Course:MBASubject: Production & Operation Management

Unit:1.1

Introduction to Production & Operation Management

Production Management

Production is a Broader Term that Spans both Manufacturing and Services Functions

Production is the Application of Resources, People and Machinery, to Convert Inputs into Finished Goods and Services

Mass Production

Mass Production: Makes Outputs available in Large Quantities at Lower Unit Costs than Individually- Crafted Items

Characteristics of Mass ProductionLabor SpecializationMechanizationStandardization

Assembly Lines

Assembly Line first Introduced by Eli Whitney (Cotton Gin Inventor) to build Muskets for the US Government In 1799

Used Ideas of Specialized Labor and Engineering Standards (Tolerances) to produce Assemblies from Parts in Repeatable Manner

HENRY FORDIntroduced Moving Assembly Line: Dramatically

Reduced Manufacturing Costs While Delivering Consistent, Low-Priced Product

Factory based on Chicago Meat Cutting Plants

FORD MODEL “T” First Produced:

October 1908

By 1927, 15,000,000

ProducedAny Color so

long as it’s Black…

ASSEMBLY LINE BENEFITS Initially, took 14 hours to Assemble Model

T - Mass Production reduced Time to 1 Hour and 33 Minutes

Model T’s Price dropped from $1,000 in 1908 to $360 in 1916

Result was Ford becoming Dominant Automobile Manufacturer and Assembly Line Method as Dominant Production Approach

FORD ASSEMBLY LINES

Assembly Line pulled by Ropes Magneto Assembly

MASS PRODUCTIONMODEL “T” – Machine that

Changed the World 1914: Ford produced 308,162 cars, more than all

299 other auto manufacturers combined 1927: Automobile Produced every 24 seconds Higher volumes → Lower cost → Lower Prices

→Increased Sales → Higher Volumes

MASS PRODUCTION“PUSH” Strategy – Driven by Inputs and ObjectivesControl of Raw Materials and Labor plus Profit Goals

= Production Rate separate from Customer Demands and Preferences

Performance measured by Budget Variances and Quantitative Results (Defects or Unit Costs per Day, Week or Month), not Quality Standards

MASS PRODUCTION Low Product Variety; Small Orders Not Feasible Specialized Machinery and Centralized Manufacturing “Economies of Scale” – High-Speed Sequential

Production Development Costs Spread Over Large Volume:

Low Cost per Unit Produced Low-Skill/Low-Wage Work Force Large Advertising and Marketing Budgets

FORD WORKING CONDITIONS

Monotony of Assembly Line Work: 300% Turnover $2 per Day and a 9-Hour ShiftFord’s Response to Working Conditions Dilemma Increase Pay to $5 per Day and Reduce

Shifts from 9 Hours to 8 Hours

“The Chain System you have is a Slave Driver. My God, Mr. Ford! My Husband has come Home and Thrown Himself Down and won’t Eat his Supper, He’s so done out. Can’t it be Remedied? That $5-a-day is a Blessing; a Bigger One than you Know. But, Oh, They Earn It!”- Wife of Ford Assembly Line Worker

MASS PRODUCTIONFlaws of Mass Production

Approach Production Levels cannot Stop or Slow:

Defects resolved outside Production (Added Costs of Rework)

Long Changeover Times limits Product Variety Erratic Finished Products Inventory Levels

Incentives and 0% Financing

MASS PRODUCTION Market Orientation Flaw

TOYOTA’S ORIGINS

• Toyoda Automated Loom Works

1902 Modification: Loom Stopped Automatically if

Thread Broke or Spool Empty - Signal for Attention

Result: No Waste from Defective Work and Lower

Production Costs

TOYOTA’S ORIGINS

During WWII, Toyoda became Toyota and manufactured Motorcycles and Delivery Trucks

After WWII, Japanese Industry needed to re-build

TOYOTA’S ORIGINS1956 – Taiichi Ohno went to US to study Ford’s

Manufacturing Facilities

Found Mass Production Principles not Applicable:

Scale of Japanese Markets Desire for Product Variety Unable to Afford Resources and Inventories

TOYOTA’S ORIGINSBefore returning to Japan, Ohno went to an

American Grocery Store

Discovered Production and Operation Methods thatWere Linked to Customer

Actions: Inventories Replenished by Sales (“PULL” Strategy)

Delivered Product Variety and Scale

Minimized Waste

TOYOTA’S ORIGINS

Toyota Exports its First Car: The

Forgettable “Crown”

Under-powered and Unstable at

Freeway speeds, Production is

stopped in 1959

TOYOTA PRODUCTION SYSTEM

In 1961, Toyota adopts “Systems Perspective”KAIZEN – Continuous Improvement Attitude that

Minimizes Waste and Emphasizes High QualityProcesses are analyzed to eliminate flaws rather than fixing defective products

WASTE – Comprehensive View that includes Time, Resources and Materials

Over-ProductionTime Spent WaitingUnnecessary Movements of Items

TOYOTA PRODUCTION SYSTEM

–Waste is anything other than the minimum amount of equipment, materials, parts, space, and workers’ time which are absolutely essential to add value to the product.

– - Shoichiro Toyoda President, Toyota Motor Co.

