MANAGEMENT

OF BUSINESS
UNIT 2: APPLICATIONS IN MANAGEMENT
MODULE 1: PRODUCTION AND OPERATIONS
MANAGEMENT
OBJECTIVES

Nature of Production

1. Describe the major decisions involved in the production process;

THE PRODUCTION PROCESS
• The production process involves three key decision areas: Input Decisions,
Conversion Decisions, and Output Decisions.
• (a) Input Decisions
• Input decisions focus on selecting the resources and systems that are needed
to initiate the production process.
• Factors of Production:
• Land: All natural resources used in production, such as raw materials, energy, and
water.
• Labor: Human resources, including workers and their skills, knowledge, and expertise.
• Capital: Financial and physical resources (machinery, technology, tools, etc.) needed
for production.
• Entrepreneurship: The vision and innovation to organize and manage the other
factors of production to create goods and services.
 THE PRODUCTION PROCESS
• Location of Production: CONT’D
• The decision on where to locate production facilities is crucial for
operational efficiency and cost-effectiveness. Factors influencing
location include:
• Proximity to suppliers and customers.
• Labor availability and skill levels.
• Transportation costs (e.g., ease of access to raw materials and
finished goods).
• Government regulations, incentives, and taxes.
• Infrastructure (e.g., utilities, technology, and communication
networks).
 THE PRODUCTION PROCESS
• Forecasting: CONT’D
• Forecasting involves predicting future demand for products and services. This
helps businesses plan the amount of resources needed for production and
adjust to changing market conditions.
• Quantitative Forecasting: Based on historical data (e.g., time-series
analysis).
• Qualitative Forecasting: Based on expert judgment or consumer opinions
(e.g., Delphi method, sales force composite).
• Quality Assurance:
• Ensuring that the production process consistently delivers products that meet
required standards. This involves setting quality standards, procedures, and
inspections to prevent defects and meet customer expectations.
 THE PRODUCTION PROCESS
• (b) Conversion Decisions CONT’D
• Conversion decisions involve how the input resources are
transformed into finished products or services.
• Production Methods:
• The choice of method for transforming raw materials into finished products
impacts cost, quality, and efficiency. Common methods include:
• Job Production: Custom products made in small batches or individually.
• Batch Production: A set quantity of products is made before switching to another batch.
• Flow Production: Continuous production of standardized products, often used in mass
production (e.g., assembly lines).
 THE PRODUCTION PROCESS
• Production Layout: CONT’D
• The physical arrangement of production resources affects efficiency and
workflow. Different layout types include:
• Process Layout: Resources are grouped by function (e.g., all machines together), best for
job production.
• Product Layout: Resources are arranged based on the production process sequence,
ideal for flow production.
• Fixed-Position Layout: The product stays in one location, and resources are brought to it.
This is used for large or bulky products (e.g., shipbuilding).
• Cellular Layout: Machines and workers are grouped into cells that produce a range of
similar products.
 THE PRODUCTION PROCESS
• Capacity Planning: CONT’D
• Capacity planning is about determining the production capacity needed to
meet demand. It involves:
• Design Capacity: The maximum output under ideal conditions.
• Effective Capacity: The actual output considering real-world factors.
• Capacity Utilization: The ratio of actual output to design capacity, used to assess
efficiency.
• Methods to Improve Capacity Utilization: Enhancing processes, upgrading equipment,
or adjusting workforce schedules.
 THE PRODUCTION PROCESS
• Quality Control: CONT’D
• The process of monitoring and controlling product quality during the
production process. It involves:
• Inspections at various stages of production.
• Testing for compliance with quality standards.
• Statistical Process Control to detect deviations from desired quality levels.
• Quality Assurance:
• A proactive approach to ensure product quality by integrating quality checks
into every step of the production process. This includes training workers,
ensuring proper materials are used, and monitoring procedures.
 THE PRODUCTION PROCESS
• Productivity Decisions: CONT’D
• Increasing productivity is a critical decision for efficiency. This can be achieved
by:
• Improving Worker Skills: Training programs.
• Adopting Technology: Automation and advanced machinery.
• Optimizing Processes: Streamlining workflows and reducing waste
 THE PRODUCTION PROCESS
(c) Output Decisions CONT’D
• Output decisions involve managing the finished goods and services
once they have been produced.
