Production Management - Overview 2012

Production Management - Overview

Meaning of Production
Production implies the creation of

goods and/ or services to satisfy human needs. It involves

conversion of inputs (resources) into outputs (products). It is a process by which, raw materials
and other inputs are converted into finished products. Earlier the word manufacturing was
used synonymously with the word production. Nowadays , we use the term manufacturing
to refer to the process of producing only tangible goods whereas the word production
(operation ) is used to refer to the process of creating both goods ( which are tangibles) as well
as services ( which are intangibles).
Manufacturing
Any process which involves the conversion of raw materials and bought out components into
finished products for sale is known as production. Such conversion of inputs adds to the value
or utility of the products produced by the conversion or transformation process. The utility or
added value is the difference between the value of outputs and the value of inputs. The value
addition to inputs is brought about by alteration, transportation, storage or preservation and
quality assurance.
Nature of Production
The nature of production can be better understood by viewing as :
(i)
(ii)
(iii)
(iv)

a system.
an organizational function.
a conversion or transformation process and
a means of creating utility.

Production as a System
This view is also known as systems concept of production. A system is defined as the
collection of interrelated entities. The systems approach views any organization or entity as an
arrangement of interrelated parts that interact in ways that can be specified and to some extent
predicted. Production is viewed as a system which converts a set of inputs into a set of desired
outputs.
Elements or parts of a production system
i)
ii)
iii)

Inputs
Conversion process or transformation process
Outputs
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Production Management - Overview 2012

iv)

Transportation subsystem

v)

Communication subsystem

vi)

Control or decision making subsystem.

Production as an Organisational function

To create goods and services, all organisations whether manufacturing goods or providing
services perform four basic functions
(i)

Marketing function (ii) Production or Operations function

(iii) Finance function

(iv) Human Resources function

Production is considered as a crucial function which creates goods and services whereas
marketing function generates demand for products or obtain customers orders. Finance function
keeps track of how well the organization performs and takes care of cash inflows and outflows..
Human resources function looks into the people aspect of the organization and the best
utilization of the people in the organisation. Production function plays a central role in
achieving the objectives of any business organisation.
Objectives of Production Management
1)

Maximum customer satisfaction through quality, reliability, cost and delivery time.

2) Minimum scrap / rework resulting in better product quality.

3) Minimum possible inventory levels (i.e., optimum inventory levels).
4) Maximum utilization of all kinds of resources needed.
5) Minimum cash outflow.
6) Maximum employee satisfaction.
7) Maximum possible production (i.e., outputs)
8) Higher operating efficiency
9) Minimum production cycle time.
10) Maximum possible profit or return on investment.
11) Concern for protection of

environment.

12) Maximum possible productivity.

Responsibilities of Production Managers
1. Meeting requirements of quality demanded by customers.
2.

Establishing realistic delivery or completion dates.

3.

Producing the required volume of products to meet the demand.

4.

Selection and application of most economic methods or processes.

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Production Management - Overview 2012

5. Controlling the cost of inputs and conversion process and thereby keeping the cost of
outputs within the desired limits.
6.

They are responsible for the amalgamation of 5Ps namely Product, Plant, Processes,
Programs and People.

7. The Product is the most obvious interface between production and marketing.
8.

It includes characteristics such as performance, aesthetics, quality, reliability, selling price,

delivery dates and/or lead times.

Considerations of the plant

The plant includes buildings, equipments and machinery required to produce the product.
(1) Design and layout of buildings
(2) Performance and reliability of machines and equipments.
(3) Maintenance of machines and equipments.
(4) Safety of installation and operation of machinery and equipments and
(5) Environment protection.
Factors to be examined in deciding upon a process
The processes include the transformation or conversion processes which convert the inputs and
outputs.
(i)

Available capacity

(ii)

Available labour skills.

(iii)

Type of production

(iv)

Layout of plant and equipments

(v)

Safety requirements in operations

(vi)

Costs to be achieved.

