THE DOMAIN OF PRODUCTION AND OPERATIONS MANAGEMENT

Objective

At the end of the chapter, the learner should be able to:

1. define operations management

2. explain the distinction between goods and services
3. explain the difference between production and productivity
4. identify the critical variables enhancing productivity

INTRODUCTION

Production and Operations managers carry on their work in a social and economic environment. Society
puts restrictions on them as they strive to produce products and services. Their jobs require managing
the organization's resources, people, money, physical property, and the production of products and
services.

We typically use the term production to denote the process of converting or transforming resources-
materials, machines, employees, time-into goods or services. The goods and services might be
automobiles, computers, heath care, or financial transactions. Many people equate the term production
win manufacturing: however, it applies equally to the creation of services and to "quasi manufacturing
activities such as the development of computer software.

The term operations broadly describe the set of all activities associated with the production of goods
and services. Operations involves not only production but also transportation, whereby the location of
something or someone is changed; supply, whereby the ownership or possession of goods is changed
and service, the principal characteristic of which is the treatment or accommodation of those activities
of something or someone.
  A typical example is Pizza Hut. The basic tasks of preparing, cooking and packaging pizzas are
essentially production functions. Delivering pizzas to customers' homes involves transportation,
supply, and service. Providing food for pickup or dining in involves both supply and service.
Therefore:
a. Production is the intentional act of creating something useful according to quantity
demanded, quality specifications, and delivery schedule. It is the process of converting
or transforming resources into products.
b. Operations is a set of all activities associated with the production of a product.

A system provides an efficient and effective framework of activities necessary to attain an objective. The
system may be viewed as a purposeful grouping of elements or objects that, as a whole, perform some
specific and meaningful function. It is a dynamic arrangement of elements, each designed to interact
harmoniously with the others.

Elements of production system consist of a physical network of men, materials, machines and processes,
and an information network so planned and built as to interact harmoniously. Two sub-systems within
the production system are easily identified: the physical system which acts in the transformation of
inputs to product outputs and the information system which coordinates and controls the action of the
physical system.

The production system is characterized by:

1. A material transformation process

2. A degree of repetitiveness
3. An information system superimposed on the physical system
4. A material process flow.

The transformation process consists of inputs, activities and outputs. Some degree of repetitiveness
exists in the production system. Repetition, to some extent results in economic and efficient production.
Coordination and effective control through a system of information network ensure a smooth flow of
inputs through various stages of operations resulting to the final product. The information system
includes the organizational structure, directives, reports, and a network of mechanized or electronic
servo-systems. The material process flow is dependent on the nature of the product or service rendered
by the firm. We will discuss the classification of the various material during our subsequent meetings.

Managing the resources needed to produce goods and services is called production/operations
management (P/OM), or simply operations management.

 Frederick Taylor, often called the "father of scientific management" said that management is
knowing exactly what you want men to do and then seeing to it that they do it in the best and
cheapest way. This reflects Taylor's dominant interest in efficiency. A more contemporary
definition of management is the accomplishment of desired objectives by establishing an
environment favorable to performance by people operating in organized groups. Emphasis is
placed here on achieving performance rather than on the economic aspects of attainment, but
managers are concerned both with money and with people. Management is often described as
consisting of.
 a. Planning and establishing goals or objectives. It is the process of establishing guidelines
and actions should be pursued and when they should be completed in
order to meet the goals of th e organization.
b. Organizing input resources and staffing. It is the process of bringing
together all the resources necessary to complete a task.
c. Directing or motivating people to perform to attain those
goals. It is the process of turning plans into realities by
assigning specific responsibilities to employees.
d. Controlling the performance or comparing actual
progress with planned performance. It is the process of
monitoring and evaluating performances and correcting
any problems as necessary.

SCOPE OF PRODUCTION/OPERATIONS MANAGEMENT

Production and operations management activities are not confined to the manufacturing of products. It
is true that the production activities carried on in manufacturing companies form the backbone of our
consumer society through the production of a broad array of products. But people also perform
production activities in organizations which provide services. In fact, in recent years, more and more
effort has been directed toward the management of productive effort in the service sector of our
economy.