• Quality Control (Post-Production):
• Even after the production process, quality control continues with
the final inspection of finished goods to ensure they meet
customer expectations and regulatory standards. Methods include:
• Final Product Inspections.
• Statistical Sampling: Randomly testing batches of products.
 THE PRODUCTION PROCESS
• Inventory Management: CONT’D
• Managing the raw materials, work-in-progress, and finished goods
inventories efficiently is essential to avoid both stockouts and
excess inventory. Techniques include:
• Reorder Level: The stock level at which a new order is placed to
avoid running out of stock.
• Economic Order Quantity (EOQ): The optimal order quantity
that minimizes total inventory costs, considering ordering and
holding costs.
• Just-In-Time (JIT): A strategy where inventory is only ordered as
it is needed in the production process, reducing storage costs.
 THE PRODUCTION PROCESS
• Distribution and Logistics:CONT’D
• The process of getting finished products from the production
facility to the end consumer involves managing:
• Warehousing: Storing goods before they are shipped to
customers.
• Transportation: The movement of goods through various
channels (e.g., road, rail, air).
• Logistical Support: Tracking and ensuring that the products
arrive on time and in good condition.
 THE PRODUCTION PROCESS
CONT’D
• The Input-Conversion-Output Process
• Input Decisions: Involves sourcing and selecting the necessary
resources and systems (factors of production, location, forecasting,
and quality assurance).
• Conversion Decisions: Focuses on how to transform inputs into
finished goods or services (production methods, layout, capacity
planning, quality control, and productivity).
• Output Decisions: Concerned with managing the end results of
production (quality control, inventory management, and distribution
logistics).
 THE PRODUCTION PROCESS
CONT’D
• The Input-Conversion-Output Process
• Input Decisions: Involves sourcing and selecting the necessary
resources and systems (factors of production, location, forecasting,
and quality assurance).
• Conversion Decisions: Focuses on how to transform inputs into
finished goods or services (production methods, layout, capacity
planning, quality control, and productivity).
• Output Decisions: Concerned with managing the end results of
production (quality control, inventory management, and distribution
logistics).
FORECASTING TECHNIQUES
• Social entrepreneurship refers to the initiation
of a combination of innovations to address a
problem in society. It is also seen as the
employment of entrepreneurial principles,
processes and operations to address social
problems or to achieve a social change.
FORECASTING TECHNIQUES
• Forecasting refers to the process of making
predictions about future events or trends based on
historical data or expert judgment. In business,
accurate forecasting helps organizations plan and
allocate resources effectively, manage inventory, set
production levels, and make informed financial
decisions. Forecasting techniques can be broadly
classified into two categories: Quantitative and
Qualitative.
FORECASTING TECHNIQUES
• (a) Quantitative Forecasting Techniques
• Quantitative forecasting uses historical data and statistical methods to
predict future trends. These methods are objective and based on
numerical data.
FORECASTING TECHNIQUES
• (i) Time Series Analysis
• Definition: Time series analysis involves
analyzing historical data to identify patterns
or trends over a specified period. It assumes
that future values of a variable can be
predicted based on past values.
FORECASTING TECHNIQUES
• Time series data consists of observations collected sequentially over
time (e.g., daily, monthly, yearly).
• The key objective is to identify trends, seasonal variations, cyclical
movements, and irregular fluctuations.
• Key components of time series include:
• Trend: The long-term movement in data (e.g., upward or downward).
• Seasonality: Regular and predictable variations that occur at specific intervals
(e.g., annual, quarterly).
• Cyclical Patterns: Long-term fluctuations that are not as predictable as
seasonality.
• Irregular Components: Unpredictable or random variations (e.g., natural
disasters, economic shocks)
FORECASTING TECHNIQUES
• Advantages:
• Provides a structured, data-driven approach to forecasting.
• Useful for predicting demand and sales in stable environments.
• Helps identify long-term trends and seasonal patterns.
• Disadvantages:
• Relies heavily on historical data, which may not always reflect future
conditions.
• Time series data may not be applicable in rapidly changing
environments or during periods of economic disruption.
• Assumes that past patterns will continue, which may not always be
the case.
 FORECASTING TECHNIQUES
• (ii) Consumer Surveys
• Definition: Consumer surveys involve collecting data directly from
consumers about their future purchasing intentions, preferences, or
behaviors. This qualitative input is then analyzed to make predictions
about future demand.
