Question: Explain the terms - Production Management and Operations Management. What are the objectives of Production and Operations Management? Also describe the scope of Production and Operations Management.
Meaning of System
System consists of elements or components. The elements or components are interlinked together to achieve the objectives for which the system exists. For example - a human body is made up of group of organs, called organ system, that work together to keep the body in balance, or a business organisation is made up of many administrative and management functions, products, services, groups and individuals.
Business organisation is classified into different subsystems based on the functions like marketing, finance, human resource, or production and operation. Each subsystem will have more sub-subsystems. In this post we'll study in detail the production/operation system.
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’.
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
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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 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.
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
Operation managers are concerned with planning, organising, and controlling the activities which affect human behaviour through models.
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.
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.
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.
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.
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.
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.
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 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 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 (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 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.
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.