems
High
1-47 Introduction to Operations Management

Responsibilities of Operations Management

Table 1.6

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
1-48 Introduction to Operations Management

Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
1-49 Introduction to Operations Management

Trends in Business
· Major trends
· The Internet, e-commerce, e-business
· Management technology
· Globalization
· Management of supply chains
· Agility
New Challenges in OM
From To
 Global focus
 Local or national focus  Just-in-time
 Batch shipments  Supply chain
 Low bid purchasing partnering
 Lengthy product  Rapid product
development cycles development
 Standardized products  Strategic alliances
 Job specialization  Mass customization
 Empowered
employees
 Teams
Changing Challenges for the
Operations Manager
Past Causes Future
Local or Low-cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just-in-time
shipments reducing investment in shipments
inventory
Low-bid Quality emphasis requires that Supply-chain
purchasing suppliers be engaged in product partners
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
Changing Challenges for the
Operations Manager
Past Causes Future
Standardized Affluence and worldwide markets; Mass
products increasingly flexible production customization
processes
Job Changing sociocultural milieu. Empowered
specialization Increasingly a knowledge and employees,
information society. teams, and lean
production
Low cost Environmental issues, ISO 14000, Environmentally
focus increasing disposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing
Manufacturing Competitiveness,
Strategy and Productivity

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2-54 Competitiveness, Strategy, and Productivity

Competitiveness:

How effectively an organisation meets the

wants and needs of customers relative to
others that offer similar goods or services
Competitiveness is a
comparative concept of
the ability and
performance of a firm,
sub-sector or country to
sell and supply goods
and/or services in a
given market
2-55 Competitiveness, Strategy, and Productivity

Businesses Compete Using Marketing

· Identifying consumer wants and needs

· Pricing
· Advertising and promotion
2-56 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

· Product and service design
· Cost

· Location
· Quality

· Quick response/speed
· Flexibility

· Inventory management
· Supply chain management

· Service
2-57 Competitiveness, Strategy, and Productivity

Why Some organisations Fail

· Too much emphasis on short-term financial

performance
· Failing to take advantage of strengths and
opportunities
· Failing to recognize competitive threats

· Neglecting operations strategy

2-58 Competitiveness, Strategy, and Productivity

Why Some organisations Fail

· Too much emphasis in product and service

design and not enough on improvement
· Neglecting investments in capital and human
resources
· Failing to establish good internal
communications
· Failing to consider customer wants and needs
2-59 Competitiveness, Strategy, and Productivity

Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?
2-60 Competitiveness, Strategy, and Productivity

Strategy
· Mission
· The reason for existence for an organisation
· Mission Statement
· Answers the question “What business are we in?”
· Goals
· Provide detail and scope of mission
· Strategies
· Plans for achieving organisational goals
· Tactics
· The methods and actions taken to accomplish strategies
2-61 Competitiveness, Strategy, and Productivity

Strategy Example
Example 1
Rita is a high school student. She would like to have a
career in business, have a good job, and earn enough
income to live comfortably
Mission: Live a good life
· Goal: Successful career, good income
· Strategy: Obtain a college education
· Tactics: Select a college and a major
· Operations: Register, buy books, take
courses, study, graduate, get job
2-62 Competitiveness, Strategy, and Productivity

Examples of Strategies

· Low cost
· Scale-based strategies
· Specialization
· Flexible operations

· High quality
· Service
2-63 Competitiveness, Strategy, and Productivity

Strategy and Tactics

· Distinctive Competencies
The special attributes or abilities that give an
organisation a competitive edge.
· Price
· Quality
· Time
· Flexibility
· Service
· Location
2-64 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Table 2.2
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns

Quality High-performance design Sony TV

or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Motorola

Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer Disneyland

service Citibank

Location Convenience Banks, ATMs

2-65 Competitiveness, Strategy, and Productivity

Strategy and the Internet

· Internetcan be used to create a distinctive

business strategy
· eBay, Lelong, Mudah
· unlimited capacity and a huge market
· all work is done by buyers and sellers and
there is no marginal cost
· Social network
2-66 Competitiveness, Strategy, and Productivity

Strategy and the Internet (cont.)

· Internet can be used to strengthen existing

competitive advantages by integrating new and
traditional activities
· Online Banking
· Intel
· sells $2 billion a month over the Internet
· purchases 80% of its direct materials online
· replaced 19,000 sales-order faxes received
daily
2-67 Competitiveness, Strategy, and Productivity
Operations Strategy:
Products and Services
· Make-to-Order
· products and services are made to customer
specifications after an order has been received
· Make-to-Stock
· products and services are made in anticipation
of demand
· Assemble-to-Order
· products and services add options according to
customer specifications
 Productivity

• Productivity
– A measure of the effective use of resources,
usually expressed as the ratio of output to
input
• Productivity measures are useful for
– Tracking an operating unit’s performance
over time
– Judging the performance of an entire industry
or country
 Why Productivity Matters

• High productivity is linked to higher standards of living

– As an economy replaces manufacturing jobs with lower
productivity service jobs, it is more difficult to maintain high
standards of living
• Higher productivity relative to the competition leads to
competitive advantage in the marketplace
– Pricing and profit effects
• For an industry, high relative productivity makes it
less likely it will be supplanted by foreign industry
 Productivity Measures

Output
Productivity =
Input

Output Ouput Output

Partial Measures ; ;
Single Input Labor Capital
Output Ouput Output
Multifactor Measures ; ;
Multiple Inputs Labor + Machine Labor + Capital + Energy

Goods or services produced

Total Measure
All inputs used to produce them
 Example-Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

 Example-Multi-Factor Productivity

Units produced: 5,500

Standard price: $35/unit
Labor input: 500 hours
Cost of labor of $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost
 Solution

Output
Multifacto r Productivi ty =
Labor + Material + Overhead

5,000 units  $30/unit

=
(500 hours  $25/hour) + $5,000 +(2(500 hours  $25/hour))
= 4.12




What is the implication of a unitless measure of productivity?

