Production and Operations Management Basics

Lesson Outcomes

 Identify the production and operations framework of a business organization.

 Examine the transformation process in a business operation and how they relate to business
analysis.
 Understand the role of production and operations managers in formulating business
strategies.

Lesson Introduction

A product or service is the primary object of consumer interest in a market. The need- and want-
satisfying capacity of an item determines its value as a product or service. While most products are
created for an identified need or want, some products are developed for a need or want that is yet
to exist. The process and systems that convert raw materials to another product are the core of
production and operations management. Production and operations management involves the
major areas of production planning and control, project management, supply chain management,
and inventory management. Production and operations management finds its value in connecting
consumer demands and the capacity of business enterprises to provide such demands through the
use and combination of various economic resources.

Production and operations management identifies the process that transforms raw materials to
finished products, and the series of processes that convert to a service. During production and
operation, other types of utilities are formed. These are place, time, form, service, and knowledge
utilities. Place utility happens when there is a change from the place of availability to the place of
use through transportation. For example, transporting harvested rice to the brewery for rice wine
production. Time utility happens when the input or the output is stored as part of the utilization
process of the consumers. An example would be imported meat products in cold storage. Form
utility happens when inputs change in size, weight, color, shape, or all at the same time as it
converts into a consumer product. An example would be converting the fiber of a pineapple fruit to
fabric and then to a ready- to-wear dress. Service utility happens when service is rendered to a client
either directly or indirectly. An example would be healthcare professionals to COVID-19 patients, or
computer graphic designers to online buyers.

Knowledge utility happens when information is imparted to customers through presentations in the
form of advertisements. An example would be giving information about a vitamin’s ingredients and
health benefits through the product’s television advertisement. Production management
encompasses production planning and development, production administration, implementation
function and other allied activities such as standardization, simplification, specialization, quality
control, and research and development. Production system on the other hand deals with the
functions of converting inputs to output using processes, on demand forecasting, and on
manufacturing control.
Lesson Objectives

After this lesson, students are expected to:

 determine what goes in the creation of a product or service,

 identify the scope of production and operations management;
 distinguish the types and systems of production;
 explain the benefits of production and operations management; and
 integrate production and operations management in the bigger strategic business analysis.

Lesson Presentation
Production process refers to manufacturing activities that result in either semi- finished product,
finished product, or a by-product. Operations process refers to activities that result in the availability
of a complete service or an allied service. Production and operations management is the application
of the management functions of planning, organizing, directing, and controlling in the process of
manufacturing goods or in the provision of a service. Regardless of the type of product or service,
the activities that happen in the creation of goods are in many ways similar. A set of inputs would
undergo a process to create outputs. This process is in the form of manufacturing operation,
assembly of parts, finishing of parts, and inspection of quality and quantity, In between these
processes is the movement and storage of raw materials, unfinished goods, and finished products.

Organizations are designed mainly to produce products or services. If these organizations must
survive and grow, the operations function must be undertaken in the most economical manner
possible. As most companies are expected to make profits, any activity, including those for
operations, must be managed to contribute to the accomplishment of such objectives.

Production is about the creation of all goods and services, regardless of type or kind. Meanwhile,
operations refer to any process that accepts inputs and uses resources to change those inputs in
useful ways. Both production management and operations management play an important role in an
organization in increasing efficiency and productivity. While operations management is focused
upon administration, planning, and execution of operations involved in production of goods and
services and trying to minimize the resources, at the same time increasing output, operations
management is more concerned with input/output and churning out products in the shape of
desired finished product.

Production Management deals with planning, control, and decision making necessary for carrying
out the production process. Defined as the design, operation, and improvement of the systems that
create and deliver the firm’s primary products and services.

Foremost in production and operations management, is the twin issue of effectiveness and
efficiency. Effectiveness refers to goal achievement, whereas efficiency is related to the cost
resource utilization involved in the production and operation activity. System provides an efficient
and effective framework of activities necessary to attain an objective. It is a dynamic arrangement of
elements, each designed to interact with the other, and thus it is more than just a static
combination. Element consists of men, materials, machines, process, and information network
designed and located to interact harmoniously.
In production and operations management, emphasis is also given to the attainment of right quality,
which is based upon the Customer’s needs. The right quality is not necessarily the best quality. It is
determined by the cost of the product and the technical characteristics as suited to the specific
requirements. Likewise, having the right quantity is also important, emphasizing that the
manufacturing organization should produce the products in the right number. If they are produced
more than 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.

In a similar vein, producing within the right time is also an important parameter to judge the
effectiveness of a production department, which must aim to make the optimal utilization of input
resources to achieve its objective. Finally, the right manufacturing cost must be established before
the product is manufactured. Hence, all attempts should be made to produce the products at pre-
established cost to reduce the variation between actual and the standard pre-established cost.

It is also in production and operations management that the location of facilities is given important
consideration. Location of facilities for operations is a long-term capacity decision, which involves a
long-term commitment about geographically related factors that affect a business organization. The
purpose of the manufacturing location study is to find the optimal location that will result in the
greatest advantage to the organization.