Programmes
The programmes consist of schedules or time tables which set times for delivery of products or
services to customers. These delivery schedules in turn decide the time schedules for various
activities such as design, purchase, manufacture, assembly, packing and dispatch.
These delivery schedules in turn decide the time schedules for various activities such as design,
purchase, manufacture, assembly, packing and dispatch. People aspect of Production
Management. The people aspect of production management includes the skills, knowledge,
intelligence etc of labour and managerial personnel which is crucial for the efficient and effective
utilisation of resources for the production of outputs.
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Production Management - Overview 2012

Decision Making In Production/Operations Management
The production/operations managers manage all activities of the production/operations
systems which convert inputs into the desired outputs (goods and services).
(1) Strategic Decisions: Decisions about products, processes and facilities. These decisions are
strategically important and have long-term significance for the organisation.
(2) Operating Decisions: Decisions about planning production to meet demand.
(3) Control Decisions:
Decisions about controlling operations concerned with the day-to-day activities of the workers,
quality of products and services, production costs Overhead costs and maintenance of plant and
equipment.
Strategic Decisions
These are decisions concerning long range production/operations strategies. Some examples of
strategic, operating and controlling decisions are :
(1) Deciding about launching of a new-product development project.
(2) Deciding on the design for a production process for a new product.
(3) Deciding on how to allocate scarce resources such as materials, machine and labour
capacities and utilities.
(4) Deciding about what new facilities are needed and where to locate them.
Operating Decisions
These decisions must help to resolve the issues concerned with planning production to meet
customers demand for products and services and to achieve customer satisfaction
at reasonable costs.
Examples of operating decisions
(1) Deciding how much finished goods inventory to be carried for each product.
(2) Deciding the next months production schedule for producing the products.
(3) Deciding about hiring of casual (temporary) workers for the next month.
(4) Deciding about the volume of purchase from each vendor next month.

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Production Management - Overview 2012

Control Decisions
These decisions are concerned with the problems in production such as variations in labour
output (productivity), variations in product quality, breakdown of production equipments etc.
Production/operations managers need to control poor work performance, inferior product
quality and excessive equipments breakdown so that the profitable operation of the productive
system is not affected.
Examples of control decisions are
(1) Deciding the course of action about a departments failure to meet the planned labour
cost target.
(2) Developing labour cost standards for a new or modified product design which is about
to be taken up for production.
(3) Deciding about the new quality control acceptance criteria for a product for which the
design has been changed.
(4) Deciding about the frequency of preventive

maintenance for key machinery or

equipments.
Ten decision areas of Production/Operations management
(1) Managing Quality

(2) Design of goods and services (product design)

(3) Process strategy (process design)

(4) Location strategies

(5) Layout strategies

(6) Human resources strategies

(7) Supply chain management

(8) Inventory management

(9) Scheduling

(10) Maintenance

Functions of Production Managers

The major functions of production managers
(i)

Production techniques:
Equipment Design, Process Design, Plant Layout and shop Layout, design of Materials
Handling system

(ii)

Capacity Management:
Forecasting Demand, Delivery commitment, Facility Location and Resource Allocation

(iii)

Industrial Engineering (or work study): Method study Work measurement

(iv)

Production Planning and control: Estimating, Fore- casting, Routing,

Scheduling,

Dispatching and Progressing.

(v)

Inventory control: Purchasing, Storing and controlling Inventory Levels and

material Issues.
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Production Management - Overview 2012

(vi)

Quality Control:

Inspection, Quality Control,

Statistical quality control and

(vii)

Quality Assurance and Reliability,

Total Quality Control.

Maintenance: Servicing, Repairing, Breakdown Maintenance, Preventive Maintenance

Spare parts Inventory Control and Equipment Replacement.

Skills Needed for Production Managers

The production managers need the following skills or competencies
(i) Technical Competence: (a) Basic understanding of technology with which the production
system works. (b) Adequate knowledge of the work they are to manage.
(ii) Behavioural Competence: interpersonal relationships, the ability to work with other people.
Problems Of Production Management
The problems involved in production management require two major types of decisions relating
to:
(i)

Design of the production system and

(ii)

Operation and control of the production system.

