Module I P & OP.pptx

MODULE I
OVERVIEW OF PRODUCTION AND OPERATION
MANAGEMENT
10/5/2023 1

MEANING
It refers to the management of the conversion process which converts
land, labor, capital and management inputs into desired output goods and
services.
The conversion is done by using physical resources to meet the
organizational objectives.
It is the transformation of production and operation inputs and outputs to
be distributed to meet the customers' needs.
10/5/2023 2

PRODUCTION AND OPERATION
MANAGEMENT
Production/operations management is the process, which combines and
transforms various resources used in the production/operations
subsystem of the organization into value added product/services in a
controlled manner as per the policies of the organization.
Therefore, it is that part of an organization, which is concerned with the
transformation of a range of inputs into the required (products/services)
having the requisite quality level.
The set of interrelated management activities, which are involved in
manufacturing certain products, is called as production management. If
the same concept is extended to services management, then the
corresponding set of management activities is called as operations
management.
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NEED FOR PRODUCTION AND OPERATION
MANAGEMENT
PRODUCE RIGHT QUALITY OF PRODUCT:
The quality of product is established based upon the customers
needs. The right quality is not necessarily best quality.
It is determined by the cost of the product and the technical
features suited to the specific requirements.
RIGHT QUANTITY:
The manufacturing organization should produce the products in
right number. If they are produced in excess of demand the
capital will block up in the form of inventory and if the quantity
produced in short of demand, leads to shortage of products.
10/5/2023

NEEDS…
(CONTINU
ATION)
RIGHT TIME:
Timely delivery is one of the important parameter to
judge the effectiveness
Of production department has to make the optimal
utilization
Of input resources to achieve its objective.
RIGHT MANUFACTURING COST:
Manufacturing costs are established before the
Product is actually manufactured. Hence all attempts
should be made to
Produce the products at pre-established cost, so as to
reduce the variation between actual and standard cost.
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OBJECTIVES OF PRODUCTION AND
OPERATION MANAGEMENT
To attain maximum output with lowest cost.
To control pollution and wastage.
To ensure optimum capacity and resources utilization .
To ensure quality of products.
To suggest changes in machinery and equipment.
To ensure timely delivery of output.
To maintain inventory.
30 June 2023 6

SCOPE OF PRODUCTION AND
LOCATION OF FACILITIES:
Selection of appropriate location must ensure the availability of power
supply, water supply, road conditions, nearness of raw materials, skilled
labors etc.
PLANT LAYOUT AND JOB DESIGN:
Preparation of plant layout for the establishment of machines in the
required sequence. A job design must be prepared to organize machines,
tasks into a unit of work to achieve certain objective.
MATERIALS HANDLING:
It is the process of ensuring the movement of raw materials and semi
finished goods inside the factory.
PRODUCT DESIGN:
Designing the product and conceiving the idea about its production.
Product design considers the product size, weight, color etc.,
10/5/2023 7

SCOPE . . . ( CONTINUES)
PROCESS DESIGN:
It is the complete description of specific steps in the
production process. This determines the production process which is most
relevant.
PRODUCTION AND PLANNING CONTROL:
It means coordination of series of functions according to a plan which will
economically utilizes the plant facilities and regulates orderly movement of
goods.
QUALITY CONTROL:
It is a staff function concerned with the prevention of defects in
manufacturing so that, items may be made right way and ensure the quality
standard.
10/5/2023 8

SCOPE . . . ( CONTINUES)
INVENTORY MANAGEMENT:
It is the process of maintaining proper records of raw materials semi finished
goods and finished goods.
MAINTENANCE MANAGEMENT:
It is the process of formulating the corrective measures to stay in track with
planned quality, time schedule and predetermined cost schedules.
AUTOMATION:
It is the technique of operating or controlling a productive
process by electronic device and reducing human intervention to the
minimum.
10/5/2023 9