Layout decisions include the capacity of the organization to make substantial investment in money
and effort, its commitment to maintain, the facility, and a full evaluation of cost efficiency to the
operations. Some of the more practical reasons behind modifications in an organization’s decision
for its operations layout are shown in the diagram below:

inefficient operations

accidents or safety hazards

changes in the design of products or services

changes in the volume of output

changes in the methods or equipment

changes in environmental requirement

changes in legal requirement

morale problem

Productivity is the aim in production and operations management. The efficient combination of land,
labor, capital, and management to optimally produce goods and services determines the level of
operational productivity. Before an enterprise is organized, product design is decided.
Having a single product creates a more focused posture on production and operations management,
and the single product success can be the springboard for developing a whole product line in the
future. The design of the product remains to be a critical decision for a business owner. The
uniqueness of a product or service determines its market success. Similarly, product design is
dynamic in the context of changes in consumer preferences, economic situation, sociological and
demographic factors, as well as political and legal challenges.

Product design deals with conversion of ideas into reality, and every business organization must
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.
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.

Production processes can be classified in three categories, flow production, batch production, or unit
production. Flow production, which is also referred to as mass production, denotes a production
process that runs in sequence. This type of production process is suitable for high demand goods,
where a steady flow of operation is necessary. Quality control can be ensured in the type of raw
materials used in the manufacturing system before the final product is brought out of the
manufacturing facility. Batch production divides production output in component parts. In this
category, the whole production process is divided in parts, with the unfinished product in the form
of various finished parts. Batch production is applicable for a product that uses different machines
and tools depending on the parts to create. Quality can be checked at every batch production, and
production parts can be made available at another functional area. Unit production happens when
production is made according to when the customer specifically requires it. Production processes of
this nature follow a standard, quality, and specification in size, weight, form, color, and packaging.
This type of production process is best used for products that do not require repetitive steps, nor
has high demand. Its cost concerns also limit its use.

Production planning and control is about implementing plans in terms of job schedule, machine
appropriation, and actual workflow. As production requires the successful conversion of raw
materials to finished products whether in parts or as a whole, the role of a production manager
becomes critical. The production manager ensures that the process is rolled out as planned in
accordance to earlier decisions on what, how, and when to produce. Similarly, plans are to be
carried out with the optimum cost efficiency and utmost quality standard. The control functionality
can be seen in producing better quality products at the best reasonable price within the most
systematic manner. Planning in production is in foreseeing probable glitches in the production
process and finding remedies for their early solution. A well-oiled production planning and control
system ensures that production schedules met, that materials, men, and machines are efficiently
maintained and optimally functioning, that the production process is well integrated for efficiency
and economy and that workload is regulated.

A production planning and control system is created with the aim of maximizing the use of economic
inputs, determining the requirements of production in men, machines, and materials, and ensuring
that production is done at the right time with the right quantity and quality. The availability of
products in accordance with the requirements of the marketing department of an organization is
also ensured in production planning and control, in as much as adequacy of stocks is monitored for
contingencies and information is gathered to guide in policy and future decision-making.

The scope of production planning and control encompasses those that concern production
materials, manpower, methods, machines and equipment, routing of work, establishment and
estimation of work standards, leading and scheduling, dispatching, expediting, inspection,
evaluation, and cost control. Challenges in production planning and control would be how to
combine functions, how to follow-up on production backlogs, and when to proceed with a re-
planning.

Production planning and control varies depending on products, manufacturing facilities and
organizational nuances. The best type of production is one that requires little or no control at all. As
a management tool, controls need not be elaborate and complex but simple enough yet able to
create an efficient operation of optimal production at the least cost.

Project management evolved from Henry Gantt’s famous Gantt chart and Henri Fayol’s Five
Management Functions of planning, organizing, commanding, coordinating, and controlling. A
project is an organized initiative that has a concept phase, a project initiation phase, planning,
execution, monitoring and control, and a project closure. While it may appear to be overwhelming
to an inexperience individual, project management systems are meant to simplify and break down
milestones for time and resource use efficiency. A good knowledge of project management
presupposes an appreciation of work integration, scope, time, cost, quality, procurement, human
resource needs, communication and its channels, risk, and stakeholder management.

Supply chain management is the management of a network of business activities and processes that
includes procurement, manufacturing, transportation of finished goods, warehousing, distribution,
and inventory management. With a global business scenario, the expanse of supply chain
management is magnified and characterized by geographically distinct markets, by diversely
obtained raw materials, by more efficient manufacturing and procurement processes elsewhere,
and by cheaper labor markets abroad.

Supply chain management involves a broad function that sees planning, design, control, and
implementation of processes related to procurement, manufacturing, distribution, and sales
functions of an enterprise. The network of service providers of the supply chain process, called
vendors, are efficiently coordinated and integrated by supply chain managers to ensure that
production and distribution and all other activities in between will not be vulnerable to the risks of
distance and time. Not to be confused with simple logistics, supply chain management goes beyond
the management of the flow of goods as it also deals with securing and exchanging information,
data, and documents between transacting parties. Logistics acts as the post-procurement function of
delivering raw materials from the source to the production plant, and the transportation of finished
goods from the production to the various points of distribution.

Warehouse management completes the logistics process in ensuring the security and safety of
goods, finished or unfinished, at any stage of raw materials procurement, production, and
distribution. Normally outsourced, or performed by a third party, the value of warehousing activities
and companies would be in the extent of their reach and multi-location presence, especially when
one speaks of global production and distribution.

Production and operations management is continuously influenced by an ever-changing global

environment and must therefore adjust to the challenges, trends, and developments in this area.
Adaptation to the global context, in entering in supply chain partnerships, in just-in-time
performance and real-time monitoring, to mass production and customization, to bespoke trends,
and rapid product development and high valued and diverse workforce, production and operations
management will remain a dynamic area that is worthy of focus in doing strategic business analysis.