Production and Operation Management

Unit-1

1. Production management and Production System2. Production and operations in the organization3. Scope of Production Management4. Function and jobs of POM5. Decision Making in POM6. The emergence of production and operation management7. Plant Location and Layout

1. Production Management Production management is a process of planning, organizing, directing and controlling the

activities of the production function. It combines and transforms various resources used in

the production subsystem of the organization into value added product in a controlled

manner as per the policies of the organization.

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.”

1.1 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. R IGHT Q UALITY 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. R IGHT Q UANTITY The manufacturing organization 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. R IGHT T IME 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 utilization of

input resources to achieve its objective.

4. R IGHT M ANUFACTURING C OST 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.

1.2 Production system modelInputs conversions subsystem output

Feedback Feedback

Figure 1 A production System Model1.3 Common ground and differences between manufacturing and services

1.3.1 Common Ground:

Entail customer satisfaction as a key measure of effectiveness Require demand forecasting Require design of both the product and the process Involve purchase of materials, supplies, and services Require equipment, tools, buildings, and skills, etc.

1.3.2 Differences:

Customer contact

ExternalLegal/politicalSocialEconomicTechnological

MarketCompetitionProduct InformationCustomer Desires

ResourcesPeople MaterialsEnergyCapital EquipmentFacilitiesTechnology

ConversionSubsystem

Direct OutputsProductsServices

Indirect OutputsTaxesWages and salariesTechnological DevelopmentEmployee ImpactEnvironment ImpactsSocial Impact

Control Subsystem

Marketing

Production

Finance

Service involves a much higher degree of customer contact than manufacturing does.The performance of a service typically occurs at the point of consumption.Manufacturing allows a separation between production and consumption.

Uniformity of inputService operations are subject to more variability of inputs than manufacturing operations are. Each patient, each lawn, each TV presents a specific problem.

Labor content of jobsManufacturing ---capital -intensiveService ---a higher labor content.

Uniformity of outputProducts--standardization, low variability, smooth, efficientService--customization, variable, slow.

StoreGoods may be storedServices are consumed during delivery, cannot be stored.

Measurement of productivityIn manufacturing, measurement is more straightforward In service operation, measurement is more difficult due to variations in demand intensity.

Table 1. Difference between manufacturing and service

Characteristic Manufacturing ServiceOutput Tangible Intangible

Customer Contact Low HighUniformity high low

Labor content Low HighUniformity of output High Low

Store of output Easy DifficultMeasurement of production Easy Difficult

2 Production and operations in the organization

Figure 2 Basic management responsibilities

3 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 organizational objectives of effectiveness, efficiency and adaptability. 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.

L OCATION OF F ACILITIES 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 organization. It

is an important strategic level decision-making for an organization. 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 organization.

P LANT L AYOUT AND M ATERIAL H ANDLING Plant layout refers to the physical arrangement of facilities. It is the configuration of

departments, work centers 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 manufacturing’. It is also defined as the

‘art and science of moving, packing and storing of products in any form’. It is a specialized

activity for a modern manufacturing concern, with 50 to 75% of the cost of production. This

cost can be reduced by proper selection, 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.

P RODUCT D ESIGN Product design deals with conversion of ideas into reality. Every business organization has 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

organizations.

The entire process of need identification to physical manufactures of product involves three

functions: marketing, product development, and 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.

P ROCESS D ESIGN 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 analyze the workflow for converting raw material into

finished product and to select the workstation for each included in the workflow.

P RODUCTION P LANNING AND C ONTROL 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.

Q UALITY C ONTROL 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 feedback 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.

M ATERIALS M ANAGEMENT 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, standardization, 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.

M AINTENANCE M ANAGEMENT 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:

1. To achieve minimum breakdown and to keep the plant in good working condition at the

lowest possible cost.

2. To keep the machines and other facilities in such a condition that permits them to be used

at their optimal capacity without interruption.

3. 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.

4 Function and jobs of POM

4.1 Functions

Manufacturing--cutting, drilling, milling, etc. Or Teaching, farming, packing, consulting, mixing, etc.

Transporting Storing Plant maintenance and management Material management Quality control, etc.

