Basic Concepts Unit 1

Production and Operation Management Page No. 1

Unit 1 Basic Concepts
Structure
1.1 Definition of Production
1.2 Types of Production
1.3 Production Management
1.4 Objectives of Production Management
1.5 Operations Management
1.6 Production Management and Engineering
1.7 Operations Management and Operations Research
1.8 Production Organisation
Learning Objectives
Production is the basic activity of all industrial units. All other activities revolve
around this activity. After studying this unit student can able to understand:
The meaning and definition of Production.
Various methods of Production.
The meaning and importance of Production Management.
The meaning of Operations Management.
The relation among Production Management, Engineering, Operations
Management and Operations Research.
The place of Production Department.
1.1 Definition of Production
Production is any process or procedure developed to transform a set of inputs
like men, materials, capital, information and energy into a specified set of outputs
like finished products and services in proper quantity and quality, thus achieving
the objectives of an enterprise. The essence of production is the creation of
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goods and services, may be by the transformation of raw material or by
assembling so many parts. Production in every day life can be seen in factories,
offices, hospitals etc.
Production System: A production system is the design process by which
elements are transformed into useful products. A process is an organised
procedure for accomplishing the conversion of inputs into outputs.
Factors of Production: The factors of production are
a) Land and other natural resources.
b) Labour (human efforts).
c) Capital (factory, building, machinery, tools, raw materials).
d) Enterprise.
Production problem areas:
1. Location of plants, stores and offices.
2. Layout of plants and work areas.
3. Schedulling and allocation of resources.
4. Equipment selection, maintenance and replacement.
5. Inventory policies.
6. Process design and control.
7. Work methods.
8. Quality and Quantity Control.
Input Conversion Process Output
Men
Machines
Materials
Money
Management
Information Energy
Transformation Goods & Services
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Production Decisions: When the issues and variables involved in any
production system are so inter-related and interdependent, decisions at various
stages of production become rather complicated and difficult. Every decision
made imposes restrictions on some other functions and the problems thus arising
have to be settled. In general on each stage the management has to consider the
facts and take decisions which will optimise the final results. Production decision
are generally related with production planning, analysis and control efforts.
Boundaries of Production System:
a) Policy Formulating System: The function of this system is to adopt basic
organisation policies to information reflecting present and forecasted future
conditions.
b) Control Systems: The basic function of the control system is the
transformation of information.
c) Intermediate Organisation Systems: This system has a function to provide
the necessary service to other sub-systems of the environment which directly
effect the organisation systems.
Manufacturing System: Organisation of manufacture and systems for its
planning and control depend greatly on the type of plant in which they have to
operate. The fundamental principles that guide the formation of planning policy
and its execution may be the same for all manufacturing concerns. Both the
emphasis on particular aspects of the production management is a function of
the specific requirements of the plant and this emphasis is reflected in
management approach to problems of inventory. Of raw materials and finished
products of machine selection and replacement of machine selling and tooling, of
scheduling methods and of systems of follow up and general control. Three main
factors may be said to determine the 3 place of production planning and control
in an organisation:
a) The type of production.
b) Size of the plant.
c) The type of industry.
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1.2 Types of Production
a) Job Production: This is the manufacture of products to meet specific
customer requirements of special orders. It is normally concerned with
special projects, models, prototypes, special machinery or equipment to
perform specialised and specific tasks, components or assemblies to provide
replacements for parts in existing machinery etc. Lage turbogeneration, large
engines, boilers, processing equipment, material handling machines, ship
building and many other manufacturing are of the jobs production group.
Three types of job production can be defined according to the regularity of
manufacture:
a) A small number of pieces produced only one.
b) A small number of pieces produced intermittently when the need arises.
c) A small number of pieces produced periodically at known time intervals.
When the order is to be executed only once, there is little scope for
improvement of production techniques by introducing intricate method
studies, special tools or jigs and fixtures unless the technical requirements
justify it.
Advantages:
1) It is the only method which can meet the individual requirements.
2) There is no managerial problem, because of very less number of workers.
3) There is less risk of loss to the factory adopting this type of production.
4) Because of flexibility, there is no chance of failure of factory due to the
reduction of demand.
Limitation:
1) There is no scope of commercial economy.
2) As the purchase of raw materials is less hence cost of raw materials may
be slightly more.
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b) Continuous Production: Continuous Production is the specialised
manufacture of identical articles on which the equipment is fully engaged.
Continuous production is normally associated with large quantities and with a
high rate of demand while in the job and batch classes the rate of production
normally exceeds the rate of demand, continuous production is justified only
when its rate can be sustained by the market. Here full advantage should be
taken of repetitive operations in the design of production auxilary aids, such
as special tools, fixtures, positioners, feeders and material handing systems,
inspection devices and weighing and packing equipment.
Two types of continuous production can be defined :
(a) mass production
(b) Flow production.
The difference between the two types is mainly in the kind of product and its
relation to the plant. On mass production, a large number of identical articles
are produced but in spite of advanced mechanisation and tooling, the
equipment used need not be specially designed for this type of articles alone.
