DIPLOMA IN ENGINEERING

NOWGONG POLYTECHNIC
6TH SEMESTER
INDUSTRIAL MANAGEMENT & ENTREPRENEURSHIP – Hu – 601
UNIT 6 -PRODCTION MANAGEMENT

The term production refers to the process of creating goods or services using various resources
such as labour, raw materials, machinery, and technology. It involves transforming inputs into
finished products that can be used or sold in the market.

TYPES OF PRODUCTION:

1. Manufacturing Production – Making physical goods (e.g., cars, electronics,

furniture).
2. Service Production – Providing intangible services (e.g., healthcare, education,
banking).
3. Agricultural Production – Growing crops and raising livestock.
4. Construction Production – Building infrastructure (e.g., houses, roads, bridges).
5. Extraction Production – Mining and extracting natural resources (e.g., coal, oil,
minerals).

PRODUCTION MANAGEMENT
Production management is a branch of management that deals with the conversion of raw
materials into finished products. It ensures that the production process runs smoothly,
efficiently, and meets customer demands. The key objective is to produce goods in the right
quantity, at the right time, and at the right cost.

Here are some well-known definitions of Production Management from different experts and
sources:

1. William J. Stevenson
"Production management is the management of resources and activities that produce
goods and services in an efficient and cost-effective manner."
2. Joseph G. Monks
"Production management involves decision-making regarding the production function
to achieve organizational objectives in an efficient manner."
3. H.A. Harding
"Production management is the process of effectively planning and regulating
operations in an industrial unit to produce goods and services of the right quality, in
the right quantity, at the right time, and at minimum cost."
4. Peter F. Drucker
"Production management is a systematic approach to converting inputs into outputs
in an effective and efficient manner, focusing on productivity, quality, and cost
control."
OBJECTIVES OF PRODUCTION MANAGEMENT

The key objectives of production management revolve around optimizing resources,

minimizing costs, and ensuring quality and timely delivery. Below are the detailed objectives
of production management:

1. Ensuring Efficient Use of Resources

 Production management aims to utilize available resources (raw materials, labor,

machines, and capital) in the most efficient way.
 It minimizes waste and maximizes productivity, ensuring that production is cost-
effective.

2. Achieving Quality Standards

 One of the primary objectives is to produce goods and services that meet predefined
quality standards.
 Quality control techniques such as inspections, testing, and Six Sigma practices are
used to maintain consistency.

3. Reducing Production Costs

 Controlling costs is essential for profitability. Production management reduces

manufacturing costs by:
o Optimizing labor and machine usage
o Reducing material wastage
o Improving process efficiency
 Cost minimization helps in offering competitive pricing in the market.

4. Ensuring Timely Delivery of Products

 Customers expect products to be delivered on time. Delays can lead to loss of customer
trust and business.
 Production planning and scheduling help in meeting deadlines by organizing
production in a structured way.

5. Increasing Productivity and Efficiency

 Production management enhances productivity by improving workflows, reducing

downtime, and implementing automation where needed.
 Efficient production systems allow organizations to meet higher demand without
increasing costs significantly.

6. Adapting to Technological Advancements

 Staying updated with new production technologies is essential for maintaining

competitiveness.
 Production management focuses on incorporating automation, AI, robotics, and lean
manufacturing techniques to improve efficiency.
7. Managing Inventory Effectively

 Overstocking increases storage costs, while understocking leads to production delays.

 Production management ensures proper inventory control by maintaining an optimal
level of raw materials, work-in-progress, and finished goods.

8. Enhancing Flexibility in Production

 Markets and customer preferences change over time. Production management aims to
make production processes flexible enough to adapt to these changes.
 It helps in introducing new products, customizing existing products, and responding to
demand fluctuations.

9. Waste Reduction and Sustainability

 A key objective is to minimize waste by adopting sustainable production techniques

such as:
o Recycling materials
o Reducing energy consumption
o Implementing eco-friendly processes
 Sustainable production helps in cost savings and improves a company’s reputation.

10. Improving Workplace Safety and Employee Satisfaction

 Production management ensures safe working conditions by implementing proper

safety protocols and compliance with labor laws.
 Happy and well-trained employees contribute to better productivity and reduced errors.

11. Customer Satisfaction and Market Competitiveness

 Meeting customer demands with high-quality products at the right time enhances
customer satisfaction.
 This builds brand loyalty and keeps the company competitive in the market.

FUNCTIONS AND SCOPE OF PRODUCTION MANAGEMENT

1. Production Planning

 Objective: To decide what, how, when, and where to produce.