Table 2 functions of POM

Planing CapacityLocation Layout ProjectsProducts and servicesMake or buyScheduling

Organizing Degree of centralizationSubcontracting

Staffing Hiring/laying offUse of overtime

Directing Incentive plansIssuance of work ordersJob assignments

Controlling Inventory controlQuality controlWork-in process controlProcess control

POM

Maintenance

Public relations

Personnel

Industrial engineering

Purchasing

Figure 3 POM interfaces with a number of supporting functions4.3 Jobs

Table 3 Jobs of POM

Types of firms

Some Line Jobs Some Staff Jobs

Manufacturing

V.P. manufacturingPlant managerProduction managerSuperintendentForemanTeam leaderCrew chief

Manufacturing engineerIndustrial engineerQuality control managerQuality control engineerMaterial managerInventory analystProduction scheduler

Retailing

V.P. operationsStore managersOperation managerDepartment supervisorSales clerk

Customer service managerSecurity managerMaintenance managerSupplies specialistWarehouse manager

5 Decision Making in POM

5.1 Strategic Decision ----Being of strategic importance, having long-term significance Deciding whether to launch a new-product development project Deciding on the design for a production process for a new product Deciding what new factories are needed and where to locate them How to allocate scarce raw materials, utilities, capacity, personal among new and

existing business opportunities

5.3 Operation decision ---- Planning production to meet demand Deciding how much finished-goods inventory to carry for each product Deciding what products and how much of each to include in next month's

production schedule Deciding whether to increase production capacity next month by overtime or

subcontract Deciding the details of a plan for purchasing raw materials

Accounting

5.4 Control decision ----Planning and scheduling operations Deciding quality control criteria Deciding time arrangement Day-to-day decision about workers, product quality, machinery

6 The emergence of production and operation management

Table 4 the development of POM

Date Contribution/concept and Tools Originator1776 Division of labor Adam Smith1790 Interchangeable parts Eli Whitney1910s Scientific management principles

Standard ,Time study, methods analysisPlanning

Frederick W. Taylor

Motion studies, method, TherbligsConstruction contracting

Frank B. Gilbreth

Fatigue studyHuman factor in workEmployee selection and training

Lillian M. Gilbreth

Gantt chartsIncentive pay systems

Henry L. Gantt

Moving assemble line Henry FordEOQ mathematical model F. W. Harris

1930 Hawthorne studies Elton Mayo1935 Statistical procedures for sampling and quality

controlDodge, Romig,Shewhatt

1940-1947

Operation research,Linear programming

OR groupsGeorge Dantzig

1960s Extensive development of quantitative tools (CPM/PERT)

1970s Inventory controlMaterial requirement planing (MRP)Mass production in service

1980s Emphasis on manufacturing strategyJust in Time (JIT)Total quality control (TQC)Optimized production Technology (OPT)CAD/CAMFlexible manufacturing system (FMS)

W. SkinnerJapaneseJapaneseGoldratt

1990s TQM/ISO9000Agile manufacturing (AM)Lean Production (LP)LAFBusiness process reengineering (BPR)Concurrent Engineering (CE)CIMS, IMSVirtual manufacturing (VM)World Class Manufacturing (WCM)

7. Plant Location and layout Plant location refers to the choice of region and the selection of a particular site for setting up

a business or factory.

But the choice is made only after considering cost and benefits of different alternative sites. It

is a strategic decision that cannot be changed once taken. If at all changed only at

considerable loss, the location should be selected as per its own requirements and

circumstances. Each individual plant is a case in itself.

Businessman should try to make an attempt for optimum or ideal location.

What is an ideal location?

An ideal location is one where the cost of the product is kept to minimum, with large market

share, the least risk and the maximum social gain. It is the place of maximum net advantage

or which gives lowest unit cost of production and distribution. For achieving this objective,

small-scale entrepreneur can make use of locational analysis for this purpose.

Selection criteria for locationThe important considerations for selecting a suitable location are given as follows:

a) Natural or climatic conditions.

b) Availability and nearness to the sources of raw material.

c) Transport costs-in obtaining raw material and also distribution or marketing finished

products to the ultimate users.

d) Access to market: small businesses in retail or wholesale or services should be located

within the vicinity of densely populated areas.

e) Availability of Infrastructural facilities such as developed industrial sheds or sites, link

roads, nearness to railway stations, airports or sea ports, availability of electricity, water,

public utilities, civil amenities and means of communication are important, especially for

small scale businesses.

f) Availability of skilled and non-skilled labour and technically qualified and trained

managers.

g) Banking and financial institutions are located nearby.

h) Locations with links: to develop industrial areas or business centers result in savings and

cost reductions in transport overheads, miscellaneous expenses.

i) Strategic considerations of safety and security should be given due importance.

j) Government influences: Both positive and negative incentives to motivate an entrepreneur

to choose a particular location are made available. Positive includes cheap overhead facilities

like electricity, banking transport, tax relief, subsidies and liberalization. Negative incentives

are in form of restrictions for setting up industries in urban areas for reasons of pollution

control and decentralization of industries.

k) Residence of small business entrepreneurs want to set up nearby their homelands

Plant layout

Plant layout refers to the arrangement of physical facilities such as machinery, equipment,

furniture etc. with in the factory building in such a manner so as to have quickest flow of

material at the lowest cost and with the least amount of handling in processing the product

from the receipt of material to the shipment of the finished product.

According to Riggs, “the overall objective of plant layout is to design a physical arrangement

that most economically meets the required output – quantity and quality.”