Decisions related to the design of production system are long-run decisions whereas decisions
related to operations and control of the production system are short-run decisions.
The problems involve the relative balance of emphasis on such factors as cost, service and
reliability of both functional and time performance, which depends on the basic purposes of the
total enterprise and on the general nature of goods and services produced. In general,
manufacturing organizations emphasis more on cost , consistent with quality and delivery
commitments whereas service organizations may emphasise reliability and service , consistent
with cost objectives (for example , hospitals ).
Long Run Decisions
Long runs decisions relate to the production system are:
(i) Selection and Design of Products : Product selections and designs with productive
Capabilities (i.e., producibility of products) are interdependent.
(ii) Selection of Equipment and Processes : Selection of the most economic equipments

and

processes among the various alternatives considered, the firms capability to invest in capital

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Production Management - Overview 2012

assets and its basic approach to production (i.e. , job , batch , mass or continuous production )
must be considered.
(iii)

Production Design of Parts Processed.

(iv)

Location of the System

(v)

Facility Layout.

Short Run Decisions

(i)

Inventory and Production Control

(ii)

Maintenance and Reliability of the System

(iii)

Quality Control

(iv)

Labour control

(v)

Cost control and improvement

Recent Trends In Production Management

(1) Global Market Place
(2) Production/Operations strategy
(3) Total Quality Management (TQM)
(4) Flexibility
(5) Time Reduction
(6) Technology
(7) Worker Involvement
(8) Re-engineering
(9) Environmental Issues
(10) Corporate Downsizing (or Right sizing)
(11) Supply Chain Management
(12) Lean Production
System Design and System Operation
System design involves decisions relating to

the capacity of the production system,

the

geographical location of facilities , arrangement of department (plant layout) and placement of

machines and equipment (shop layout) within the physical structures (building), product
planning and acquisition of equipments and machinery.
Systems operation involves management of people, inventory planning and control, production
scheduling, project planning and control and quality assurance.

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Production Management - Overview 2012

Production managers are also involved in the day to day operating decisions.
However, production managers have greater concern for system design because system design
essentially involves many parameters of system operation such as costs, space, capacities, and
quality that are affected by design decisions.
A Production System Model.
A production system receives input in the form of materials, personnel, capital, utilities and
information, which are then changed in a conversion subsystem into desired product/services
(called as outputs); a control subsystem monitors the quantity, cost and quality of output.
The control subsystem ensures system performance by providing feedback to enable managers
to take appropriate action if and when necessary.

1 Intermittent production

Job shop
Batch production

2 Continuous or flow shop production

Mass Production
Process Production
Assembly line production

3 Process production

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Analytical

Synthetic

Classification
of Production
Systems

Production Management - Overview 2012

1. Job Production
2.

Batch Production

3.

Flow Production

4. Computer aided design and Manufacture ( CAD CAM )

5.

Assembly line

6. Mass Production
7. Mass customisation
8. Cell Production
1. Job production: is used to create one-off orders or jobs especially made for the purpose.
This might be a relatively small job such as a sandwich made to order in a caf, or it
could be a massive job such as a cruise liner or Construction of a new stadium. Job
production helps ensure that the product or service matches the customers exact needs,
as closely as the firm is able, because it is literally custom-made. In many cases, skilled
or specialised staff make products of very high quality, or which have individual
character that might have less appeal if they were mass-produced. Job production is a
relatively expensive process because it requires specialised and skilled staffs who
concentrate on the individual job or project.
2. . Batch Production: Products are produced in small or large batches. This process is
useful to a firm that makes a number of different variations of basically similar products.
Examples: a bakery, a car exhaust pipe factory or a toothpaste manufacturer. It is crucial
that the machinery can be quickly cleaned and re-configured for each new batch to
minimise unproductive time. In a factory that uses flow production, it is quite common
for component parts to be made in batches enough for a weeks production.
3. Flow Production: This is a production line method product is continuously produced.
product is made in stages.flowing from one stage of production to the next. Tasks are
boringly repetitive -very fast Workers and, increasingly robots, carry out individual
repetitive tasks aiming to work as quickly as possible without loss of quality. This
method was pioneered by Henry Ford for his Model T car. very efficient to

produce

large numbers of cars at low cost. Any product made in high volumes will almost
certainly be made on a flow production line. This approach to production has close links
with FW Taylor and his Scientific school of management Taylors motivational
theories were all about

-creating the workplace and -forms of reward to maximise

efficiency. This in turn led to very boring work and contributed to industrial unrest over
the years where workers interests were overlooked. More modern, lean production
techniques such as cell production and -quality circles improve the workplace as
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workers become multi-skilled, take more responsibility for quality and can contribute
their ideas for improvements. Flow production systems are capital intensive.

