Chapter 1

Production and Operations

Management (POM):
An Introduction

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 Overview

● Introduction
● Historical Milestones in POM
● Factors Affecting POM Today
● Different Ways of Studying POM
● Wrap-Up: What World-Class Producers Do

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 Introduction

● Production and operations management (POM) is the

management of an organization’s production system.
● A production system takes inputs and converts them
into outputs.
● The conversion process is the predominant activity of
a production system.
● The primary concern of an operations manager is the
activities of the conversion process.

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 Organizational Model

Finance
Sales HRM

POM
QA
Marketing

MIS
Engineering Accounting

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 Organization Chart-Major Elements

M a n u f a c t u r i n g O r g a n iz a t io n

O p e r a tio n s F in a n c e /A c c o u n t in g M a r k e tin g

F a c i li ti e s D is b u r s e m e n ts S a le s P r o m o t io n
P r o d u c tio n & & C r e d its A d v e r t is in g
In v e n to r y o n tr o l F unds M anagem ent S a le s
Q u a li t y A s s u r a n c e C a p i t a l R e q u ir e m e n ts M a rk e t R e s e a rc h
& C o n tro l
P ro c u re m e n t
E n g in e e r in g D e s ig n
I n d u s t r ia l E n g i n e e r in g
P r o c e s s E n g in e e r in g
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 Entry-Level Jobs in POM

● Purchasing planner/buyer
● Production (or operations) supervisor
● Production (or operations) scheduler/controller
● Production (or operations) analyst
● Inventory analyst
● Quality specialist

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 Historical Milestones in POM

● The Industrial Revolution

● Post-Civil War Period
● Scientific Management
● Human Relations and Behaviorism
● Operations Research
● The Service Revolution

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 The Industrial Revolution

● The industrial revolution developed in England in the

1700s.
● The steam engine, invented by James Watt in 1764,
largely replaced human and water power for factories.
● Adam Smith’s The Wealth of Nations in 1776 touted
the economic benefits of the specialization of labor.
● Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.

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 The Industrial Revolution

● The industrial revolution spread from England to

other European countries and to the United Sates.
● In 1790 an American, Eli Whitney, developed the
concept of interchangeable parts.
● The first great industry in the U.S. was the textile
industry.
● In the 1800s the development of the gasoline engine
and electricity further advanced the revolution.
● By the mid-1800s, the old cottage system of
production had been replaced by the factory system.
● . . . more
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 Post-Civil War Period

● During the post-Civil War period great expansion of

production capacity occurred.
● By post-Civil War the following developments set the
stage for the great production explosion of the 20th
century:
●
increased capital and production capacity
●
the expanded urban workforce
●
new Western U.S. markets
●
an effective national transportation system

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 Scientific Management

● Frederick Taylor is known as the father of scientific

management. His shop system employed these steps:
●
Each worker’s skill, strength, and learning ability
were determined.
●
Stopwatch studies were conducted to precisely set
standard output per worker on each task.
●
Material specifications, work methods, and routing
sequences were used to organize the shop.
●
Supervisors were carefully selected and trained.
●
Incentive pay systems were initiated.
● . . . more

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 Scientific Management

● In the 1920s, Ford Motor Company’s operation

embodied the key elements of scientific management:
●
standardized product designs
●
mass production
●
low manufacturing costs
●
mechanized assembly lines
●
specialization of labor
●
interchangeable parts

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 Human Relations
and Behavioralism
● In the 1927-1932 period, researchers in the
Hawthorne Studies realized that human factors were
affecting production.
● Researchers and managers alike were recognizing
that psychological and sociological factors affected
production.
● From the work of behavioralists came a gradual
change in the way managers thought about and
treated workers.

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 Operations Research

● During World War II, enormous quantities of

resources (personnel, supplies, equipment, …) had to
be deployed.
● Military operations research (OR) teams were formed
to deal with the complexity of the deployment.
● After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.
● OR helps operations managers make decisions when
problems are complex and wrong decisions are
costly.
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 The Service Revolution

● The creation of services organizations accelerated

sharply after World War II.
● Today, more than two-thirds of the U.S. workforce is
employed in services.
● About two-thirds of U.S. GDP is from services.
● There is a huge trade surplus in services.
● Investment per office worker now exceeds the
investment per factory worker.
● Thus there is a growing need for service operations
management.

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 Today's Factors Affecting POM

● Global Competition
● U.S. Quality, Customer Service, and Cost Challenges
● Computers and Advanced Production Technology
● Growth of U.S. Service Sector
● Scarcity of Production Resources
● Issues of Social Responsibility

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 Different Ways to Study POM

● Production as a System
● Production as an Organization Function
● Decision Making in POM

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 Production as a System

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

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 Inputs of a Production System

● External
●
Legal, Economic, Social, Technological
● Market
●
Competition, Customer Desires, Product Info.
● Primary Resources
●
Materials, Personnel, Capital, Utilities

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 Conversion Subsystem

● Physical (Manufacturing)
● Locational Services (Transportation)
● Exchange Services (Retailing)
● Storage Services (Warehousing)
● Other Private Services (Insurance)
● Government Services (Federal, State, Local)

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 Outputs of a Production System

● Direct
●
Products
●
Services
● Indirect
●
Waste
●
Pollution
●
Technological Advances

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 Production as an Organization Function

● U.S. companies cannot compete using marketing,

finance, accounting, and engineering alone.
● We focus on POM as we think of global
competitiveness, because that is where the vast
majority of a firm’s workers, capital assets, and
expenses reside.
● To succeed, a firm must have a strong operations
function teaming with the other organization
functions.

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 Decision Making in POM

● Strategic Decisions
● Operating Decisions
● Control Decisions

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 Strategic Decisions

● These decisions are of strategic importance and have

long-term significance for the organization.
● Examples include deciding:
●
the design for a new product’s production process
●
where to locate a new factory
●
whether to launch a new-product development plan

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 Operating Decisions

● These decisions are necessary if the ongoing

production of goods and services is to satisfy market
demands and provide profits.
● Examples include deciding:
●
how much finished-goods inventory to carry
●
the amount of overtime to use next week
●
the details for purchasing raw material next month

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 Control Decisions

● These decisions concern the day-to-day activities of

workers, quality of products and services, production
and overhead costs, and machine maintenance.
● Examples include deciding:
●
labor cost standards for a new product
●
frequency of preventive maintenance
●
new quality control acceptance criteria

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 What Controls the Operations System?

● Information about the outputs, the conversions, and

the inputs is fed back to management.
● This information is matched with management’s
expectations
● When there is a difference, management must take
corrective action to maintain control of the system

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 Wrap-Up: World Class Practice

● POM important in any organization

● Global competition forces rapid evolution of POM
● Decision based framework focus of course
●
Strategic, Operating, and Control

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