Both plant and equipment are flexible enough to deal with other products,
involving the same production processes. If management decides, that a
certain line should be discontinued, the machinery can be switched over to
produce another article, and such a change in policy will usually not involve
major modification in plant layout, although changes in footing may quite
substantial.
In flown production, the plant, its equipment and layout have been primarily
designed to manufacture the product in question. Flexibility in the selection of
products for manufacture is possible with minor modification in layout or
design of models.
Production planning and control in continuous production is usually not
similar than the job or batch production. Extensive effort is required for
detailed planning before production starts, but both scheduling and control
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need not usually be very elaborate. The output is either limited by available
capacity or regulated within given limits to conform the production targets
based on periodic sales forecasts.
c) Batch Production: This type of production is generally adopted in medium
size enterprises. Batch production is a stage in between job production and
mass production.
Batch Production is bigger in scale than the job production while it is smaller
than that of mass production. Batch production requires more machines than
that of job production and less machines than that of Mass Production. In
batch production some of the machines are one purpose machines and
remaining are general purpose machines.
As in this type of production two or more types of products are manufactured
in tools (i.e. batches) at regular interval, therefore this is known as batch
production. In this type of production different products are manufactured in
batches, and stacked and then sold on receipt of orders.
1.3 Production Management
Production Management refers to the application of management principles to
the production function in a factory. The application of management to the field
of production has been the result of at least three developments. First is the
development of factory system of production. Until the emergence of the concept
of manufacturing, there was no such thing as management as we know it. It is
true that people operated business of one type or another, but for the most part
these people were owners of business and did not regard themselves as
managers as well. The second essentially stems from the first, namely the
development of the large co-operation with many owners and the necessity to
live people to operate the business. The third reason stems from the work of
many of the pioneers of scientific management who were able to demonstrate
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the value from a performance and profit point of view, of some of the techniques
they were developing.
The word production management arrived first with the emergence of
manufacturing industry and the necessity to manage it as such. The meaning of
the term production management is classified in the following definition.
According to M. A. Harding Production Management is concerned with those
processes which convert the inputs into outputs. The inputs are various
resources like raw materials, men, machines, methods etc., and the outputs are
goods and services.
According to E. S. Buffa Production Management deals with decision-making
related to production processes so that the resulting goods or service is
produced according to specifications, in the amounts and by the schedule
demanded and at minimum cost.
The definition given by E. S. Buff is simple clear and exhaustive. It explains the
following important aspects of production management.
a) It is a decision-making managerial function.
b) The decisions are made regarding the production processes required for
converting the raw material into finished products and
c) The production or output should be according to specifications, in the
specified quantities, as per schedule and at minimum cost.
1.4 Objectives of Production Management
1) Ultimate Objectives:
i) Manufacturing Cost: The unit cost of the product should be estimated
carefully and every effort should be made to stick to the cost standards.
For this purpose, the efforts should be made to segregate the costs into
two: direct costs and variable costs.
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Efforts should be made for the following:
(a) Reduction in the variable cost.
(b) Reduction in the fixed costs.
(c) Increase in the volume of production, so that the fixed costs may be
spread over more production resulting in the reduction in the per unit
absorption.
(d) The allocation of the fixed overheads should be made on scientific
basis.
ii) Product Quality: Generally, the product quality standards are often
established by the product specifications or by the consumers. The
manufacturing organisation should try to translate such quality
prescriptions into some measurable objections. It should be noted that the
product quality comes in conflict with manufacturing cost objectives and
the manufacturing time schedule. The maintenance of the quality should
not result in increase in manufacturing costs or delay in production. A
proper balance must be maintained between quality and cost as well as
quality and time schedule.
iii) Manufacturing Schedule: There are many forces which compel side
tracking in the manufacturing activity. The time schedule should not be
set for the shipment alone, it should be broken up into all the sub-systems
like operating cycle time, inventory turnover rate, machine utilization rate,
direct and indirect man hours per unit, capacity utilization, machine and
labour idel time, set up, repair and maintenance time etc. Time schedule
objective directly affects the cost, quality and the goodwill of the business
in terms of regularity of shipment.
2) Intermediate Objectives: The intermediate goals can be spelled out as
under:
i) Machinery and equipment: The objectives in the area of machinery and
equipment are divided into:
(a) Acquisition of machinery and equipment and
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(b) Utilization of machinery and equipment.
The adequacy of the existing machinery should be considered and proper
additions and replacements should be made according to the
requirements. Efforts should also be made to increase the utilization rate
of machinery through repair, maintenance and maximum occupancy of
the machines.
ii) Materials: The materials objectives must be in terms of units, rupee value
and space requirements. The per unit materials costs should be specified
and efforts should be made to increase the inventory turnover of all types
of inventories raw materials, work in progress and finished goods.
iii) Manpower: Manpower is an important as well as typical input in
manufacturing activities. So the objectives of the production activities are
as regards manpower must be closely allied with the objectives of
selection, placement, training, rewarding and utilisation of manpower.