It is

important to keep them running smoothly -with high levels of capacity utilisation, -so
that high overhead costs

-are spread over as many units as possible. Once set up

properly, -flow production lines can produce -millions of consistently high quality units.
Factor

Job

Flow

Equipment

General or MultipurposeSpecial purpose

Investment

Low-Medium

Medium-High

Workers

High skilled

Low

Product

To order

To stock

End products

Many

Few

Efficiency

Low

High

Finished goods inventory

Low

High

In process inventory

High

Low

Raw materials inventory

Low

High

Components

Independent

Dependent

Computer Aided Manufacture and Computer Aided Design

Computer Aided Design CAD is computer-based software tools that assist engineers and
architects in their design of a product. CAM incorporates software to control automated guided
vehicles (AGVs) to move material, it incorporates a communications network to link and to
coordinate all of the AGVs.They are commonly used in car manufacturing and food production.
CAM goes hand and hand with CAD. For example, the car would be designed with CAD
software subsequently created using a CAM network which is operated with AGVs.
All of these technologies usually work in a flow production style.

Assembly line
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Production Management - Overview 2012

English System of manufacture
Until the 19th century, a single craftsman or team of craftsmen would create each part of a
product individually and assemble them together into a single item, making changes in the
parts so that they would fit together of manufacture.
American System of manufacture
The American System of manufacturing in 1799, used the ideas of division of labour and of
engineering tolerance, to create assemblies from parts in a repeatable manner. Henry Fords
engineers perfected the assembly line concept by 1913, and Ford was the first to build entire
factories around the concept, which was also referred to as the armory system. The assembly
line was an evolution by trial and error and not any single event. It was a team effort. So Henry
Ford set out to build a construction method called the 'assembly line' that would allow a faster
and more cost effective method of producing vehicles. It was a line where parts of a product
were pieced together by individual workers. As a result, Henry Ford's cars came off the
assembly line in 3 minute intervals, a speed much faster than previous methods. Ford added the
conveyor belt. Production by 1916 was over 700,000 model T's --twice the output of all
competitors combined. The increased efficiency allowed Ford to cut prices in half, and in half
again, selling the car for $360 in 1916, and $290 by 1924. Ford had made 15 million model T's by
1927. He integrated the assembly line concept with many ideas from the Efficiency movement,
including the famous $5 day that attracted the best workers. Complex safety procedures
--especially assigning each worker to a specific location instead of allowing them to roam
about--dramatically reduced the rate of injury. The combination of high wages and high
efficiency is called Fordism" and was copied by most major industries.
Sociological problems in Assembly line production System Because workers had to stand in the
same place for hours and repeat the same motion hundreds of times per day, some might have
suffered from what are now called repetitive stress injuries.
Some theoretical sociologists assumed that workers must have felt alienated from the product of
their work. Actual studies of workers did not reveal the predicted alienation. However, work on
the assembly line sometimes still proved to be dangerous, as is the case with the operation of
most heavy machinery.
Mass production
Mass production (also called flow production or repetitive flow production) is the production of
large amounts of standardized products. Mass production is notable because it permits very
high rates of production per worker and therefore provides very inexpensive products. Mass
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production is capital intensive. It uses a high proportion of machinery in relation to workers.
With fewer labour costs and a faster rate of production, capital is increased while expenditure is
decreased. However the mass production line machinery such as robots are very expensive and
have high installation costs as well. Thus, mass production is ideally suited to serve large,
relatively homogenous populations of consumers, whose demand would satisfy the long
production runs required by this method of manufacturing. As each of these parts is uniformly
and consistently constructed, interchangeability of components is thus another hallmark of mass
produced goods
Use of assembly lines in mass production
Mass production systems are usually organized into assembly lines. The assemblies pass by on
a conveyor, or if they are heavy, hung from an overhead monorail.
Advantages and disadvantages
The economies of mass production come from several sources.

Reduction of nonproductive effort of all types.

The probability of human error and variation is reduced, as tasks are predominately
carried out by machinery.

Use of assembly lines in mass production

A reduction in labour costs,

an increased rate of production,

produce a larger quantity of one product at a lower cost than using traditional, nonlinear methods.