FORECASTING TECHNIQUES
• (ii) Consumer Surveys
• Definition: Consumer surveys involve collecting data directly from
consumers about their future purchasing intentions, preferences, or
behaviors. This qualitative input is then analyzed to make predictions
about future demand.
FORECASTING TECHNIQUES
• Description:
• Surveys can be conducted through interviews, online questionnaires,
focus groups, or direct observations.
• Questions in the survey often inquire about future product
preferences, purchase intentions, or attitudes towards certain brands
or services.
• Data from consumer surveys can be used to assess demand levels for
new products or to gauge consumer sentiment.
FORECASTING TECHNIQUES
• Advantages:
• Provides direct insights from consumers about future demand and
preferences.
• Useful for forecasting demand for new or seasonal products.
• Allows businesses to anticipate market shifts and changes in
consumer behavior.
• Disadvantages:
• Responses may be biased or inaccurate due to respondents'
uncertainty about their future behavior.
• Survey results can be affected by poor sampling methods or a non-
representative sample.
• Time-consuming and costly to administer, if the sample size is large.
FORECASTING TECHNIQUES
• (b) Qualitative Forecasting Techniques
• Qualitative forecasting relies on expert
judgment, intuition, and subjective analysis.
These techniques are especially useful when
there is limited historical data or in
situations where the future is uncertain .
FORECASTING TECHNIQUES
• (i) Sales Force Composite
• Definition: The sales force composite technique
involves gathering forecasts from sales
representatives who are familiar with customer
needs and market conditions. Each salesperson
provides their estimate of future sales based on
their interactions with clients.
FORECASTING TECHNIQUES
• Description:
• Salespeople are asked to forecast demand for products in their
respective territories or regions.
• These individual estimates are then aggregated to form a company-
wide forecast.
• The method capitalizes on the knowledge and experience of
salespeople who are directly involved in the market.
 FORECASTING TECHNIQUES
• Advantages:
• Salespeople are typically close to customers and have valuable insights into
future demand.
• Provides a more realistic forecast, especially in industries where customer
needs fluctuate.
• Low cost and relatively simple to implement.
• Disadvantages:
• Sales forecasts may be influenced by personal biases or optimistic projections.
• Sales representatives may overestimate or underestimate demand based on
their individual perspectives.
• The accuracy of the forecast depends on the skill and experience of the sales
force.
FORECASTING TECHNIQUES
• (ii) Delphi Method
• Definition: The Delphi method is a structured, iterative process that
gathers expert opinions to generate a forecast. Experts provide their
views anonymously, and after each round of feedback, the responses
are summarized and sent back to the participants for further
refinement.
FORECASTING TECHNIQUES
• Description:
• A panel of experts in the relevant field is chosen to participate in the
forecasting process.
• Experts answer questions or provide estimates in several rounds, with
feedback given after each round.
• The process continues until a consensus is reached or until the
forecast stabilizes.
FORECASTING TECHNIQUES
• Advantages:
• Anonymity helps reduce groupthink and biases from dominant
personalities.
• Experts' judgments are aggregated, leading to a more balanced and
accurate forecast.
• Useful for forecasting in areas where there is little historical data or in
highly uncertain environments.
FORECASTING TECHNIQUES
• Disadvantages:
• Time-consuming as it involves multiple rounds of feedback.
• Expensive if a large panel of experts is required.
• The method can be less effective if the experts do not agree on key
assumptions or data inputs.
FORECASTING TECHNIQUES
• (iii) Jury of Experts
• Definition: The jury of experts method involves soliciting the opinions
of a group of knowledgeable individuals (e.g., managers, industry
professionals, or consultants) to make a collective judgment about
future events or trends.
FORECASTING TECHNIQUES
• Description:
• Experts provide their individual forecasts or opinions based on their
experience and knowledge of the industry.
• These opinions are then combined to form a group estimate or
forecast.
• The group might reach a consensus through discussion or by simply
aggregating the individual opinions.
FORECASTING TECHNIQUES
• Advantages:
• Experts bring specialized knowledge and insights to the forecasting
process.
• Effective for forecasting in areas where historical data is insufficient or
unreliable.
• Faster than some other qualitative methods, such as the Delphi
method.
FORECASTING TECHNIQUES
• Disadvantages:
• Susceptible to biases or dominant opinions from one or more experts.
• May not always reflect the true market conditions if the experts have
conflicting views.
• Can be costly if the experts' time is expensive.