Production and Operation Management Concepts

CONTROL AND PERFORMANCE
R.ArunKumar,AP/Mech,RIT

PROBLEMS IN MEASUREMENT OF PRODUCTIVITY:
 Greater proportion (ratio of output to input).
 Growing affluence (relaxation in job) of people.
 Personal reasons.
 Government policies and regulation.
 Labour skills.

PRODUCTION AND OPERATION MANAGEMENT:
PRODUCTION:
 Production is defined as step by step conversion of raw
materials into finished products through a sequence of
process.

OPERATION MANAGEMENT:
 Operation management is defined as activities necessary to
produce and deliver a service or physical activities.

OPERATION MANAGEMENT SYSTEM:
Environment
Input Process Output
Feedback
Objectives:
 Right quality and quantity of product.
 Low manufacturing cost.
 Scheduled maintenance.

PRODUCT DEVELOPMENT:
 Product development is defined as up gradation of present
product quality and quantity, by improving the process,
technology, skills, etc.

PRODUCT DEVELOPMENT PROCESS:
1. Create ideas:
 Ideas will be generated by imitation, adaptation, R&D and
other sources.

2. Screening the alternatives:
 Various ideas will be collected, analyzed and filtered to come up
with preferable alternative (product).

3. Preparation of preliminary design:
 After selecting a specific product, preliminary designs are
performed with aid of financial and other resources.

4. Process selection:
 Management will optimize the preferable process.

5. Implementation:

PRODUCT ANALYSIS:
 The factors influence the product analysis are:
1. Marketing
2. Economical
3. Production
4. Government policy
5. Technology

PRODUCT ANALYSIS:
1. Marketing analysis:
 In marketing analysis, an organization must focus on factors like
customer acceptance, competitor, advertising, demand for
the product, distribution channel.

PRODUCT ANALYSIS:
2. Economical analysis:
 In economic analysis, the factors to be considered are, profit
margin, volume of sales, investment analysis and pricing
policy.

PRODUCT ANALYSIS:
3. Production analysis:
 Includes analysis of suitable process, sequence of operation
and application of new methodology.

PRODUCT ANALYSIS:
4. Government policy: 5. Technology:

CONTROL AND PERFORMANCE:
 In order to exhibit better performance, an organization must focus
on various aspects of control.
 e.g.: Likert analysis.

1. INVENTORY / PURCHASE CONTROL:
 Inventory is defined as process in which goods and stocks are held
for a specific time period in an unproductive state.
 Inventory control deals handling of stock.

Importance of inventory control:
 Proper resource utilization
 Helps in minimizing loss
 Economically benefit in purchasing
 Improves coordination among departments.
 Better customer satisfaction.

Inventory costs:
a) Item cost:
 Deals the purchase price of raw materials.

Inventory costs:
b) Ordering cost:
 Cost associated with transportation and quality check.

Inventory costs:
c) Holding cost:
 Includes holding cost of inventory (inventory storage)

Inventory costs:
d) Shortage cost:
 Includes the cost associated when shortage in stock occurs.

Inventory costs:
e) Fixed overhead cost:
 Include the investment cost.

Effective inventory control system:
 Should provide a proper check against loss.
 Better identification.
 Well equipped ware house.
 A proper record maintenance.
 Waste elimination.
 Optimized storage.
 Should deploy qualified human resource.

Economic order quantity (EOQ):
 EOQ = ⌡[(2DS)/C]
where, D = demand per year
S = ordering cost
C = annual carrying cost

Just in Time (JIT):
 It is also called as zero inventory and stockless production.
 Supplier delivers the materials to the customer just in time to be
assembled.
 Inventory requirement is very less in JIT.

Essentials of Just in Time (JIT):
 Trained and skilled work force.
 Smooth relationship with suppliers.
 Location of the supplier must be close.
 Effective maintenance.
 Reduction in batch size.

Advantages of Just in Time (JIT):
 Inventory cost is reduced.
 Leads to job satisfaction.
 Better balancing of machines.
 Quality product.
 Eliminates wastes.