Use of assembly lines in mass production

However, mass production is inflexible because it is difficult to alter a design or production

process after a production line is implemented.
Also, all products produced on one production line will be identical or very similar, and
introducing variety to satisfy individual tastes is not easy.
Mass customization
Mass customization, is the use of flexible computer-aided manufacturing systems to produce
custom output. Those systems combine the low unit costs of mass production processes with
the flexibility of individual customization. It is

"producing goods and services to meet

individual customer's needs with near mass production efficiency "a strategy that creates value
by some form of company-customer interaction at the fabrication / assembly stage of the
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Production Management - Overview 2012

operations level to create customized products with production cost and monetary price similar
to those of mass-produced products".)
Pine also describes four types of mass customization:

Collaborative customization - firms talk to individual customers to determine the

precise product offering that best serves the customer's needs . For example,
manufacture blue jeans to fit an individual customer.
Adaptive customization - firms produce a standardized product, but this product is

customizable in the hands of the end user.

Transparent customization - firms provide individual customers with unique products,

without explicitly telling them that the products are customized. In this case there is a
need to accurately assess customer needs.

Cosmetic customization - firms produce a standardized physical product, but market it

to different customers in unique ways.

Dells famous "build-to-order" model facilitated its rise to dominance in the PCdirectpurchase industry.

The Architectural companies

Tourism Companies.

Supply chains

Bicycle industry

Cell production

This is a form of flow production.

The line is separated into a number of sections; each looked after by a group of workers called a
cell. Cells take responsibility for work in their area, such as quality, job rotation, training and so
on.
Cell production

It is a form of team working and

helps ensure worker commitment. Cells responsible for organising work rosters within
the cell, for covering holiday and sickness absences and for identifying recruitment and
training needs.

Cells deal with other cells as if they were customers, and take responsibility for quality in their
area. Also see notes on Kaizen, under Improving Quality.
Benefits of cell production
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Production Management - Overview 2012

Closeness of cell members

improved communication,

avoiding confusion

Workers become multi-skilled

more adaptable to the future needs of a business

Cell production

Greater worker motivation,

arising from variety of work,

team working and

more responsibility

Quality improvements as each cell has ownership for quality on its area
Evaluation

Lean production and cell production can be very effective

improve efficiency in a wide range of businesses.

The company culture has to encourage trust and participation, or workers can feel that
they are being constantly pushed for more and more output with no respite
The company may have to invest in new materials handling and ordering systems

suitable for cell production

Cell production may not allow a firm to use its machinery as intensively as in traditional

flow production
Some small scale production lines may not yield enough savings to make a switch cell

production economically worthwhile

The allocation of work to cells has to be efficient so that they have enough work, but not

so much that they are unable to cope

Recruitment and training of staff must support this approach to production

Process Planning
In the global market environment, the cost of product or service should be competitive for a
given quality. Hence the decisions relating to production are extremely important and critical
Process planning is the production process to be used and its span. Product may be Made to
order or Made to stock. FMCG like soaps, cement, paste, fertilizer ,fasteners etc are made to
stock.

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Production Management - Overview 2012

Automobiles, hospitals, dams, buildings etc are made to order
Factors Influencing Process Selection
1. Market condition
2. Capital requirement
3. Labour and skill
4. Raw materials
5. Technology
Important Decisions In Process Planning
1. Method of manufacture
2. Sequence and type of operations involved
3. Selection of tools and equipment
4. How manufacture will fit into the facility
5. Product design
6. Production volume
7. Quality requirement 8.Selection of technology
Plant Capacity
Capacity is the limiting capability of a productive unit to produce within a stated time period. It
is a measure of ability to produce goods or services. It is the rate of output.It is expressed as
output units per unit of time If a plant works for 5 days a week and single shift a day and can
produce 200 units a shift, the capacity of the plant is : For variety of reasons designed capacity
may not be achieved.
The reasons are: Absenteeism; Breakdown; Actual demand
System Capacity Is Actual output / System capacity
Process Selection
Involves Strategic Decisions Concerning
Type of production process

Man and material resources

Financial commitments

Capacity

Lead-time

Flexibility

Trade off between man machine and material

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Production Management - Overview 2012

Volume and variety

Technology

Transformation process

Produce to stock or to order

Process of flow structure

Job shop

Batch

Assembly line

Continuous flow

Advantages of intermittent form

More flexible

Uses general purpose machines

Variety at low cost

High capacity utilisation

Provides more employee satisfaction

Disadvantages of intermittent form

Expensive for high volume

Planning and control are complex

Large in process inventory

More Material handling

Material handling equipments are costly and occupy more spac

Advantages of continuous form

Low unit cost

Machine operations are simpler

Managerial control is simpler

Disadvantages of continuous form

Difficult to adopt to different product lines

Difficult to change output rate

Difficult to maintain

Maintenance is complex

Breakdown results in stoppage of line

Tasks are repetitive and monotonous

Initial cost is very high

Make or Buy
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Manufacturing goods involves availability of all required resources - manpower, machine,
material and money - and time, capacity and expertise.