FUNCTIONS OF PRODUCTION AND
CREATION OF GOODS AND SERVICES
The foundation of every production and operation department is creation
of goods or services.
Traditionally, production and operations department includes the physical
assembling of goods and also contains many customer care services to
satisfy the needs of customers.
PROFIT: The main function of production and operations department is to
produce a product or service that creates profit and revenue to the
company.
EVALUATION: Every production and operation department must function
as
self-evaluating entity that monitors the quality, quantity, and cost of
goods
produced.
10/5/2023 10

FUNCTIONS. . . (CONTINUES)
Tasks:
It includes forecasting, scheduling, purchasing, design, maintenance, people
management, flow analysis, reporting, assembly and testing.
FULFILLMENT:
It ensures timely delivery of the output from production to customers.
ANALYSIS:
Standard analysis function in a production and operation department
include critical path analysis, stock control analysis, utilization analysis,
capacity analysis and just-in-time analysis of inputs, break- even analysis
and metric analysis.
10/5/2023 11

FACTORS AFFECTING OPERATIONS
MANAGEMENT
The factors Affecting Operation Management are
Global Competition
Quality, Customer Service & Cost Challenges
Rapid Expansion of Advance Technologies
Social Responsibility Issue
Global Competition:
Globalization -
A process of interaction and integration among the people, companies,
and governments of different nations.” It is driven by a reduction in trade
barriers, advancements in information technology, and transportation
technology.
10/5/2023 12

FACTORS (CONTINUATION)
10/5/2023 13
Companies who compete with others abroad will have to improve
quality while lowering prices to remain competitive.
This falls on the operations manager as he or she is the one who
“engages in the four functions of planning, organizing, leading, and
controlling to ensure that the product or service remains competitive in
the market.
Global Competition
Operation managers face competition from the company
across the street, as well as, from across the country and
across the world. Companies must be competitive to sell
their goods and services in the marketplace.
Competitiveness is an important factor in determining
whether a company prospers, barely gets by, or fails. This
competition can be related to price, quality, product or
service differentiation, flexibility, time to perform certain

Price - is the amount a customer must pay for the products or service.
Organization that compete on price may settle for lower profit margins,
but most focus on lowering costs of goods or service.
Quality - refers to materials and workmanship as well as design.
Usually, it relates to a buyer perceptions of how well the product or
service will serve its intended purpose.
Product or Service differentiation - refers to any special features that
cause a product or service to be perceive by the buyer as more suitable
than a competitor’s product or service.
Flexibility - is the ability to respond to changes. The better a company
or department is at responding to changes, the greater its competitive
advantage over another company that is not a responsive. The changes
might relate to increase or decrease in volume demanded, or to change
in the design of goods or service.
10/5/2023 14

Time - refers to a number of different aspects of an organization’s
operations. One is how quickly a product or service is delivered to a
customer.
This can be facilitated by faster movement of information backward
through the supply chain. Another is how quickly new products or
service are developed and brought to the market.
Service - might involve after sale activities that are perceive
by customers as value added, such as delivery, setup, warranty
work, technical support or extra-attention while work is in progress,
such as courtesy, keeping the customer informed, and attention to a
little details.
Managers and workers - are the people at the heart and soul of an
organization, and if they are competent and motivated, they can
provide a distinct competitive edge by their skills and the ideas they
create. The drive to be more competitive is the importance of ethical
behavior; it is something that all managers should adhere to and
10/5/2023 15

FACTORS…
Quality, Customer Service & Cost Challenge
Approaches to Quality
Quality affects a company in a variety of ways, from productivity and
profitability to customer satisfaction and public perception. In
addition, quality affects the overall operating costs of a company.
Focusing on quality can help a business maintain a satisfied customer base.
When focusing on quality, it must be a team effort, with everyone within
the company committed to implementing any quality changes managers’
mandate.
Although the initial cost might seem expensive, the overall costs of
ensuring delivery of quality products and services might prove to be less
than expected.
10/5/2023 16

