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  1. 1. Production and Operation Management By: Gaurav Gupta
  2. 2. Introduction
  3. 3. Purpose of Business
  4. 4. • To attract and retain customer• Create sustainable profit over time.• To solve customer’s problem
  5. 5. • 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
  6. 6. Organizational Model Finance Sales HRM OM QA Marketing MIS AccountingEngineering
  7. 7. 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 -------------------
  8. 8. 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.
  9. 9. Before we discuss about production & operation management, let us first discuss about• Product,• Production• Operation• and management.
  10. 10. The set of interrelated management activities, which areinvolved in manufacturing certain products, is called asproduction management.If the same concept is extended to servicesmanagement, then the corresponding set ofmanagement activities is called as operationsManagement.
  11. 11. • 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.
  12. 12. 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.
  13. 13. 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? Norman Gaither Greg Fraizer,Cengage
  14. 14. • 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. Norman Gaither Greg Fraizer,Cengage
  15. 15. • 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. Norman Gaither Greg Fraizer,Cengage
  16. 16. • 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. Norman Gaither Greg Fraizer,Cengage
  17. 17. • 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.
  18. 18. 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.
  19. 19. 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)
  20. 20. • What do such diverse organization as manufacturing companies ,financial companies all have in common within their operation. Everett. E. ADAM, Ronald J. Abert
  21. 21. The common element is Conversion Process OR Transformation Process Everett. E. ADAM, Ronald J. Abert
  22. 22. 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.
  23. 23. 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
  24. 24. • 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.
  25. 25. • 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)
  26. 26. • 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.
  27. 27. Operation manager’s job• The operation manager’s job is to manage the process of converting inputs into desired outputs.
  28. 28. 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.
  29. 29. Skills• Operation managers deal with people, technology and deadlines.• So these managers need good technical, conceptual and behavioral skills.
  30. 30. Manufacturing Vs Service operation• Outputs are tangible • Services are generally products or goods , manpower oriented• Produced through with less use of manufacturing machinery. operations with the help of certain machinery and equipments along with the manpower .
  31. 31. Production Vs operation Management• Production management • Operation management • According to nature of• According to nature of output ,finished output ,finished products products are tangible are tangible ex car, bikes or intangible ex,• According to restaurant, Consumption of output transportation services the products are • According to consumed over a period Consumption of output of time the services are availed immediately.
  32. 32. • According to nature of • Operation management work, production in case of services the function requires less requirement of labor is labor and more more and less equipment. equipments.• According to degree of • The customer customer participation , frequently participates• PM requires no in the conversion participation of process in the case of customer in service at least. transformation process
  33. 33. 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.
  34. 34. The Transformation Process Quality of inputs Quality of outputs monitored monitored Random disturbancesINPUTS Transformation OUTPUTS Process Feedback Mechanisms
  35. 35. 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
  36. 36. Outputs of an Operations System• Direct – Products – Services• Indirect – Waste – Pollution
  37. 37. The Transformation ProcessFor a Service Organization (An MBAInstitute) Random disturbances • Strikes of students, Quality of Quality of teachers or staff outputs inputs • Undue interference ofRaw minds monitored monitored the government in the(students) working of institutionsTeachersClass rooms Enlightened students with: Transformation • Good communication skillsComputer lab Process • Pleasant personalitiesLibrary • Leadership qualitiesProjectors • Good analytical ability (OHP, • Team spiritLCD etc) • Decision making abilitiesAdministrative • Computer skills Feedback Mechanismsstaff • Success at placement interviews • Grades obtained in examinations OUTPUTS INPUTS • Rising career graph of alumni in the industry • Number of applications for admission in the institute • Ratings of surveys
  38. 38. The Transformation Process For aHybrid Service & ManufacturingOrganization(A Restaurant) Random disturbances • High turnover of chefs, Quality ofCustomers Quality of waiters, etc. outputsBuilding inputs • Inflation monitoredChef monitored • Government’s taxationVegetables policyFurniture Customers satisfied with:Mutton, Transformation • Good preparation of the chicken, Process food pork, • Pleasant behavior andCooking oil,etc. personality of the waiterSpices, etc. • Genuine prices chargedWaitersManager Feedback Mechanisms • Rising Revenues INPUTS OUTPUTS • Repeat Customers • Appreciation of customers
  39. 39. The Transformation Process For aPurely Manufacturing Organization (ARefrigerator Manufacturer) Random disturbances • High turnover of workers Quality ofMachines & Quality of and managers outputsEquipments inputs • Recession monitoredBuilding monitored • Government’s taxationComponents, policyparts, sub- • Strikes instigated by trade unions Customers satisfied with:assemblies, etc. Transformation • Good cooling performanceWorkers • Less consumption with ProcessOffice electricityinfrastructure • Good after-sales service(computers, • New advanced featuresfurniture, etc.)Packagingmaterial Feedback MechanismsCapital • Rising sales volumeManagers • Lesser customer complaints • Positive response of customers in INPUTS the feedback forms OUTPUTS
  40. 40. 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.
  41. 41. 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.
  42. 42. 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.
  43. 43. 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,
  44. 44. 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.
  45. 45. Product Design and development Manufacturability Reverse Engineering Research & Standardization Development Concepts Product Life in Product Robust Design Cycle Design Concurrent Engineering Modular Design Computer Aided Design (CAD) Concepts in Product Design
  46. 46. Process Design Types of ProcessesContinuous Semi-continuous broken Project Process (Repetitive/Assembly) Process Process Batch Process Job Shop Types of Processes
  47. 47. • Transformed resources :• Material -----------------Plastic ---Toy• Data--------------Information• Customer--------------- female beauty parlor, man,
  48. 48. Transforming resources• Facilities: Machinery ,plant ,• In case of barber-------• Personal---what u produce will depend upon kind of people more important in service sector
  49. 49. 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.
  50. 50. • These factor determine whether The operation of one organization is better than other.
  51. 51. Seven critical success factor• Price• Quality• Delivery• Service• Flexibility• Innovations• Cycle time
  52. 52. 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
  53. 53. Quality of product• Quality of design• Quality of conformance• Quality of performance• Customer first see the design• Arbind hospital -1500 Rs
  54. 54. 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
  55. 55. 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.
  56. 56. 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 ,
  57. 57. 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.
  58. 58. 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.
  59. 59. And this experience comes handy in reducing the cost per unit.Such firm has lowest cost and highest profitin industry.Ex: British airways observe that with every doubling of cumulative output cost per unit decrease by 20%.
  60. 60. 10Cost 8Perunit 6.4 5.12 1 2 4 8 Cumulative production
  61. 61. 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
  62. 62. Given• 80 % experience curve• C1 = Rs 10• C2 = rs 8• Then b = ?
  63. 63. Solution• 8 = 10 (2)^ -b• b = .322
  64. 64. Question• If we r producing a million items then what will be the cost of nth item.• Given c1= Rs 10• b = .322
  65. 65. Solution• Cn = 10(1000000)^ (-.322)• =.1169
  66. 66. 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.
  67. 67. 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.
  68. 68. Learning Curve RatioLearning Curve Ratio = Avg. Labour Cost Of First 2N Units Avg. Labour Cost Of First N Units Management Accounting By Paresh Shah Oxford University Press
  69. 69. • 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 ?•
  70. 70. • (20/25) * 100 = 80 %• This means that every time output doubles, the average cost declines to 80% of previous amount.
  71. 71. 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 Accounting By Paresh Shah Oxford University Press