Disadvantages of Just in Time (JIT):
 Failure in machineries leads to failure in delivery.
 Unskilled employees affects the process.
 Receiver must completely rely on supplier.

2. MAINTENANCE CONTROL:
 Maintenance control is defined as the process of proper
execution of pre – determined maintenance function in
proposed budget.

 For an effective maintenance control, maintenance department
must focus on following measures:
i) Cost information
ii) Monthly review
iii) Proper handling
iv) Failure detection
v) Reduction in overhead expenditures

i) Cost information:
 Line supervisors must be explained about the material and
machinery cost.

ii) Monthly review:
 Head of the department can review the expenditure details
against proposed budget through monthly meeting.
 Some budgetary provisions must be provided to meet out
unforeseen exigencies.

iii) Proper handling:
 Better handling of machines reduce the frequency of repair
leading to effective maintenance control.

iv) Failure detection:
 Carrying out scheduled maintenance can eliminate total failure
of the machinery.

v) Reduction in overhead expenditure:
 Head of the department can have a discussion with concern
personnel, which may help in reducing the operational cost.

3. QUALITY CONTROL:
 Quality control refers to the technical process that gathers,
analyze and report the progress of the work and conformance
against the requirements.

3. QUALITY CONTROL:
Steps in quality control process:
1. Identifying the parameter to be controlled.

3. QUALITY CONTROL:
2. Analyze the risk factor and time to be controlled (before or after).

3. QUALITY CONTROL:
3. Establish the specification / limits for the parameter to be
controlled.

3. QUALITY CONTROL:
4. Frame the plans and methods for control.

3. QUALITY CONTROL:
5. Organize resources to implement the plans.

3. QUALITY CONTROL:
6. Monitor the process.

3. QUALITY CONTROL:
7. Collect the data and analyze with standards.

3. QUALITY CONTROL:
8. Verify and diagnose the cause of variation.

3. QUALITY CONTROL:
9. Corrective actions.

3. QUALITY CONTROL:
10. Cross check.

4. COST CONTROL: (Financial control)
Steps in cost control process:
1. Establishing norms / targets:

4. COST CONTROL:
2. Analysis:

4. COST CONTROL:
3. Corrective measures:

4. COST CONTROL:
Financial statements:
 Reflects the company’s financial health for a given period of
time.
 e.g.: SEBI, government budget

4. COST CONTROL:
Advantages of financial statements:
 Helps the management to analyze , frame future budgets.
 Helps the share holders to know the financial ability of an
organization .

4. COST CONTROL:
Limitations of financial statements:
 Approximate data.
 Change in asset value.
 Change in currency value.

4. COST CONTROL:
Contents of financial statements:
i) Income statement:
 Income statement include the revenue, expenditure, profit and
loss of the organization.
 Helps in analyzing the business progress.

4. COST CONTROL:
ii) Balance sheet:
 Balance sheet includes the organization’s assets, stockholder’s
equity and legal liabilities.
 It is also defined as the statement showing the sources and
application of capital.

4. COST CONTROL:
ii) Balance sheet:
 Balance sheet shows the clear idea of financial position of an
organization.
 Reflects the result of all recorded accounting transaction
since the beginning of an organization.

4. COST CONTROL:
iii) Cash flow statement:
 It includes all the cash transaction of an organization during
given period of time.
 It analyzes the source and uses of cash in the company.

4. COST CONTROL:
iii) Cash flow statement:
 Helps in analyzing the cash position of the organization.

4. COST CONTROL:
Rate of investment (ROI):
 The objective of ROI is to obtain a satisfactory return on
capital investment.
 ROI can be calculated by:
1. Investment turnover = (Sales / Capital investment)
2. Percentage of profit on sales = (Profit / sales) * 100
3. Return on capital investment = (Profit / Capital) * 100

4. COST CONTROL:
Rate of investment (ROI):
Advantages:
 Shows business efficiency.
 Used for better comparison.
 Helps the management in decision making.
Limitations:
 In ROI, factors such as inventory valuation, depreciation cannot
be considered.

Production and Operation Management Concepts

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