INCENTIVE SCHEMES
2 categories:
1. Financial (salary, bonus, gift, commission, pension,
subsidised canteens coupon, etc)
2. Non – financial (annual leave, member of social club, formal r
recognition/award, company car, etc)

Benefits to the business

An effective system of incentives could help:

1. persuade staff to join your business

2. retain existing staff
3. increase staff motivation, morale and loyalty
4. boost productivity
5. link individual and business performance
6. focus employees on achieving targets
7. build teamwork
Benefits to staff
Incentives can form an attractive element of an employment package by:

1. enhancing the quality of working life

2. rewarding staff efforts
3. adding value to the employment contract
 Type of Benefits &
Incentives
1. Performance Bonuses
2. Health Benefits
3. Performance-based Time Off
4. Education and Learning
5. Recognition and Awards
6. Retirement Planning
7. Promotion
8. Child Care and Elder Care Assistance
Advantages and disadvantages of incentive
schemes

Incentive Advantages Disadvantages

Can focus Rewards are
employees on hitting sometimes small
a target
Financial Can demoralise if not
Places a value on earned
achievement

Can recognise Can be taken for

employee priorities granted
and lifestyles
May be inappropriate
Non-financial Can encourage
attachment to
business
Individual and Group Incentive
Plans
• Individual incentive plans
– Straight piecework
• Worker’s pay is a direct linear function of his or her output
• Minimum wage legislation has reduced their popularity
– Base rate + bonus
• Worker is guaranteed a base rate, tied to an output
standard, that serves as a minimum
• A bonus is paid for output above the standard
• Group incentive plans
– Tend to stress sharing of productivity gains with employees
Safety and health
- is about preventing people from being harmed at work or becoming ill, by
taking the right precautions and providing a satisfactory working
environment.
- Implementing good health and safety practices will help you comply with
the law and provide an acceptable workplace.

Important of safety and health

1. Comply with safety and health rules
- OSHA
- Machinery act
- Environmental act
2. Avoid the cost of illness and accident
i. the wages of the people who are ill or injured, plus the costs of covering
their jobs
ii. lost productivity caused by disruption to your business and inexperienced
replacements
iii. damage to products, equipment or your premises
iv. costs of investigating and correcting the problem
v. fines and legal costs if you're prosecuted
vi. Clean up cost
3. Attract retain customer
- with good safety and health practice – job can complete on time
4. Easy to recruit new employees
 Working Conditions
Temperature & Ventilation
Humidity

Illumination Color

7-81
 Working Conditions
Noise & Vibration Work Breaks

Safety Causes of Accidents

7-82
Working condition
1. Working space
- there must be enough free space for people to move about with ease.
2. Temperature and humidity
- There are no set temperature requirements
- Little physical activity - such as offices…???? Workplaces where physical
activity is common such as workshop??
- Laboratory lab?
3. Ventilation
- The workplace should have adequate ventilation and a source of fresh air
that comes from outside.
- If ventilation isn't possible through windows or doors, you must provide
mechanical ventilation, such as an air-conditioning unit, and ensure it's well

maintained.
4. Illumination (Lighting)
- depend largely on the type of work being performed, detail work --- required
high illumination.
- high illumination required for safety purpose: hall, stairways, other dangerous
point.
- natural light source ---- free but…inability to control
5. Noise and vibration
- noise is unwanted sound which can damage or impair hearing if it is loud
enough
- the equipment shouldn't be so noisy that it distracts the user. If you can't
use quieter equipment, consider soundproofing or moving the equipment or
use sound-insulating partitions between noisy equipment and the rest of the
workstation as an alternative. Other, use of protected devices
- Vibration come from tools, machines, vehicles, human activity, air
conditioning system, pumps etc.
- Corrective measures : padding, stabilizers, shock absorbers, cushioning
etc…
6. Work time & work break
- Reasonable/flexible working hrs
- Work break – important ( long working hrs tend to generate boredom and
fatigue -- effect the productivity and quality)
7. Safety
- safety working area
- alert employee the hazard and danger surrounding working area
- Safety procedure
- provide ppe
Basic facilities
1. There are basic standards of comfort and sanitation that every workplace must
meet.
- Toilets are clean and in good working order - facilities can be mixed
providing they're enclosed and lockable from the inside.
- Working areas are cleaned and waste removed regularly.
2. Put up suitable notices and signs
- put up suitable health and safety notices and signs in your workplace.
3. Provide suitable first aid facilities
4. Fire protection