production and – inventory control techniques – abc, ved, fsn, golf, xyz, sos and hml. eoq:...

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PRODUCTION ANDTOTAL QUALITYMANAGEMENT

(As Per the Revised Syllabus of Mumbai University forS.Y. BMS, Semester IV, 2015-16)

Prof. K. SHRIDHARA BHATB.E. (Mech), PG DIM, M.B.A. F.I.I.M.M.

Managing DirectorAkshaya Management Consultancy Services

Bangalore - 560 085Karnataka, India

• MUMBAI • NEW DELHI • NAGPUR • BENGALURU • HYDERABAD • CHENNAI • PUNE• LUCKNOW • AHMEDABAD • ERNAKULAM • BHUBANESHWAR • INDORE • KOLKATTA • GUWAHATI

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© AuthorNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic,mechanical, photocopying, recording and/or otherwise without the prior written permission of the publisher.

First Edition : 20169Third Edition : 2014

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.Phone: 2386 01 70/2386 38 63, Fax: 022-2387 71 78Email: [email protected] Website: www.himpub.com

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Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar,Race Course Road, Bengaluru - 560 001.Phone: 080-32919385; Telefax: 080-22286611

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Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth, (Near PrabhatTheatre), Pune - 411 030. Phone: 020-24496323/24496333. Mobile: 09370579333

Lucknow : House No. 731, Shekhupura Colony, Near B.D. Convent School, AliganjLucknow - 226 022. Mobile: 09307501549

Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,Ahmedabad - 380 009. Phone: 079-26560126;Mobile: 09377088847

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Indore : Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302, IIIrd Floor,Near Humpty Dumpty School, Indore - 452 007 (M.P.). Mobile: 09301386468

Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,Kolkata - 700 010, Phone: 033-32449649, Mobile: 09883055590, 07439040301

Guwahati : House No. 15, Behind Pragjyotish College, Near Sharma Printing Press,P.O. Bharalumukh, Guwahati - 781009 (Assam). Mobile: 09883055590, 09883055536

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Printed at : Rose Fine Arts, Mumbai. On behalf of HPH.

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PREFACE

Production Management has increased its importance in recent years, because the produc-tion function is considered as the heart of any business. Production managers in charge ofmanufacturing are responsible for ensuring superior quality, cutting unnecessary costs, meet-ing tight delivery schedules demanded by customers and providing them better customer ser-vices so as to maintain the competitiveness of their firms both in the domestic and internationalmarkets.

Productivity, Materials Management and Total Quality Management are major areas ofimportance in Production Management. Materials Management is crucial for the success ofmost organsiations because the cost of purchasing, storing, processing, moving and shippingmaterials, account for more than half of the product’s cost. Improving productivity in a majorfactor in facing the challenge of competition and this involves driving down the cost of allaspects of business activities, especially in the area of materials. Efficient and effective man-agement of materials has became the key to achieve higher productivity levels, especially inmanufacturing organisations producing tangible goods, both consumer and individual goods.

Managing quality and offering value to the customer is still a major concern for manyfirms all over the world. Quality has become the most important factor in the long-term profit-ability and success of any business organisation. Quality management is concerned with theunderstanding of the principles of total quality. Total quality is an approach to doing businessthat attempts to maximise the competitiveness of an organisation through the continual im-provement of the quality of its products, service, people, processes and environment.

Total Quality Management (TQM) is a philosophy that involves everyone in theorganisations in a continual improvement of quality and achieve customer satisfaction.

This book has been organised into three units viz., (1) Production Management,(2) Materials Management and (3) Basics of Productivity and TQM, comprising ten chapters inall. This book is specifically written to meet the requirements of the BMS degree program(Semester IV) of Mumbai University.

I have immense pleasure to express my sincere gratitude to Sri Niraj Pandey and SriAnuj Pandey of Himalaya Publishing House, Pvt. Ltd., for their keen interest and effort topublish this book. I am also grateful to Sri Vijay Pandey for his interest and effort inprinting and promoting this book.

