BUSINESS FUNCTIONS

UNIT 5: PRODUCTION AND

OPERATIONS MANAGEMENT
FUNCTION
 5.1 Understanding production and
operations management

5.1.1 Production: Production is a scientific process which involves

transformation of raw material (input) into desired product or service (output)
by adding economic value. Production can broadly be categorized into
following based on technique:
Production through separation: It involves desired output is achieved

through separation or extraction from raw materials. A classic example of

separation or extraction is Oil into various fuel products.
Production by modification or improvement: It involves change in

chemical and mechanical parameters of the raw material without altering

physical attributes of the raw material. Annealing process (heating at high
temperatures and then cooling), is example of production by modification or
improvement.
Production by assembly: Car production and computer are example of

production by assembly.
 Production system

 A “Production System” is a system whose function is to transform an input into

a desired output by means of a process (the production process) and of resources.
The definition of a production system is thus based on four main elements: the
input, the resources, the production process and the output.
 Most of the organizations (including non-profit organization) can be described as
production systems. These organizations transform (or convert) a set of inputs
(such as materials, labour, equipment, energy etc.) in to one or useful outputs.
The outputs of a production system are normally called products. These products
may be:
 (a)Tangible goods (Steels,chemicals etc.)
 (b)Intangible services (Teaching,health care etc.)
 (c)combination of (a) and (b) (fast food,tailoring etc.)
 Production system refers to manufacturing subsystem that includes all functions
required to design, produce, distribute and service a manufactured product. So
this system produces goods and/or services on a continuous and/or batch basis
with or without profit as a primary objective.
Production is the basic activity of all organizations and all other activities revolve
around production activity. The output of production is the creation of goods and
services which satisfy the needs of the customers. In some organizations the
product is physical (tangible) good. For example, refrigerators, motor cars,
television, toothpaste etc., while in others it is a service (insurance, healthcare
etc.).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 (men, material, machines, information,

energy) to useful outputs (goods and/or services).

 Production system doesn’t oppose in isolation from the other organization system

such as marketing, finance etc.

 There exists a feedback about the activities which is essential to control and

improve system performance.

The transformation process involves many activities and operation necessary to
change inputs to output. These operations and activities can be mechanical,
chemical, inspection and control, material handling operation etc.
5.1.2 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.

 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. RIGHT QUALITY : 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. RIGHT QUANTITY : 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. RIGHT TIME: 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. RIGHT MANUFACTURING COST: 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.
 5.1.3 Methods of production
Methods of production are the following:
JOB SHOP PRODUCTION

 Job shop is appropriate for manufactures of small batches of many different

products, each of which is custom designed and requires its own unique set of
processing steps or routing through production process.
 The production system in which different types of product follow different

sequences through different shops. Ex. Furniture manufacturing company,

restaurant, prototype industry.
 Much time is spent waiting for access to equipment. Some equipment

overloaded.
 A process technology suitable for a variety of custom designed products in

some volume.
 This production system adopts process layout as by this production system

we manufacture more variety of products at low product volume.

 Characteristics

The Job-shop production system is followed when there is:

1. High variety of products and low volume.

2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge
because of uniqueness.

4. Large inventory of materials, tools, parts.

5. Detailed planning is essential for sequencing the requirements of each
product, capacities for each work centre and order priorities.
 Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products
can be produced.
2. Operators will become more skilled and competent, as each job gives
them learning opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.

 Following are the limitations of job shop production:

1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
 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 characterised by the manufacture of limited number of products
produced at regular intervals and stocked awaiting sales.

 Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. 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.
4. When manufacturing lead time and cost are lower as compared to job order
production.
Following are the advantages of batch production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.

Following are the limitations of batch production:

1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
 ASSEMBLY LINE (MASS) PRODUCTION
 This production system is justified by very large volume of production. The
machines are arranged in a line or product layout. Product and process
standardisation exists and all outputs follow the same path.

  A process technology suitable for a narrow range of standardized products

in high volumes.

  The successive units of output undergo the same sequence of operation

using specialized equipment usually positioned along a production line.

  The product variety is fixed here. Ex. Assembly of television sets, assembly
of auto, assembly of computer keyboard, cold drinks factory etc.
 Characteristics
Mass production is used under the following circumstances:
1. Standardisation of product and process sequence.
2. Dedicated special purpose machines having higher production
capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without
any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
 Following are the advantages of mass production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.