FACTORS…
Approaches to maintaining quality
Quality Control – is where a product is inspected at the end by specialist
quality controllers who look for detective products. This can mean a lot of
waste, so to some extent has been succeeded by quality assurance where
his product is designed and produced in a way to maximize quality. It is
the responsibility of all staff to maintain quality, not just the inspectors.
Total Quality Management
Is where the business develops a whole philosophy of quality
and continually seeking ways to improve it. It may be associated with
some of the techniques raise in lean production. All staff must be involved
in it and all must see each other as their customers as well as the final
external customer. International Standards (such as ISO9901) are an
independently verified means of showing customers that the business has
set procedures for ensuring quality.
10/5/2023 17

FACTORS…
Impacting Company's Profitability
Quality increases profitability. When employees are engaged in a work
environment in which teamwork is emphasized and where quality products
are the goal, the work environment flows more smoothly than one in
which quality is an afterthought.
Customer Service
Customer have a large multitude of choices in the market and this affects
their behaviors:
They want to acquire goods and services quickly and in more efficient way
than before. They also expect high quality and low prices. All these
expectations need a response from the company, otherwise sales of
company will decrease and they will lose profit and market share. A
company must always be ready for price, product and service and
customer preferences because all of these are global market requirements
10/5/2023 18

FACTORS…
Influencing Customer Satisfaction
Quality has a direct bearing on customer satisfaction. If a company produces
a quality product, satisfied customers will rank that company higher in
surveys than companies that fail to provide quality products or services.
Cost Challenges
Directly Affecting Costs Quality directly affects costs in a business. While
using less expensive parts and equipment might cut costs in the short term,
the long-term effects might be far more expensive.
Social Responsibility Issues
Social responsibility is a self-regulating business model that helps
a company be socially accountable to itself, its stakeholders, and the public.
By, practicing corporate social responsibility, also called corporation
citizenship, companies can be conscious of the kind of impact they are
having on all aspects of society including economic, social, and
environmental. To engage in CSR means that, in the normal course of
business, a company is operating in ways that enhance, instead of
contributing negatively to them.
10/5/2023 19

FACTORS…
Many businesses choose to get involved with non-profit organizations,
to sponsor local sports teams or to volunteer in local schools.
While these can be challenging projects to organize, a business’s
community involvement gives its neighbor a sense that the company cares
about its surroundings and its customers on more than just profit level,
and its raises awareness of the business and its brand. Social
responsibility, therefore, is a form of marketing and public relations.
10/5/2023 20

EFFECTS OF GROWTH OF SERVICE
SECTOR
What are Services?
Services can be defined as economic activities that produce time, place,
form, intellectual, or psychological utilities. Services are acts, deeds, or
performances; they are intangible.
A maid service saves the consumer’s time from doing household chores
himself.
Department stores and grocery stores provide many commodities for sale
in one convenient place.
A database service puts together information in a form more usable for the
manager.
Courses at colleges and universities provide intellectual enrichment to
students.
A night out at a restaurant or movie provides psychological refreshment in
the middle of a busy workweek
10/5/2023 21

Criteria of Performance for the Production
and Operations Management system
Three objectives or criteria of performance of the production and
operations management system are,
Customer satisfaction
Effectiveness
Efficiency
The case of efficiency or productive utilization of resources is clear.
Whether, the organization is in the private or in the public sector, is a
manufacturing or a service organization or a profit making or a non
profit organization, the productive or optimal utilization of resource
inputs is always a desired objective.
Effectiveness involves an optimality in the fulfillment of multiple
objectives, with a possible prioritization with in the objectives. This is
not difficult to imagine because modern production and operations
management has to serve the so called target customers, the people
working with in, as also the region, country or society at large.
10/5/2023 22

