Pom

Production and Operation Management

By: Gaurav Gupta

Introduction

Purpose of Business

• To attract and retain customer• Create sustainable profit over time.• To solve customer’s problem

• For better management of a company

• Operations can add significant value to the company by improving its competitiveness and long term profitability.

Norman Gaither Greg Fraizer,Cengage

Organizational Model

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSalesFinanceFinance

OMOM

Out of the many functions in business

• Three primary functions are • Finance (without finance ,financial failure will

result)• Marketing( without marketing no product can

be sold)• Operation ( without operation no product can

be produced.)

• How operation r important -------------------

The Subject of Production & Operation Management is studied under different Headings-such as

• Production Planning and control, • Production and Inventory control, • Production and operations control • and many more. • What ever may be the title of the subject, the

contents of the subject are more or less one and the same.

Before we discuss about production & operation management, let us first

discuss about

• Product, • Production• Operation• and management.

The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management.

If the same concept is extended to services management, then the corresponding set of management activities is called as operationsManagement.

• Earlier the focus was only for manufacturing organization and it was termed as production management.

• But later the same approaches and tools were also applied to services organization, where the focus was on Operations.

• But most business have service activity and production activity so study of this discipline is referred to as POM.

Career opportunity in OM• Manufacturing manager• Operation manager• Plant manager• Factory manager• Production manager • Production control manager• Inventory manager• Quality control manager• V.P. manufacturing• President operation etc.

Consider the following examples of important operations decision

• Intel needs to construct a new multi billion dollar fabrication plant to produce its next generation of computer chip.

• Where and How should it build the factory?


• American airlines needs to allocate the necessary resources to meet all of its customer demand for air travel next month.

• How should it assign different size aircraft to flight routes,piolts to air craft ,and flight attendant to flight.


• Hewlett Packard needs to increase output for one model of printer ink cartridges on a production line that is already running at full capacity.

• What is the most cost effective way to redesign the product line that is already running at its full capacity.


• These r small example ,the types of problem faced by operation management.

• Poor operation decision can hurt company competitive position and increases its cost.

• Good operation decision can improve the value of the company by increasing profitability and growth.


• Thus-------------------• In the current business environment of

intense global competition ,• firms have to offer their customer • quality products • that incorporates latest innovations ,• reduce cycle time • and customer service i.e. outstanding.• All this at a value proposition that is more

attractive then that of their toughest competitor.

This is possible only if

• A firm is alert and influence towards the state of the art technology.

In order to obtain and sustain a competitiveness in market firm has to rely on the production and operation function to be reliable and efficient.

Operation system( Function)

• Is that part of an organization which produces the organization’s products and services.

In some organization Product is a Physical goods

(T.V.,Mobile) while in others it is a service(education, health, financial).

(Everett. E. ADAM, Ronald J. Abert, PhI)

• What do such diverse organization as manufacturing companies ,financial companies all have in common within their operation.

Everett. E. ADAM, Ronald J. Abert

The common element is

Conversion Process OR

Transformation Process

Everett. E. ADAM, Ronald J. Abert

Definition

• Production/Operation Management is the management of an organization productive resources or its production system which converts inputs into the organization’s products and services.

Definition

• Production and Operation management involves the transformation of inputs into outputs , using physical resources, so as to provide desired utility to the customer while meeting the other organizational objective .

K.Garg TMH

• Production system takes inputs –raw material ,Humans ,machines, building technology ,cash,information,and other resources and convert them in outputs products and services.

• This conversion process is the heart of what is called operation management.

• On a farm the operation system is the transformation that occurs when the farmer’s input (land, equipment ,labor) are converted into such outputs as corn, wheat or rice.

• The exact form of the conversion process varies from industry to industry but this phenomena exists in every industry.

( Everett. E. ADAM, Ronald J. Abert, PhI)

• For all operation systems the general goal is to create some kind of value addition , so that outputs are worth more to consumers than just the sum of individual inputs.

Operation manager’s job

• The operation manager’s job is to manage the process of converting inputs into desired outputs.

Activity in operation Management

• Organizing work• Selecting process• Arranging Layouts• Facility location• Designing Jobs• Measurining Performance• Controlling quality• Scheduling work• Maintaining inventory• Planning production etc.

Skills

• Operation managers deal with people, technology and deadlines.

• So these managers need good technical, conceptual and behavioral skills.

Manufacturing Vs Service operation

• Outputs are tangible products or goods ,

• Produced through manufacturing operations with the help of certain machinery and equipments along with the manpower .