 Following are the limitations of mass production:

1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
 CONTINUOUS PRODUCTION
  A process technology suitable for producing a continuous flow of

products.
  The product is highly standardized.

  Material and products are produced in continuous, endless flows,

rather than in batches or discrete units.

  Continuous flow technology affords high volume, around-the clock

operation with capital intensive, specialized automation.

 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
Continuous production is used under the following
circumstances:
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final
product.
5. Planning and scheduling is a routine action.
 Following are the advantages of continuous production:
1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely
automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.

 Following are the limitations of continuous production:

1. Flexibility to accommodate and process number of products does not
exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.
 5.1.4 Operations management
 Operations Management
As to deliver value for customers in products and services, it is essential
for the company to do the following:
 Identify the customer needs and convert that into a specific product or
service (numbers of products required for specific period of time)
 Based on product requirement do back-ward working to identify raw
material requirements
 Engage internal and external vendors to create supply chain for raw
material and finished goods between vendor → production facility →
customers.

Operation managers are concerned with planning, organizing, and

controlling the activities which affect human behavior as follows:
 PLANNING
Activities that establishes a course of action and guide future decision-making
is planning. The operations manager defines the objectives for the
operations subsystem 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.

 ORGANIZING
Activities that establishes a structure of tasks and authority. Operation
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.
 CONTROLLING
Activities that assure the actual performance in accordance with planned
performance. To ensure that the plans for the operations subsystems are
accomplished, the operations 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.

 BEHAVIOUR
Operation managers are concerned with how their efforts to plan, organize,
and control affect human behaviour. They also want to know how the
behaviour of subordinates can affect management’s planning, organizing,
and controlling actions. Their interest lies in decision- making behaviour.
 5.1.5 Objectives of operations management

Objectives of operations management can be categorised into customer

service and resource utilisation.

 CUSTOMER SERVICE

The first objective of operating systems is the customer serivce to the

satisfaction of customer wants. Therefore, customer service is a key
objective of operations management. The operating system must provide
something to a specification which can satisfy the customer in terms of cost
and timing. Thus, primary objective can be satisfied by providing the ‘right
thing at a right price at the right time’.
 RESOURCE UTILISATION
 Another major objective of operating systems is to utilise resources for
the satisfaction of customer wants effectively, i.e., customer service
must be provided with the achievement of effective operations through
efficient use of resources. Inefficient use of resources or inadequate
customer service leads to commercial failure of an operating system.

 Operations management is concerned essentially with the utilisation of

resources, i.e., obtaining maximum effect from resources or minimising
their loss, under utilisation or waste. The extent of the utilisation of the
resources’ potential might be expressed in terms of the proportion of
available time used or occupied, space utilisation, levels of activity, etc.
 5.2 Production efficiency

 Every manufacturer needs to make effective use of their

assets. The investment in production capacity is often
significant. Think about how much it costs to set up a
factory; the production line with all its machinery and
technology.

 Another good way to look at how efficiently a business

operates is to look at “productivity”. Productivity measures
the relationship between inputs into the production process
and the resultant outputs.
What is Production Efficiency?

Production efficiency is when a company cannot increase the output of a

specific good without increasing costs or lowering the production level of
another product.
This is when a business is operating along its production possibility frontier

given existing resources. When production efficiency is achieved, a product

is created at a low average total cost.
Ultimately, production efficiency measures whether a company is
producing the largest amount of goods possible without wasting resources.
Sustaining production efficiency is important for manufacturing companies
to ensure they’re producing an optimal amount of goods.
 Productivity can be measured in several ways:
• Output per worker or hour of labor
• Output per hour / day / week
• Output per machine
• Unit costs (total costs divided by total output)
The unit cost measure is particularly important. A falling ratio would indicate that
efficiency was improving.
 Why is achieving high productivity important?
 Most importantly, a more efficient factory will produce lower cost goods than
competitors. That means the business can either make a higher profit per unit
sold (assuming that the product is sold for the same price as a competitor) or the
business can offer customers a lower price than competitors (and still make a
good profit) thus increasing volume.

 Investing in production assets (e.g. equipment, factory buildings) is expensive

therefore a manufacturer must maximize the return it makes on these assets.