CRITERIA….
In order to survive, the production and operations management
system, has not only to be profitable and or efficient, but must
necessarily satisfy many more customers.
This effectiveness has to be again viewed in terms of the short and
long time horizons because, what may seem now like an effective
solution may not be all that effective in the future.
In fact, the effectiveness of the operations system may depend not
only upon a multi – objectives satisfaction but also on its flexibility or
adaptability to changed situations in the future so that it continues to
fulfill the desirable objectives set while maintaining optimal
efficiency.
10/5/2023 23

Optimum, Good, Better operations management can improve:
(i) Efficiency of operation system to do things right and broader
concept.
(ii) Effectiveness of operation system refers to doing right things that
is seven rights, they are:
Right operation, Right Quantity, Right Quality, Right Supplier or Right
Vendor, Right Time, Right Place and Right Price.
Basically, efficiency and effectiveness of the operations system can be
measured by four dimensions, they are: (i) Cost, (ii) Quality, (iii)
Dependability and (iv) Reliability.
In fact these directly relate to the competitiveness of the
organization, both nationally and internationally. Modern
developments in better tools and techniques, methods and systems
like Automation, Flexible manufacturing, CAD, CAM, CIM at
management, CADD, CIMS, Use of Robotics, TQM, OR Techniques etc,
are taking place to achieve improvements in Cost, Quality,
Dependability, Reliability and Flexibility and thus to help for better
10/5/2023 24

Class Presentation :
Effect of Growth of Service Sector on
Operations Management
10/5/2023 25

SERVICE REVOLUTION
The term "Service Revolution" in the context of production and
operations management refers to a significant shift or transformation
in the way services are delivered and managed within an
organization. It involves adopting new strategies, technologies, and
approaches to enhance the efficiency, effectiveness, and quality of
service-oriented processes. This concept is particularly relevant in
industries where services play a crucial role, such as hospitality,
healthcare, finance, transportation, and more.
Key characteristics of a service revolution in production and
operations management may include:
Digital Transformation: Incorporating digital technologies to
streamline service processes, automate tasks, and improve customer
interactions. This could involve implementing online booking
systems, digital payment methods, customer relationship
management (CRM) software, and more.
10/5/2023 26

Customer-Centric Approach: Placing a strong emphasis on understanding
and meeting customer needs and expectations. This may involve gathering
customer feedback, conducting surveys, and utilizing data analytics to tailor
services to individual preferences.
Process Optimization: Identifying and eliminating bottlenecks, inefficiencies,
and unnecessary steps in service delivery processes. This can lead to
improved resource allocation, reduced waste, and faster service completion
times.
Personalization: Customizing services to cater to the unique preferences and
requirements of each customer. Personalization can create a more engaging
and satisfying experience for customers.
Innovative Service Offerings: Introducing new and innovative services that
address emerging customer needs and market trends. This can help a
company stand out from competitors and attract a broader customer base.
Employee Training and Empowerment: Equipping employees with the
necessary skills and knowledge to deliver high-quality services. Empowered
employees can contribute to better customer interactions and improved
overall service quality.
10/5/2023 27

MODULE II
DEMAND FORECASTING
For an organization to provide customer delight it is important that organization can
understand what customer wants and how much does they want. If an organization can
gauge future demand that manufacturing plan becomes simpler and cost effective.
The process of analyzing and understanding current and past information to understand the
future patterns through a scientific and systemic approach is called forecasting.
And the process of estimating the future demand of product in terms of a unit or
monetary value is referred to as demand forecasting.
The purpose of forecasting is to help the organization manage the present as to prepare for
the future by examining the most probable future demand pattern. However, forecasting has
its constraint for example we cannot estimate a pattern for technologies and product where
there are no existing pattern or data.
10/5/2023 28

FORECASTING METHODS
Forecasting is divided into two broad categories, techniques and routes.
Techniques are further classified into quantitative techniques and qualitative techniques.
Quantitative techniques comprise of time series method, regression analysis, Moving
Average, exponential smoothing etc.,
Qualitative methods comprise of Educated Guess, Consensus, Delphi method,
Historical Analogy, Market Research and expert judgment.
10/5/2023 29