According to J. L. Zundi, “Plant layout ideally involves allocation of space and arrangement

of equipment in such a manner that overall operating costs are minimized.

An efficient plant layout is one that can be instrumental in achieving the following objectives:

a) Proper and efficient utilization of available floor space

b) To ensure that work proceeds from one point to another point without any delay

c) Provide enough production capacity.

d) Reduce material handling costs

e) Reduce hazards to personnel

f) Utilise labour efficiently

g) Increase employee morale

h) Reduce accidents

i) Provide for volume and product flexibility

j) Provide ease of supervision and control

k) Provide for employee safety and health

l) Allow ease of maintenance

m) Allow high machine or equipment utilization

n) Improve productivity

Types of Layout

In case of manufacturing unit, plant layout may be of four types:

(a) Product or line layout

(b) Process or functional layout

(c) Fixed position or location layout

(d) Combined or group layout

Product or line layout:

Under this, machines and equipments are arranged in one line depending upon the sequence

of operations required for the product. The materials move from one workstation to another

sequentially without any backtracking or deviation. Under this, machines are grouped in one

sequence. Therefore materials are fed into the first machine and finished goods travel

automatically from machine to machine, the output of one machine becoming input of the

next, e.g. in a paper mill, bamboos are fed into the machine at one end and paper comes out at

the other end.

The raw material moves very fast from one workstation to other stations with a minimum

work in progress storage and material handling.

The grouping of machines should be done keeping in mind the following general principles.

a) All the machine tools or other items of equipments must be placed at the point demanded

by the sequence of operations

b) There should no points where one line crossed another line.

c) Materials may be fed where they are required for assembly but not necessarily at one point.

d) All the operations including assembly, testing packing must be included in the line

Process layout:

In this type of layout machines of a similar type are arranged together at one place. E.g.

Machines performing drilling operations are arranged in the drilling department, machines

performing casting operations be grouped in the casting department. Therefore the machines

are installed in the plants, which follow the process layout.

Hence, such layouts typically have drilling department, milling department, welding

department, heating department and painting department etc. The process or functional layout

is followed from historical period. It evolved from the handicraft method of production. The

work has to be allocated to each department in such a way that no machines are chosen to do

as many different job as possible i.e. the emphasis is on general purpose machine.

The work, which has to be done, is allocated to the machines according to loading schedules

with the object of ensuring that each machine is fully loaded. Process layout is shown in the

following diagram.

Fixed Position or Location Layout

In this type of layout, the major product being produced is fixed at one location. Equipment

labour and components are moved to that location. All facilities are brought and arranged

around one work center. This type of layout is not relevant for small scale entrepreneur. The

following figure shows a fixed position layout regarding shipbuilding.

Combined layout

Certain manufacturing units may require all three processes namely intermittent process (job

shops), the continuous process (mass production shops) and the representative process

combined process [i.e. miscellaneous shops].

In most of industries, only a product layout or process layout or fixed location layout does not

exist. Thus, in manufacturing concerns where several products are produced in repeated

numbers with no likelihood of continuous production, combined layout is followed.

Generally, a combination of the product and process layout or other combination are found, in

practice, e.g. for industries involving the fabrication of parts and assembly, fabrication tends

to employ the process layout, while the assembly areas often employ the product layout. In

soap, manufacturing plant, the machinery manufacturing soap is arranged on the product line

principle, but ancillary services such as heating, the manufacturing of glycerin, the power

house, the water treatment plant etc. are arranged on a functional basis.

Factors influencing layout

While deciding his factory or unit or establishment or store, a small-scale businessman should

keep the following factors in mind:

a) Factory building: The nature and size of the building determines the floor space available

for layout. While designing the special requirements, e.g. air conditioning, dust control,

humidity control etc. must be kept in mind.

b) Nature of product: product layout is suitable for uniform products whereas process layout

is more appropriate for custom-made products.

c) Production process: In assembly line industries, product layout is better. In job order or

intermittent manufacturing on the other hand, process layout is desirable.

d) Type of machinery: General purpose machines are often arranged as per process layout

while special purpose machines are arranged according to product layout

e) Repairs and maintenance: machines should be so arranged that adequate space is available

between them for movement of equipment and people required for repairing the machines.

f) Human needs: Adequate arrangement should be made for cloakroom, washroom, lockers,

drinking water, toilets and other employee facilities, proper provision should be made for

disposal of effluents, if any.

g) Plant environment: Heat, light, noise, ventilation and other aspects should be duly

considered, e.g. paint shops and plating section should be located in another hall so that

dangerous fumes can be removed through proper ventilation etc. Adequate safety

arrangement should also be made.

Thus, the layout should be conducive to health and safety of employees. It should ensure free

and efficient flow of men and materials. Future expansion and diversification may also be

considered while planning factory layout.