 Key Activities:
o Determining the type and quantity of products to be manufactured.
o Selecting the best production process (job, batch, mass, or continuous
production).
o Scheduling production activities to meet deadlines.
o Allocating resources such as manpower, machinery, and raw materials
efficiently

2. Production Control
  Objective: To monitor and regulate the production process to ensure efficiency and
minimize waste.
 Key Activities:
o Comparing actual production with planned targets.
o Identifying and correcting deviations in the process.
o Implementing corrective measures to avoid production delays and quality
issues.
o Using tools like Gantt charts and Production Control Systems for tracking
progress.

3. Quality Control and Assurance

 Objective: To ensure that the final product meets quality standards and customer
expectations.
 Key Activities:
o Conducting regular inspections and quality tests.
o Implementing quality control measures such as Six Sigma, Total Quality
Management (TQM), and ISO standards.
o Training employees on quality standards and best practices.
o Reducing defects and rework to maintain consistency in production.

4. Inventory and Material Management

 Objective: To manage raw materials, work-in-progress, and finished goods efficiently.

 Key Activities:
o Maintaining optimal inventory levels to avoid overstocking or shortages.
o Implementing inventory control techniques such as Just-in-Time (JIT) and
Economic Order Quantity (EOQ).
o Ensuring a smooth supply of materials for uninterrupted production.
o Reducing storage costs and material wastage.

5. Process and Technology Improvement

 Objective: To improve efficiency, reduce costs, and enhance productivity through

better technology and process optimization.
 Key Activities:
o Identifying and eliminating bottlenecks in production.
o Adopting modern manufacturing technologies such as automation, AI, and
robotics.
o Implementing Lean Manufacturing and Kaizen (Continuous Improvement)
techniques.
o Enhancing workflow efficiency to reduce downtime.

6. Cost Control and Budgeting

 Objective: To minimize production costs while maintaining quality.

 Key Activities:
o Monitoring production expenses (labor, raw materials, energy, and overheads).
o Identifying cost-saving opportunities without compromising quality.
o Setting budgets for production operations and ensuring adherence.
 o Analyzing cost per unit to determine profitability and pricing strategies.

7. Plant Layout and Facility Management

 Objective: To ensure optimal utilization of space, machinery, and infrastructure.

 Key Activities:
o Designing an efficient plant layout for smooth material flow and reduced
movement of workers.
o Maintaining machines and equipment to prevent breakdowns.
o Implementing workplace safety measures to protect workers.
o Ensuring compliance with environmental and industrial regulations.

8. Human Resource Management in Production

 Objective: To manage and optimize the workforce involved in production.

 Key Activities:
o Recruiting skilled workers and training them in production techniques.
o Assigning roles and responsibilities based on expertise.
o Motivating employees through incentives and performance rewards.
o Ensuring proper communication and coordination among production teams.

9. Maintenance and Equipment Management

 Objective: To keep machines and equipment in good working condition to avoid

downtime.
 Key Activities:
o Implementing preventive maintenance schedules for machinery.
o Repairing or replacing faulty equipment to maintain production flow.
o Reducing machine breakdowns to prevent production delays.
o Ensuring compliance with safety and operational standards.

10. Waste Management and Sustainability

 Objective: To minimize production waste and promote environmentally friendly

practices.
 Key Activities:
o Implementing waste reduction techniques such as recycling and reusing
materials.
o Reducing energy consumption in production processes.
o Complying with environmental regulations to ensure sustainable production.
o Implementing Green Manufacturing practices.

INTRODUCTION TO INVENTORY MANAGEMENT

Inventory management is the process of tracking, controlling, and optimizing a company's

stock of raw materials, work-in-progress (WIP), and finished goods. It ensures that a business
has the right quantity of items available at the right time while minimizing costs and preventing
stock shortages or excess inventory.

Effective inventory management helps businesses:

  Reduce storage costs.
 Improve production efficiency.
 Enhance customer satisfaction.
 Prevent product obsolescence and wastage.

TYPES OF INVENTORY

Inventory in a production or retail environment can be categorized into the following types:

a) Raw Materials Inventory

 Includes basic materials or components used in manufacturing products.

 Example: Steel for automobile manufacturing, cotton for textile production.

b) Work-in-Progress (WIP) Inventory

 Refers to partially finished goods that are still in the production process.
 Example: An unfinished car on the assembly line, dough being prepared in a bakery.

c) Finished Goods Inventory

 Completed products that are ready to be sold to customers.