Service organizations, such as banks, hotels, restaurants, and transportation and insurance companies,
produce services much as manufacturing companies produce automobiles, furniture, and
microcomputers. Furthermore, within the service sector, the management of the operations of
governmental organizations is receiving more and more attention.

The costs of municipal services for schools, police protection, fire protection, trash collection and so on
are outstripping cities' revenues. Costs of health services are also increasing rapidly and are receiving
much attention.

In general, however, production and operations management deals with the supply side of the work of
organizations, and marketing deals with the demand side. Other functional areas of responsibility
include finance, which is concerned supplying enough equity and debt capital at the right time to pay for
labor, materials, and facilities.

Other functional specialists are accountants, who are more or less "scorekeepers", controllers, and
budget makers; personnel specialists, who recruit and train workers, develop pay plans for them and aid
in their performance evaluation; and engineers, who design products and services, determine the best
ways to manufacture them, and control their quality. Yet the work of all of these functional specialists is
intertwined, and a great deal of communication and coordination is required.

The production manager's aim is to create the end product in the market in the right quantity, of the
right quality, at the right time, economically. To achieve this objective, he must involve himself in
product planning, process planning, production planning and control and quality control. To meet the
economic objective, the manager is concerned with such things as methods improvement and work
measurement, physical facilities management, materials management, and personnel management.

Product Planning

 This is often a top management work involving all sectors of the firm, that is, the finance,
marketing, production and technical departments. Production performs a stellar role in the
development of the product.

Process Planning

 This naturally comes after product design. It involves determining required machines, tools,
men, and methods. The determination of the general flow of work, materials, and specific work
content and methods are essential to process planning.

Physical Facilities Management

 The production manager must consider the heavy investment on manufacturing facilities. Aside
from the fact that the cost of plant facilities can considerably deplete the firm's financial
reserves, the arrangement of these facilities in a manner that will result in the most efficient
handling of materials directly affects the final cost of the product. Plant location, engineering
economics, plant layout, plant engineering, and materials handling comprise this area of activity.

Production Planning and Control

 Production planning involves forecasting the demand for the company's product and converting
the forecast in terms of the need for the various factors of production. Sometimes this process is
referred to as loading or routing. Schedules of the factors of production are adjusted to
eliminate wide fluctuations and permit manufacturing and purchasing in economic batches.

The aspect of the production manager's work referred to as production control includes:

1. Scheduling the required work.

2. Giving the go signal to start and providing the necessary instructions to the different
manufacturing sectors (dispatching).
3. Checking on the progress and initiating corrective measures to ensure the effective and efficient
use of the various factors of production and the delivery of the product on the stipulated date.

Quality Control

 Quality control is responsible for the provision of the correct product quality to the consumer,
consistent with the minimum resources used. This includes the determination and specification
of quality standards as well as maintenance.
Methods Improvement

There are ten ways of skinning a cat, so the saying goes. There are as many ways of producing a product,
but not all of these are equally attractive and economical. Scientific management has been in constant
pursuit of the best way of doing a job. Consequently, analysts must develop alternate methods and
choose the most efficient one. This is a never-ending search. New materials, new machines, and new
knowledge evolving in explosive proportions keep the manager awake and sensitive to change.

Work Measurement

Labor is one of the most important resources that the production manager employs. It is one of the
costs associated with the production activity. To control labor cost, one must know how much he can
expect from a worker. To answer the question, he must employ work measurement which is the
application of techniques designed to establish the time for a qualified worker to carry out a specified
job at a defined level of performance. It is a way of establishing labor time standards.

Materials Management

 Inventories serve to decouple successive operations in the process of making a product and
getting it to the consumer. They make it unnecessary to gear production directly to
consumption. Too much inventory on hand or too little of it can both have a crippling effect on
the company's operation.
 The essential question then is: What is the level of inventory which will be most economical?
The production manager is expected to schedule production activities so that manufacturing can
be done in economical lot sizes and so that the goods will be on hand when needed. He is also
expected to purchase raw materials and parts in economic order quantities and make them
available in time when they are needed.