TOYOTA PRODUCTION SYSTEM

KANBAN - Downstream Demand drives Upstream Activity (“Pull Strategy”)

Orders flow “Up” System, not from Top-down

Only what is Needed is Ordered and Produced

TOYOTA PRODUCTION SYSTEM

ANDON – Work Stops when Problem EncounteredCounter-measures taken to Cure Cause, Not re-work Defective Result. Authority delegated to Production TeamProduction and Problem-solving

Functions combined. No Special Trouble-shooting Teams

TOYOTA PRODUCTION SYSTEM

Result of TPS is “Just-in-Time” Inventory System Comes from System’s Operation, Not a

Requirement of It: Element of “Waste” Management Philosophy

JIT relies on Supplier Relationships that Integrate Inventory Arrivals and Production Needs

JIT depends on Mutual Commitment of Toyota Loyalty and Supplier Performance

TOYOTA PRODUCTION SYSTEM

Why Hasn’t TPS Been Universally Adopted? Equipment Transition Costs: Short

Turnover Times (High Variety) combined with High Quality

Different Management Paradigm: Empower Assembly Line Workers to Stop Production and Order Process-correcting Counter-measures

World’s Second Largest Manufacturer of AutomobilesAbout 240,000 Employees Produces a Vehicle about

every Six SecondsConsistently Profitable GM:

$1.1 Billion Quarter Loss

What Is Operations Management?

• Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

Organizing to Produce Goods and Services

• Essential functions:1. Marketing – generates demand2. Production/operations – creates the product3. Finance/accounting – tracks how well the

organization is doing, pays bills, collects the money

4. Human Resources – provides labor, wage and salary administration and job evaluation

Organizational Charts

Organizational Charts

Why Study OM?

• OM is one of four major functions of any organization, we want to study how people organize themselves for productive enterprise

• To know how goods and services are produced• We want to understand what operations

managers do• OM is such a costly part of an organization

What Operations Managers Do

• Basic Management Functions Planning Organizing Staffing Leading Controlling

Ten Critical Decisions1. Design of goods and services2. Managing quality3. Process and capacity

design 4. Location strategy5. Layout strategy6. Human resources and

job design 7. Supply-chain

management8. Inventory, MRP, JIT9. Scheduling10. Maintenance

The Critical Decisions

1. Design of goods and services– What good or service should we offer?– How should we design these products and

services? 2. Managing quality

– How do we define quality?– Who is responsible for quality?

The Critical Decisions3. Process and capacity design

– What process and what capacity will these products require?

– What equipment and technology is necessary for these processes?

4. Location strategy– Where should we put the facility?– On what criteria should we base the location

decision?

The Critical Decisions5. Layout strategy

– How should we arrange the facility?– How large must the facility be to meet our

plan?6. Human resources and job design

– How do we provide a reasonable work environment?

– How much can we expect our employees to produce?

The Critical Decisions7. Supply-chain management

– Should we make or buy this component?– Who should be our suppliers and how can we

integrate them into our strategy?8. Inventory, material requirements planning,

and JIT– How much inventory of each item should we

have?– When do we re-order?

The Critical Decisions9. Intermediate and short–term scheduling

– Are we better off keeping people on the payroll during slowdowns?

– Which jobs do we perform next?10. Maintenance

– How do we build reliability into our processes?– Who is responsible for maintenance?

Significant Events in OM

Productivity Challenge

• Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)

• The objective is to improve productivity!

Important Note!Production is a measure of output only and not a

measure of efficiency

Efficiency Versus Effectiveness

• The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is.

• “Efficiency is doing things right; effectiveness is doing the right things.”

• Doing the Right Things is More Important than Doing Things Right

Efficiency Versus Effectivenes

• For example, if a company is not doing well and they decide to train their workforce on a new technology. The training goes really well - they train all their employees in avery short time and tests show they have absorbed the training well. But overall productivity doesn't improve. In this case the company's strategy was efficient but not effective.

Productivity

Productivity =Units produced

Input used

Measure of process improvement Represents output relative to input Only through productivity increases can our

standard of living improve

Productivity Calculations

• Labor Productivity

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000250

One resource input single-factor productivity

Multi-Factor Productivity

OutputLabor + Material + Energy +

Capital + Miscellaneous

Productivity =

Also known as total factor productivity Output and inputs are often expressed in

dollars

Multiple resource inputs multi-factor productivity

Measurement Problems

• Quality may change while the quantity of inputs and outputs remains constant (HDTV, iphones)

• External elements may cause an increase or decrease in productivity (using more reliable electric power system)

• Precise units of measure may be lacking

Key Variables for Improved Labor Productivity

1. Basic education appropriate for the labor force

2. Diet of the labor force

3. Social overhead that makes labor available such as transportation and sanitation Challenge is in maintaining and enhancing

skills in the midst of rapidly changing technology and knowledge

Service Productivity

1. Typically labor intensive (teaching, counseling)

2. Frequently focused on unique individual desires (customer representatives in banks)

3. Often an intellectual task performed by professionals4. Often difficult to mechanize5. Often difficult to evaluate for quality

Ethics andSocial Responsibility

Challenges facing operations managers:

Developing and producing safe, quality products

Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments

Entry-Level Jobs in PMOM– Purchasing planner/buyer– Production (or operations) supervisor– Production (or operations) scheduler/controller– Production (or operations) analyst– Inventory analyst– Quality specialist– Others …

Reference

• www.academia.edu• www.poms.ucl.ac.• www.wright.edu