• Services are generally manpower oriented with less use of machinery.

Production Vs operation Management

• Production management

• According to nature of output ,finished products are tangible ex car, bikes

• According to Consumption of output

the products are consumed over a period of time

• Operation management• According to nature of

output ,finished products are tangible or intangible ex, restaurant, transportation services

• According to Consumption of output

the services are availed immediately.

• According to nature of work, production function requires less labor and more equipment.

• According to degree of customer participation ,

• PM requires no participation of customer in transformation process

• Operation management in case of services the requirement of labor is more and less equipments.

• The customer frequently participates in the conversion process in the case of service at least.

Factors affecting OM today

• Global competition

• Quality, customer service and cost challenges

• Rapid expansion of advance technology

• Scarcity of operation resources(capital)

• Social responsibility issue.

The Transformation Process


Feedback Mechanisms

INPUTS OUTPUTS

Random disturbances

Quality of inputs monitored

Quality of outputs monitored

Inputs of an Operations System

• External Input: Legal/Political, technology, Social/economic

• Market– Competition, Customer Desires, Product

Information

• Primary Resources– Materials, Personal , Capital and Capital goods,

Utilities

Outputs of an Operations System

• Direct– Products– Services

• Indirect– Waste– Pollution


Raw minds (students)Teachers

Class rooms

Computer lab

Library

Projectors (OHP, LCD etc)Administrative staff

Enlightened students with:• Good communication skills• Pleasant personalities• Leadership qualities• Good analytical ability• Team spirit• Decision making abilities• Computer skills

Random disturbances• Strikes of students, teachers or staff• Undue interference of the government in the working of institutions

Quality of inputs

monitored

Quality of outputs

monitored

The Transformation Process For a Service Organization (An MBA Institute)

INPUTS

Feedback Mechanisms• Success at placement interviews• Grades obtained in examinations• Rising career graph of alumni in the industry• Number of applications for admission in the institute• Ratings of surveys

OUTPUTS


Building

VegetablesFurniture

Mutton, chicken, pork, etc.Cooking oil, Spices, etc.Waiters

Manager

Customers satisfied with:• Good preparation of the food• Pleasant behavior and personality of the waiter• Genuine prices charged

Random disturbances• High turnover of chefs, waiters, etc.• Inflation• Government’s taxation policy

Quality of inputs

monitored

Quality of outputs

monitored

INPUTS

Feedback Mechanisms• Rising Revenues• Repeat Customers• Appreciation of customers

OUTPUTS

The Transformation Process For a Hybrid Service & Manufacturing Organization (A Restaurant)

Customers

Chef


Building

Office infrastructure (computers, furniture, etc.)

Workers

Packaging materialCapital

Managers

Customers satisfied with:• Good cooling performance• Less consumption with electricity• Good after-sales service• New advanced features

Random disturbances• High turnover of workers and managers• Recession• Government’s taxation policy• Strikes instigated by trade unions

Quality of inputs

monitored

Quality of outputs

monitored

INPUTS

Feedback Mechanisms• Rising sales volume• Lesser customer complaints• Positive response of customers in the feedback forms OUTPUTS

Machines & Equipments

Components, parts, sub-assemblies, etc.

The Transformation Process For a Purely Manufacturing Organization (A Refrigerator Manufacturer)

OBJECTIVE OF PRODUCTION MANAGEMENT

• The objective of Production Management is to produce the desired product or specified product by specified methods so that the optimal utilization of available resources is met with.

• Hence the production management is responsible to produce the desired product, which has marketability at the cheapest price by proper planning, the manpower, material and processes.

OBJECTIVE OF PRODUCTION MANAGEMENT

• Production management must see that it will deliver right goods of right quantity at right place and at right price.

• When the above objective is achieved, we say that we have effective Production Management system.

Production Cycle• The production cycle starts from Market Research.

Market research reveals consumer preferences and needs.

• The marketing department will transfer this information to the design department.

• The design department based on the information received from marketing department designs the product to fulfill consumer needs and supplies design specifications and drawings to production department.

Production Cycle

• The production department verifies whether the product can be manufactured with the technology and skill available in the firm. If yes it will give the acceptance. Otherwise the Production Manager, Design engineer and Marketing Manager, discuss together and make alterations in the product,

Production & Operations Management (POM) Defined

Production & Operations Management is defined

as the design, operation, and improvement of the transformation process, which converts the various inputs into desired outputs of products and services.