Usually, these objectives are considered in terms of employee turnover
rates, safety measurements, industrial relations, absenteeism etc.
iv) Manufacturing Services: The provision of proper and adequate services
directly affects the utilization of other inputs such as men, machines and
materials. Proper objectives should be set for the installation of important
facilities such or power, water supply, material handling etc. In short, the
objectives of the manufacturing activities are to manufacture a quality
product, on schedule, at the lowest possible costs, with maximum asset
turnover, to achieve consumer satisfaction.
1.5 Operations Management
The production management which was formerly considered as manufacturing
management only, now after inclusion of services into its scope, is broadly known
as operations management. Many non-manufacturing organisations providing
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services like hospitals, banks, transportation, farming, warehousing etc., are now
covered by operations management.
Operations by formal definition is a process of changing inputs into outputs, with
the creation or adding of value to some entity. The process of alteration or
transportation or storage or inspection or any combination thereof to add value to
an entity is rightly called operations. The growth of service industry has brought
with it the term operations management.
Operations Management: Historical Background: This management function
is not very old. It can however be said that seminal concept of division of labour
propogated by Adam Smith (Wealth of Nations 1776) led to the evolution of the
present day operations management. F. W. Taylor however could aptly be
described as the poineer in this field (1878) whose work and method study
brought about significant changes in productivity. Taylorism consists of:
a) replacement of rule of thumb by scientific methods.
b) Right selection for the right job, and training and development of the selected
person on individual basis.
c) Harmony between workers and management, the aim being maximisation of
production and better wages for the working class.
d) Specialisation of workers and management each doing the work in which
they are most proficient.
The principles of scientific management (1911) laid the foundations of operations
management. Mr. and Mrs. Gilberth contributed significantly to motion study.
Frank Gilberth developed the concept of Therblig and Chrono-Cycle Graphs
(1911). Lillian Gilberth authored the book The psychology of Management.
Henry Ford (1913) attempted mass production and arranged work stations into
an assembly line, with the conveyor belt. In the same year (1913), Henry Gantt
made known his studies of production scheduling Gantt Charts used even today.
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H. Emerson (1913) applied Taylorism for the development of organisational
structure and suggested staff functionaries for improving efficiency.
EOQ Economic Order Quantity formula to control inventory was developed
by Wilson (1928).
Dodge, Roming and Shewast (1931) put forward the concept of sample
inspection and produced statistical tables. Prior to that in 1924, Shewart
developed control charts and laid the foundation of statistical quality control.
Between 1933-39, Mayo and his associates conducted the famous Hawthorne
Experiments emphasising the importance of the human element and informal
groups to raise productivity.
Tipett (1937) developed the concept of work sampling to set up work standards.
Value engineering came forward as a cost deduction technique, trying to identify
the unnecessary costs, not relevant to the functional utility of the product.
Project Management techniques of PERT and CPM (1958) gave an effective tool
of planning and control of large projects.
The fifties made production management as a science useful as a management
function for diverse manufacturing organisations. The sixties gave it a new status
of Operations Management embracing in its ambit the service sector of the
economy also. The seventies gave us the Systems Approach, where the
organisation is treated as a whole consisting of several sub-systems.
Computer simulation, Computer Aided Design and Manufacturing (CAD/CAM),
Group Technology (GT), Cellular Manufacturing System (CMS) are some of the
recent developments making us optimistic about operations managements role
and utility in future.
1.6 Production Management and Engineering
Production Management is involved in a conversation process, and its
management. Production engineering is an advisory function. It provides expert
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support to run the equipments and carry out process technologies. Production
Management is a business function, and is not just an engineering function.
1.7 Operation Management and Operation Research
Most of the operations research techniques are used in the area of operation
management. Operations Research Techniques are optimising techniques e.g.
linear programming is used extensively is production function.
1.8 Production Organisation
In a small organisation, production, servicing and control are handled by a single
person. The larger the organisation grows, the complex, the organisation
structure becomes and the functions are handled by different specialists. A
typical factory may have the following organisation structure.
Services are provided by the human relations department and the maintenance
department. Finance and accounts department provide the control the ingredient.
Control is also exercised by departments like production control.
Interface with other departments: Production interfaces with several other
departments. Sales department provides the present demand position and the
future sales forecast to form the basis of production planning. Design gives an
idea as to how the product should look like. Engineering drawing gives
General Manager
Production Manager
Plant and
Maintenance
Production
Planning & Control
Production
Engineering
Quality
Control
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specifications and guides production to develop a product. Human relations look
after the welfare of the employees, resolve industrial relations problems and
provides training inputs. Accounts spells out the availability of finance to do the
tasks. Production and materials have very close interaction which is treated
separately. J ust as production depends upon the other departments in the
organisation, these other departments also device useful information from the
production department. Marketing and sales come to realise the productive
capacity of the firm to make their plans. Human relations need the data about the
changes in production capacity to do the manpower planning.
Review Questions:
1. Define Production and Production System.
2. Explain the different types of Production.
3. Explain the scope of Operations Management.