Personnel Management
  This is the application of different management functions to the personnel engaged by the
enterprise to optimize their contribution toward the realization of corporate activities. The
function; related to personnel management are:
1. manpower planning
2. manpower procurement
3. manpower development
4. 4, wage administration
5. personal relations
6. maintaining personnel safety, health and benefits

INTERRELATIONSHIP

 Production and operations managers have a great variety of activities. In order to do this, they
assemble appropriate resources and direct the use of these resources- be they people,
machines, or processes-in transforming materials and labor into products or services. They
direct the inputs so that they produce outputs.
 Successful organizations also have reporting systems which provide current feedback
information so that the managers can see whether or not they are meeting customer demands.
If they are not, then, at least in the private sector, they will lose customers.
 Consequently, in order to survive, they must redesign their products and services. Such changes
are likely, in turn, to necessitate changes in internal operations and in the way, resources are
used.

Managers also have to respond to forces from the external environment, such as government
regulations, labor union demands, and local, regional, national, and world economic conditions. Keeping
in tune with current conditions is a continuous and dynamic process.

WHY STUDY ABOUT P/OM

1. P/OM deals with the supply side of organizations.

All organizations exist to meet demand through their production functions. With a basic understanding
of what it takes to build and operate production system:

1. Marketing managers can better serve their markets and manage their sales forces if they understand
the capabilities and limitations of their demand-supply system.

2. Financial managers can better plan for capacity expansion and will better be able understand the
purposes of inventories before they demand their wholesale reduction. Financial managers also can
utilize modern requirements planning systems both in determining future capital requirements through
capacity planning activities, and forecasting cash requirements to pay for new machines labor,
materials, energy and overhead, just as though cash were another raw material.

3. Accountants and controllers need to learn about the capabilities of modern computer-based
production and inventory control systems. These systems can provide accounting information, capacity
utilization ratios, inventory valuation, cost of goods sold and other information for internal control,
auditing, and financial reporting.
4. Personnel managers can also gain an appreciation for the complexities of job design. This
understanding can aid in the design of training programs, compensation systems, and in recruiting and
selection functions.

5. Computer and information systems specialist will be charged with developing, implementing, or
operating such P/OM-related systems as inventory control, job scheduling and order control, customer
order entry, automated bills of materials, and labor cost reporting.

6. Engineers will learn to appreciate the difficulty of translating their designs into production and the
complexity of the coordination of materials, labor, and machine capacity to finished output.

2. Asset concentration is controlled by P/OM.

Approximately 70% of the assets in manufacturing and processing organizations are in inventories, plant
and equipment which are directly or indirectly under the control of production or operations managers,
materials managers, maintenance managers and production supervisors, all members of the P/OM
organization. In service organizations, direct labor often accounts for the majority of operating
expenses. Scheduling of this resource is the responsibility of operations.

3. Career opportunities in P/M and purchasing are excellent for creative individuals.

People well educated and experienced in purchasing procedures, contract negotiation, legal aspects of
purchasing, value and make-or-buy analysis, international trade, and inventory control, as well as
purchasing's interfaces with production, marketing, engineering, and finance will find that they are in
high demand by business and public organizations.

4. Understanding of P/M and strategic business decision making is necessary since the product and
the service strategies have a large impact on the design of the production process.

 There are six basic strategies which have to be addressed to for the manufacturing company to
determine it is in the right track.
a. Positioning of the production system. The production system must be flexible in
such a way that it can adapt to changing customer's demands, tastes, and fads.
b. Capacity and location factors
c. Product and process technology. The technology should be based on applicability,
appropriateness, producibility and low cost.
d. Work force and job design
e. Strategic implications of operating decisions to reduce costs and control quality of.
f. Strategies regarding supplies

5. P/OM and social responsibility

High level production and operations managers are in a dual position. They try to serve their employers,
who are a company's stockholders or legislative bodies. At the same time, they operate in a social
system and have certain obligations to society. Many of these obligations to society are written into
laws, but others in the production area, such as trying to maintain stable employment, to pay fair wages,
produce quality and safe products.
Social obligations are rarely stable and are often quite dynamic. Recent years have seen a shift, and the
emergence of a strong consumer consciousness, particularly as it concerns the design of products and
services so that they are safe for customers to use and so that working conditions will be safe for
employees. Besides this, environmental considerations have also become very important.