FORECASTING METHODS
10/5/2023 30
Qualitative Methods
Educated Guess
Consensus
Delphi Method
Historical Analogy
Market Research
Quantitative Methods
Linear Regression Model
Moving Average
Weighted Moving Average
Exponential Smoothing

QUALITATIVE FORECASTING METHODS
10/5/2023 31
Forecast is made subjectively
by the forecaster.
Qualitative forecasting
methods, often called
judgmental methods, are
methods in which the
forecast is made subjectively
by the forecaster.
They are educated
guesses by forecasters or
experts based on
intuition, knowledge, and
experience. When you
decide, based on your
intuition, that a particular
team is going to win a
baseball game, you are
making a qualitative
forecast.
Because qualitative methods
are made by people, they are
often biased. These biases can
be related to personal
motivation (“They are going
to set my budget based on my
forecast, so I'd better predict
high.”), mood (“I feel lucky
today!”), or conviction (“That
pitcher can strike anybody
out!”).

EXAMPLE FOR EDUCATED
GUESS
Educated Guess: When one person uses his or her intuition
and experience to estimate a forecast.
An educated guess is conjecture based on knowledge,
information, and experience. This can be contrasted with a
guess that is purely random. In most cases an educated guess
will beat a random guess.
The following are some of the examples of an educated guess.
Expert Opinion:
The informed opinion of an individual with applicable
professional or domain knowledge. For example, a diagnosis of
a disease by a doctor based on test results and symptoms that
may involve some degree on uncertainty.
10/5/2023 33

EXAMPLE
Inductive Reasoning:
Inductive reasoning is the bottom up process
of developing a hypothesis from evidence.
This allows for best guesses where there is
ambiguity and grey areas. For example, a
marketing team that interviews customers to
develop a theory that an ice cream product
isn’t selling well because its perceived as
overpriced as compared to new products on
the market.
Mathematics
An educated guess can be based on math such
as probabilities. For example, a poker player
who knows there is only a low probability
that anyone can beat their hand such that
they feel free to raise their bet.
10/5/2023 34

METHODS
Executive Committee Consensus: It is a group decision making process in
which group member develop and agree to support a decision in the best
best interest of the whole.
•Delphi Method: In this method a panel of outside experts is identified.
They are given a series of structured questionnaires. The answer of each
each questionnaire are used as input for the design of the next
questionnaire. The identity of experts is not disclosed . This is for the
purpose that nobody should influence the opinion of others.
•The coordinator of the project prepares the statistical summary of
responses. This along with the support for the responses is provided to the
the experts in the next round. The participants are asked if they want to
to modify this previous response. In this way after few rounds of
questionnaires the final forecast is derived. It is believed that during this
this process the range of answers will decrease and the group will converge
converge towards the correct answer.
10/5/2023 35

DELPHI METHOD
Advantages:
 It is effective when past data is absent.
 It does not require experts to meet in person.
 It is extremely useful for the forecast of new technology or new product.
Limitations:
It is a time-consuming process. During this the expert may change their
perception. Sometimes, the very need of forecasting loses its significance due to
to the delay.
If the questionnaires are poorly designed, Delphi method would be
ineffective.
As experts are not accountable, their response may be less meaningful.
Accuracy or reliability of forecast is relatively poor in Delphi. Therefore, it
Therefore, it should only be used when past trend is absent and quantitative
models are difficult to use.
10/5/2023 36

MARKET RESEARCH
In this technique, the salesmen sell the product in apart of
the market for some time and evaluate the sales for the full
market on the basis of the results of the test sales.
This technique is appropriate when the product is quite new in
the market or good estimators are not available or when the
buyers have note prepared their purchase plan.
Advantages:
 This method is most suitable for introducing a new
product in the market.
 Any defect in the product comes to light and can be
removed immediately to make the product successful
in the market.
 Sales forecasts are more reliable because they are
based on actual results.
10/5/2023 37