Product Design and development

Concepts in Product Design

Research & Development

Reverse EngineeringManufacturability

Standardization

Product Life Cycle

Robust Design

Concurrent Engineering Modular Design

Computer Aided Design (CAD)

Concepts in Product Design

Process Design

Types of Processes

Types of Processes

Continuous Process

Semi-continuous (Repetitive/Assembly)

Process

broken Process

Project

Batch Process Job Shop

• Transformed resources :

• Material -----------------Plastic ---Toy• Data--------------Information• Customer--------------- female beauty parlor, man,

Transforming resources

• Facilities: Machinery ,plant , • In case of barber-------

• Personal---what u produce will depend upon kind of people more important in service sector

Critical success factor

• In any operation the objective is to gain competitive advantage over your rivals.

• It can be secured through several factors these r called critical success factor.

• These factor determine whether The operation of one organization is better

than other.

Seven critical success factor

• Price• Quality• Delivery• Service• Flexibility• Innovations• Cycle time

Price• Offer the product Same or at a lesser price

than the competitor to compete in the market

• For that we need cost down production cost

• Variable cost consist of • Material cost ,labor cost, utility cost• Fixed cost---- economy of scale

Quality of product

• Quality of design • Quality of conformance • Quality of performance

• Customer first see the design• Arbind hospital -1500 Rs

Services• Pre sales service: Brochure, catalog,

publicity material• During sales service: economy

class ,business class, first class• Waiting time, priority service time,

ambience,• After sales service: Equally important as

before sales and during sales. Spark, beat

Flexibility

• Is the ability of operation to cope with the demand from the customer .

• 5000• 6000• But p.u. cost should remain same or reduces.

Innovation • Come out with new innovative product• Innovative feature in existing feature• Introduce innovative process• Use innovative technology• Motorola loose business because this and

recover with a new product called Motorazer

• New waganor, I 10 ,

Cycle time

• Is the time taken for any operational Process.

• Time taken to pass through a check out counter in retail store, metro station, airport.

• Airline turn around.

Experience curve• The concept says that the cost per unit decreases

with the cumulative experience gain by the firm.

Concept is based on----that Market leader must have produced large number of

units over the period of time and as such required vast experience.

And this experience comes handy in reducing the cost per unit.

Such firm has lowest cost and highest profit in industry. Ex: British airways observe that with every doubling of

cumulative output cost per unit decrease by 20%.

Cost Per unit

Cumulative production

10

8

6.4

5.12

1 2 4 8

Formula

• Cn = C1 n^ (-b)

• Cn = Cost of nth unit• C1= Cost of 1st unit• n = cumulative production• b = a parameter that depends upon the

percentage of the experience curve.• (C2/c1) = percentage of experience curve

Given

• 80 % experience curve • C1 = Rs 10• C2 = rs 8• Then b = ?

Solution

• 8 = 10 (2)^ -b• b = .322

Question

• If we r producing a million items then what will be the cost of nth item.

• Given c1= Rs 10• b = .322

Solution

• Cn = 10(1000000)^ (-.322)• =.1169

Assignment

• A comp. is producing industrial boils for a particular model. cost of producing the first boiler is rs 25 lakh. The cost of producing the 500th boiler is rs 20 lakh . Determine the parameter b of the experience curve .

• Determine how many boiler should produce so that cost of boiler come down to rs 15 lakh.

Theory of learning

• It is recognized that repetition of the same operation results in less time or effort expended on that operation.

• Consistency in improvement has been found to exist in the form of a constant percentage reduction in time required over successively doubled quantities of units produced

• The constant percentage by which the costs of doubled quantities decrease is called the rate of learning.

Learning Curve Ratio

Management AccountingBy Paresh Shah

Oxford University Press

Learning Curve Ratio = Avg. Labour Cost Of First 2N Units

Avg. Labour Cost Of First N Units

• If the av. Labor Cost for the first 500 units of the product is Rs 25 and the average labor cost of first 1000 units is Rs. 20 the learning ratio will be ?

•

• (20/25) * 100 = 80 %

• This means that every time output doubles, the average cost declines to 80% of previous amount.

Costs Reduction Using Learning Curve

• Learning curve is used in managing Cost Reduction Program that is the setting of realistic goals and the monitoring of progress towards these goals.

• The cause of reduction in costs is learning on the part of individuals and the entire organization in the process of repetition.

• Learning impacts only recurring costs. Non-recurring costs, such as the cost of acquiring tooling, are not affected by learning

Management AccountingBy Paresh Shah

Oxford University Press