MODULE 2

Concepts of Production Management and Operations Management

INTRODUCTION

Production and Operation Management deals with the creation of goods and services
through the application of the business concept. They are also vital in both service and
manufacturing firms. Production and Operation Management has a primary objective, which is
to employ the company’s resources to produce goods and services fit for the market. This post
highlights the definitions, importance, and function of management concepts.

OBJECTIVES

At the end of this module, students are expected to;

1. Understand the concept of production managements and operations management.

2. Differentiate the classifications of production systems.
3. Understand the different scope of operations management.
1. CONCEPT OF PRODUCTION
1.1. Production System
The production system of an organization is that part, which produces products of an
organization. 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.
The production system has the following characteristics:
 Production is an organized activity, so every production system has an objective.
 The system transforms the various inputs to useful outputs.
 It does not operate in isolation from the other organization system.
 There exists a feedback about the activities, which is essential to control and
improve system performance.
1.1.1. Classification of Production Systems
Production systems can be classified as Job-Shop, Batch, Mass and Continuous
Production systems.
Figure 2.1 Production Systems
Production/ Continuous
Operations Mass Production
Batch
Job-Shop
Output/Product Variety
1.1.1.1. Job Shop Production

Job-shop Production are characterized 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 compromises of general purpose machines arranged into different
departments. Each job demands unique technological requirements, demands processing on
machines in a certain sequence.

Characteristics
a. High variety of products and low volume.
b. Use of general purpose machines and facilities.
c. Highly skilled operators who can take up each job as a challenge because of
uniqueness.
d. Large inventory of materials, tools, parts.
e. Detailed planning is essential for sequencing the requirements of each product,
capacities for each work centre and order priorities.
Advantages

a. Because of general purpose machines and facilities variety of products can be

produced.
b. Operators will become more skilled and competent, as each job gives them learning
opportunities.
c. Full potential of operators can be utilized.
d. Opportunity exists for creative method and innovative ideas.

Limitations
a. Higher cost due to frequent set up changes.
b. Higher level of inventory at all levels and hence higher inventory cost.
c. Production planning is complicated.
d. Large space requirement.

1.1.1.2. Batch Production

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 characterized
by the manufacture of limited number of products produced at regular intervals and stocked
awaiting sales.
Characteristics
a. When there is shorter production runs.
b. When plant and machinery are flexible.
c. 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.
d. When manufacturing lead time and cost are lower as compared to job order
production.

Advantages
a. Better utilization of plant and machinery.
b. Promotes functional specialization.
c. Cost per unit is lower as compared to job order production.
d. Lower investment in plant and machinery.
e. Flexibility to accommodate and process number of products.
f. Job satisfaction exists for operators.
Limitations
a. Material handling is complex because of irregular and longer flows.
b. Production planning and control is complex.
c. Work in process inventory is higher compared to continuous production.
d. Higher set up costs due to frequent changes in set up.

1.1.1.3. Mass Production

Manufacture of discrete parts or assemblies using a continuous process are called mass
production. This production is justified by very large volume or production. The machines are
arranged in a line or product layout. Product and process standardization exists and all
outputs follow the same path.

Characteristics
a. Standardization of product and process sequence.
b. Dedicated special purpose machines having higher production capacities and output
rates.
c. Large volume of products.
d. Shorter cycle time of production.
e. Lower in process inventory.
f. Perfectly balanced production lines.
g. Flow of materials, components and parts is continuous and without any back tracking.
h. Production planning and control is easy.
i. Material handling can be completely automatic.
Advantages
a. Higher rate of production with reduced cycle time.
 b. Higher capacity utilization due to line balancing.
c. Less skilled operators are required.
d. Low process inventory.
e. Manufacturing cost per unit is low.

Limitations
a. Breakdown of one machine will stop an entire production line.
b. Line layout needs major change with the changes in the product design.
c. High investment in production facilities.
d. The cycle time is determined by the slowest production.

1.1.1.4. Continuous Production

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.

Characteristics
a. Dedicated plant and equipment with zero flexibility.
b. Material handling is fully automated.
c. Process follows a predetermined sequence of operations.
d. Components material cannot be readily identified with final product.
e. Planning and scheduling is a routine action.

Advantages
a. Standardization of product and process sequence.
b. Higher rate of production with reduced cycle time.
c. Higher capacity utilization due to line balancing.
d. Manpower is not required for material handling as it is completely automatic.
e. Person with limited skills can be used on production line.
f. Unit cost is lower due to high volume production.

Limitations
a. Flexibility to accommodate and process number of products does not exist.
b. Very high investment for setting flow lines.
c. Product differentiation is limited.