LIMITATIONS OF MARKET RESEARCH
It takes a long time to test the market.
The sales forecasts data are planned on the results of just one part of the
market. As all the parts of the market are not homogenous, these forecasts may
not be reliable.
Historical Analogy:
It is used when the new product or new technology is like an established
product whose demand data is known. This approach is effective for medium to
long range forecast, and it is quite effective.
10/5/2023 38

QUANTITATIVE TECHNIQUES:
It is one of the techniques in forecasting, which is a statistical
technique for making projections about the future which uses
numerical facts and prior experience to predict the upcoming
events.
Moving Average:
It is an average of some fixed or predetermined number of
observations in a time series which moves through the series by
dropping the top item of the previous averaged group and
adding the next item below in each successive average.
Advantages:
 It provides a simple and good estimate. In this method
equal weightage is assigned to all the periods chosen for
averaging.
 The process of averaging lessens influence of the
fluctuations.
10/5/2023 39

LIMITATIONS OF MOVING AVERAGE
METHOD
Records of the demand data must be retained over a fairly long period.
If demand series depicts trends as against the stationary level, the
moving average method would provide forecasts that lags the original
series.
Choice of period of moving average is difficult.
Cannot be applied if some observations are missing.
10/5/2023 40

MOVING AVERAGE – EXAMPLE
The moving average is a discrete averaging method, where periods in the past
beyond a certain number are considered irrelevant for the analysis.
Suppose a company wants to use a 10-week moving average for
forecasting sales of a particular item, they will add sales for the
last 10 weeks and divide by 10 to get the average. A week later,
they would add the newest weeks sales and discard the oldest,
so that once again they have a current total of the past 10 weeks
of sales. Again, this needs to be divided by 10 to get the new
moving average.
10/5/2023 41

10/5/2023 42
Month Sales, units
January 50
February 40
March 90
April 45
May 55
June 60
July 55
August 50
September 45
October 50

SOLUTION
Total of 10 months = 540 units.
Forecast for November =
540
10
= 54 𝑢𝑛𝑖𝑡𝑠.
Now, if the observed sales for November happen to be 60,
The forecast for December =
540+60−50
10
= 55 units.
The message given by the moving averages technique is that, history helps to
plan the future, but history beyond a certain time period in the past has very
little influence on the future. The moving averages technique retires the old data
and inducts fresh data into its calculation at every forecasting period.
10/5/2023 43

WEIGHTED AVERAGE METHOD
In this method different weights are given to the different periods of time in the
past. For instance,
Here Forecasting is being made for the current year which s just beginning. In
this case, a heavy weightage is given to the more recent figures. Such a method
could be suitable for certain businesses under certain conditions. Of course,
much depends upon what the weightage factors are to and how many years in
the past the forecasting information extends.
10/5/2023 44
Time In the Past Weightage
4 years ago 0.05
3 years ago 0.25
2 years ago 0.3
Last year 0.

EXPONENTI
AL
SMOOTHIN
G
Exponential smoothing is a method for forecasting
univariate time series data. It is based on the principle
that a prediction is a weighted linear sum of past
observations or lags. The Exponential Smoothing time
series method works by assigning exponentially
decreasing weights for past observations. The technique
is so called because the weight assigned to each demand
observation exponentially decreases.
Exponential smoothing gives accurate and reliable
forecasts to predict the next period. Analysts can
analyze the projected and actual demand shown in the
estimates for effective demand planning. This helps
maintain accurate inventory levels.
Additionally, they can adjust exponential smoothing
parameter values to change how quickly prior
observations lose importance in calculations. This
enables tweaking the relative significance of present
observations to previous observations to meet the
requirements of the subject area.
10/5/2023 45

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