Production of an item also depends

upon the nature of demand and the cost of making. The first step in process planning is to
ascertain whether to make or buy some or all of a product or service.

At times it may be

advantageous to outsource or buy and assemble than to produce every item of the product.
Both economic and non economic considerations influence Make or Buy decision.
The major economic factors are:
1. Capacity
2. Expertise
3. Quality
4. Demand
5. Cost.
Availability of manpower with required skill and number and equipment to produce in the time
period Are the fundamental factors. If they are not available within the organisation, buying
may be advantageous. Economic analysis based on Break even analysis or Economic Batch
quantity or Economic ordering quantity is essential to evaluate make or buy decisions. The non
cost or non economic considerations are:1. Availability of suppliers who can meet the time schedule and quality requirements.
2. Availability of specialists and desire to specialise in particular field.
3. The need to preserve design secrets.
4. Availability of R & D facilities.
5. Reliability of suppliers.
Make decisions are influenced by:1. The cost of production per unit is cheaper than buying.
2. Sufficient capacity is available in house

by which timely delivery can be met

which if not used may remain unutilised or under utilised which in turn will
cost.

3.

whereas the suppliers are not dependable

Design secrets and Trade secrets have to be maintained irrespective of cost factor.

4. Quality can be enrolled better in house.

5.

Incidental cost savings on transportation, packing, forwarding and administrative

are sizeable.
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Production Management - Overview 2012

Items are bought out under the following conditions
(1) Landed cost of purchased items are cheaper than in house production cost.
(2) Demand is low and not steady over period to spare or invest an equipments,
machines etc.
(3) Supplier specialises in that particular field with special machines, equipment and
expertise whose quality and delivery cannot be matched by in house production.
(4) It is a patented item held by a supplier.
(5) Enough capacity is not available in house.
(6) Demand is short term.
(7) No trade or design secrets/restrictions.
Apart from various important factors, the cost advantage of buying or making plays a key role
in make or buys decision. It requires economic evaluation as it concerns purely cost factor. The
cost is influenced by the quantity required. The economic evaluation is done to determine the
break even point at which making or buying that quantity makes so difference.

This BE

Analysis reveals the quantity above which it is economical to make and below which it is
profitable to buy. This is called the Break Even Analysis. For this purpose the total cost is
considered.
The cost of every item produced consists of
(a) Fixed cost (F)
(b) Variable cost (V)
F is the cost incurred irrespective of the quantity produced. Hence, F is inversely proportional
to the quantity produced.
If F = 100,000 and nothing is produced, the F = 100,000.
if 5000 units are produced
F1 = 100,000/5000 = 20/unit.
If 100,000 units are produced
F2 = 100,000/100,000 = 1/unit.
This is represented by a line parallel to x axis, where x axis is the quantity required.
V is the cost per unit and is directly proportional to the units produced.
if V = Re.1/unit, if nothing is produced V=0,
for 5000 units, V1 = 5000 and
for 100,000 units V2 = 100,000.
Hence, the total cost TC = F + V
A company is purchasing an item at Rs.4.20 each. If it were to produce, the annual fixed cost
will be Rs.4, 800, the variable cost per unit Rs.2.80 and fixed overhead Rs.1, 080. The demand
for the item is given below.
Demand
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2000

3000

4000

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Probability

0.05

0.10

0.30

0.40

0.15

(a) Should the company produce the item?

(b) What is the break even volume?
Cross Over
There are two alternatives to meet the demand of a particular product. They are as follows:
Cost elements making using
Process A
FC/yr. in Rs.
VC/unit in Rs.

100,000
75

Process B
300,000
70

At what annual volume should the company switch (cross over) from Process A to B.

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