1.2. Production Function

Production function is that part of an organization, which is concerned with the
transformation of a range of inputs into the required outputs (products) having the requisite
quality level.
Production is defined as:
 The “step-by-step” conversion of one form or material into another form through
chemical or mechanical process to create or enhance the utility of the product to the user.
 Production is a value addition process. At each stage of processing, there will be value
addition.
 A process by which goods and services are created.
Examples of production:
 Manufacturing Custom-Made Products (boilers with a specific capacity, constructing
flats, some structural fabrication works for selected customers, etc.)
 Manufacturing Standardized Products (car, bus, motor cycle, radio, television etc.)
Figure 2.1 Schematic Production System

Inputs: Transformation Process: Outputs:

 Men  Product Design  Products
 Materials  Process Planning  Services
 Machines  Production Control
 Information  Maintenance

Continuous:
 Inventory
Environme  Quality Feedback
nt  Cost Information

2. CONCEPTS OF OPERATIONS

An operation is defined in terms of the mission it serves for the organization, technology
it employs and the human and managerial processes it involves. Operations in an organization
can be categorized into manufacturing operations and service operations.

2.1. Operating System

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 organization the
product is a physical good (hotels) while in others it is a service (hospital). Bus and taxi services,
tailors, hospital and builders are the example of an operating system. An Operating system
function of an organization is the part of organization that produces the organization’s physical
goods and services. An Operating system is a configuration of resources combined for the
provision of goods and services.
2.2. Difference Between Manufacturing Operations and Service Operations
Manufacturing operations and service operations are often different in terms of what
is done but quite similar in terms of how it is done. Consider these points of comparison:
 a. Degree of customer contact. Many services involve a high degree of customer
contact, although services such as Internet providers, utilities, and mail service do not.
When there is a high degree of contact, the interaction between server and customer
becomes a “moment of truth” that will be judged by the customer every time the service
occurs.
b. Labor content of jobs. Services often have a higher degree of labor content than
manufacturing jobs do, although automated services are an exception. Uniformity of
inputs. Service operations are often subject to a higher degree of variability of inputs.
Each client, patient, customer, repair job, and so on presents a somewhat unique situation
that requires assessment and flexibility. Conversely, manufacturing operations often
have a greater ability to control the variability of inputs, which leads to more-uniform
job requirements. Measurement of productivity.
c. Measurement of productivity can be more difficult for service jobs due largely to the
high variations of inputs. Thus, one doctor might have a higher level of routine cases to
deal with, while another might have more-difficult cases. Unless a careful analysis is
conducted, it may appear that the doctor with the difficult cases has a much lower
productivity than the one with the routine cases.
d. Quality assurance. Quality assurance is usually more challenging for services due to
the higher variation in input, and because delivery and consumption occur at the
same time. Unlike manufacturing, which typically occurs away from the customer and
allows mistakes that are identified to be corrected, services have less opportunity to
avoid exposing the customer to mistakes.
e. Inventory. Many services tend to involve less use of inventory than manufacturing
operations, so the costs of having inventory on hand are lower than they are for
manufacturing. However, unlike manufactured goods, services cannot be stored.
Instead, they must be provided “on demand.”
f. Wages. Manufacturing jobs are often well paid, and have less wage variation than
service jobs, which can range from highly paid professional services to minimum-
wage workers.
g. Ability to patent. Product designs are often easier to patent than service designs, and
some services cannot be patented, making them easier for competitors to copy.

2.3. Operation Functions

Managing operations can be closed in a frame of general management function.

Operations managers are concerned with planning, organizing, and controlling the activities
which affect human behaviour through models.
 Planning
Planning Conversion System
 Operations strategies
 Forecasting
 Product and process Organizing
choices Organizing for Conversion
 Operations capacity  Job design,
 Facility location planning production/operations
 Layout planning  Project management
Scheduling Conversion System
 Scheduling system and
aggregate planning
 Operations scheduling

Conversion
Process

Models
Behaviour
Controlling
Material Control
 Inventory control
 Material requirement
planning
Managing for World-class
Competition
 Managing for quality
 Quality analysis and
control

Figure 2.3 General Model of Operations Management

a. Planning - Activities that establishes a course of action and guide future decision-
making is planning. The operations manager defines the objectives for the operations
subsystems of the organization, and the policies, and procedures for achieving the
objectives. This stage includes clarifying the role and focus of operations in the
 organization’s overall strategy. It also involves product planning, facility designing and
using the conversion process.
b. Organizing – Activities that establishes a structure of tasks and authority. Operations
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.
c. Controlling – Activities that assure the actual performance in accordance with planned
performance. To ensure that the plans for the operations subsystems are accomplished,
the operation 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.