 Example: Smartphones, packaged food, or clothing in a store.

d) Maintenance, Repair, and Operations (MRO) Inventory

 Includes tools, equipment, and supplies used in production but not part of the final
product.
 Example: Lubricants, spare machine parts, safety gloves.

e) Safety Stock Inventory

 Extra stock kept as a buffer to avoid shortages due to unexpected demand fluctuations.
 Example: Additional raw materials stored during peak seasons.

f) Decoupling Inventory

 Stock maintained between different production stages to prevent disruptions.

 Example: A shoe factory keeping extra leather ready before the stitching process
begins.

OBJECTIVES OF INVENTORY MANAGEMENT

a) Ensuring Uninterrupted Production

 Maintaining sufficient raw materials and WIP inventory to prevent delays in

manufacturing.

b) Minimizing Holding Costs

  Avoiding excessive inventory that increases storage, insurance, and depreciation costs.

c) Reducing Stockouts and Overstocking

 Preventing lost sales due to inventory shortages and avoiding excess stock that may
become obsolete.

d) Improving Order fulfilment and Customer Satisfaction

 Ensuring that finished goods are available to meet customer demand promptly.

e) Optimizing Inventory Turnover

 Balancing inventory levels to prevent waste while keeping up with demand

fluctuations.

INVENTORY MANAGEMENT TECHNIQUES

Several techniques help businesses maintain the right inventory levels efficiently.

a) Just-in-Time (JIT) Inventory

 Inventory is ordered and received only when needed, reducing storage costs.
 Used by companies like Toyota to minimize waste.
 Advantage: Low storage costs.
 Disadvantage: Risk of production stoppage if suppliers delay delivery.

b) Economic Order Quantity (EOQ)

 Determines the ideal order quantity that minimizes total inventory costs (ordering +
holding costs).
 Formula: EOQ= √2𝐷𝑆/𝐻
o D = Demand per year
o S = Ordering cost per order
o H = Holding cost per unit per year

c) ABC Analysis

 Categorizes inventory based on importance and value of the product in the overall
inventory:
o A: High-value items, low quantity (strict control needed).
o B: Moderate-value items, moderate quantity.
o C: Low-value items, high quantity (less control needed).

d) First-In, First-Out (FIFO)

 Oldest inventory is used and taken out first to prevent spoilage (important in food and
pharmaceutical industries).
e) Last-In, First-Out (LIFO)

 Newest inventory is used and taken out first (used in industries where prices are rising
to reduce taxable income).

f) Safety Stock Management

 Extra stock is maintained to prevent shortages during demand spikes in season of high
sales.

g) Reorder Point System

 The point at which new stock must be ordered to prevent running out of inventory.
 Formula: Reorder Point = (Daily Demand x Lead Time) + Safety Stock

h) Vendor-Managed Inventory (VMI)

 Suppliers monitor and replenish stock for the company, improving efficiency.
 Used by companies like Walmart and Amazon.

CHALLENGES IN INVENTORY MANAGEMENT

Even with efficient techniques, businesses face various inventory management challenges:

a) Demand Forecasting Issues -Incorrect demand predictions can lead to overstocking or

shortages, due to which it may lead to wastage in the first case and disruption in production in
the second case

b) Supply Chain Disruptions - Delays from suppliers can halt production which may hamper
the producer’s ability to meet the market demand.

c) High Holding Costs - Excess inventory increases costs related to storage, insurance, and
spoilage due to which overall expenditure increasing for a producer.

d) Inventory Shrinkage - Losses due to theft, damage, or mismanagement, thus, adversely

affecting the organisation and its profits.

e) Complex Product Lifecycles - Some products become obsolete quickly (e.g., smartphones,
fashion items), due to which it is very important to properly manage inventory.

f) Technological Adaptation - Many businesses struggle to implement automated inventory

tracking systems, still relying on manual methods, due to which chances of human error and
faulty forecasts increase.

IMPORTANCE OF INVENTORY MANAGEMENT

 Reduce costs by minimizing overstocking and understocking.

 Improve cash flow by optimizing inventory turnover, due to which the business’s
cashflow is never in disruption and always shows positive flow.
 Enhance production efficiency by ensuring a steady supply of materials, thus,
reducing wastage and encouraging optimum utilisation of resources.
 Increase customer satisfaction by ensuring timely order fulfilment, meeting the
market demand and building goodwill in the market.
 Maintain competitive advantage by preventing stock-related disruptions and always
being ahead of the competition.