6. P/OM and our "Productivity Crisis"

Productivity is a measure of the effectiveness with which an organization uses its resources in
transforming inputs to outputs; in other words, the ratio of the output of a production system to the
input.

Major factors affecting productivity:

1. Government policy
a. Integrated planning and infrastructure
b. Price stability
c. Tax base
d. Licensing
e. Small scale industries promotion
f. Import substitution
2. Resource endowment
a. Natural resources
b. Human resources
c. Financial resources
3. Cultural/social values and institutions
a. Attitudes of people
b. Local social values

PRODUCT SAFETY AND CONSUMER PROTECTION

The majority of organizations provide us with goods and services which performs as expected, are of
good value and safe in use. However, there are always be some goods and services which are
unsatisfactory and possibly unsafe in certain applications.
In the 1960s, people became increasingly concerned about injuries resulting from automobile accidents.
As a result, new safety laws were passed which required considerable redesign of automobiles.

This interest in consumer safety quickly spread in many directions. Soon people were calling attention to
hazards in the use of any number of other products. Instances were found where toys which children
often put in their mouths and chewed on were painted with lead-based paint, which could give them
lead poisoning. Other toys were found to have sharp edges which could cause cuts, and realistic toy
cook-stoves were found which could burn children.

The food industry also came under fire. Questions were raised over the possible health hazards of
artificial coloring matter, of sweeteners, and of preservatives put into foods, Ecologists and
environmentalists joined in with their interest in reducing air and water pollution and in the
preservation of wildlife.

The point to these examples is that the design of the products and services is no longer a matter of an
organization's managers responding to the needs of the marketplace as they see them. They have to
manage within the framework of the other requirements that society imposes on them through
government regulations and pressures from consumer and environmental groups.

From a managerial point of view, there are two serious negative aspects to the consumer protection
movement.

1. Cost of complying with the regulations. Prices of automobiles increased because all the extras
required by emission and safety regulations. Electric companies spend many millions of money
for "scrubbers" to keep smoke out of the air. All of these costs are, of course, passed on to
consumers, and increase the cost of living.
2. Increase in lawsuits claiming damages from injuries from products and services which are
claimed to be faulty. These have multiplied in recent years, and juries and judges have been
awarding large claims which were not awarded before the consumer protection wave.

People don't get their brakes fixed and then have accidents from faulty brakes; they drive their cars too
fast or after drinking too much alcohol; they smoke in bed; they leave open bottles of aspirin around
children; they go away and leave electric iron tumed on; people ski in unsafe ways; people misuse a
product, or use it for purposes for which it was never intended, and then if it fails or injures them, they
blame the manufacturer or the server.

None of these acts of carelessness, however, excuse organizations from providing the safest product or
service that they can. In some case this means that cheaply made products will have to be discontinued
even if they are in demand since such products are likely to be dangerous in use. Thus, manufacturers
need to do their best to be sure that their products are safe to use, just as service people must try to
render good service.

ENVIRONMENTAL CONSIDERATIONS

The 1970s developed into a decade of concern over the impact of our industrialized nation upon our
environment. The 1970s also produced more widespread support for ecological and environmental
protective measures than in earlier years. These concerns also continue in the 1980s.
Everything comes at a cost, and sometimes two or more desirable goals conflict with each other. For
example, automobile engines which minimize harmful air pollutants use gasoline wastefully at a time
when we are trying to reduce gasoline consumption. "Scrubbers" on smokestacks to reduce air pollution
are costing electric utility companies (and subsequently their customers, the public) many millions of
money. Filtering equipment for cleaning liquid wastes is also costly. Cities, as well as companies, have to
spend large amount of money to meet new regulations. Furthermore, much of this extra activity
requires extra energy.

Undoubtedly, these socially desirable goals which conflict with resource scarcity will continue to have
important effects on the design of products and services. And again, the burden of achieving the goals
falls largely on production and operations managers in both industry and government.