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I thank Sri B.S.Madhu and Smt. Divya of M/S Page Designers for their excellent DTPwork. I also thank Smt. Nimisha and staff of HPH production unit for their effort in designingthe cover page and printing this book

I also thank my family members, friends and well-wishers for their constant supportand encouragement for this endeavor.

I invite readers to offer their valuable suggestions as feedback to me to enable me toimprove the book in its future editions.

K. SHRIDHARA BHATNo.680, ‘Akshaya’, 1 ‘C’ Main,

Kempegowda Layout, 3rd Block,3rd Phase, Banashankari III Stage

Bangalore - 560 085.Phone : (080) 26694761

Email : [email protected]

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SYLLABUS

Production and Total Quality Management[60 Lectures : 3 Credit]

Learning Objectives:1. To acquaint learners with the basic management decisions with respect to production and quality

management.2. To make the learners understand the designing aspect of production systems.3. To enable the learners apply what they have learnt theoretically.

Unit Name of the Topic No. of Lectures

Unit 1 Production Management1. Objectives, Components – Manufacturing Systems: Intermittent and Continuous Production Systems.2. Product Development, Classification and Product Design.3. Plant Location and Plant Layout Objectives, Principles of Good Product Layout, Types of Layout.4. Importance of Purchase Management. 14

Unit 2 Materials ManagementConcept, Objectives and Importance of Materials Management, Various Typesof Material Handling Systems.Inventory ManagementImportance – Inventory Control Techniques – ABC, VED, FSN, GOLF,XYZ, SOS and HML.EOQ: Assumptions Limitations and Advantages of Economic Order Quantity,Simple Numerical on EOQ, Lead Time, Reorder Level, Safety Stock. 16

Unit 3 Basics of Productivity and TQMConcepts of Productivity, Modes of Calculating Productivity. Importance ofQuality Management, Factors Affecting Quality; TQM – Concept and Importance,Cost of Quality, Philosophies and Approaches to Quality: Edward Deming,J. Juran, Kaizen, P. Crosby’s Philosophy.Product and Service Quality Dimensions, SERVQUALCharacteristics of Quality, Quality Assurance, Quality Circle: Objectives ofQuality Circles, Ishikawa Fish Bone, Applications in OrganizationsSimple Numerical on Productivity. 16

Unit 4 Quality Improvement Strategies and CertificationsLean Thinking, Kepner-Tregor Methodology of Problem Solving, Six SigmaFeatures, Enablers, Goals, DMAIC/DMADV.Taguchi’s Quality Engineering, ISO 9000, ISO 1400, QS 9000. MalcolmBaldrige National Quality Award (MBNQA), Deming’s Application Prize. 14

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Paper PatternMaximum Marks: 75

Time: 2.5 Hours

Note: 1. All questions are compulsory subject to internal choice.

2. Figures to right indicate full marks.

Q.1. Attempt any 2 questions (15 Mks)(a) (7.5 Mks)(b) (7.5 Mks)(c) (7.5 Mks)




Q.5. Case Study (15 Mks)

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CONTNETS

UNIT 1 : PRODUCTION MANAGEMENT

CHAPTER 1 : AN OVERVIEW OF PRODUCTION MANAGEMENT 1 - 21

1.0 INTRODUCTION 1

1.1 WHAT IS PRODUCTION MANAGEMENT? 1

1.2 NATURE OF PRODUCTION 2

1.3 MANAGING A PRODUCTION SYSTEM 5

1.4 DECISION-MAKING IN PRODUCTION /OPERATIONS MANAGEMENT 7

1.5 FUNCTIONS OF PRODUCTION MANAGERS 11

1.6 PROBLEMS OF PRODUCTION MANAGEMENT 11

1.7 COMPONENTS OR SUB-FUNCTIONAL AREAS OF PRODUCTION/OPERATIONSMANAGEMENT 12

1.8 PRODUCTION SYSTEMS 15

1.9 REVIEW QUESTIONS 21

CHAPTER 2 : PRODUCT PLANNING AND DEVELOPMENT 22 - 33

2.0 INTRODUCTION 22

2.1 WHAT IS A PRODUCT? 22

2.2 NEED FOR PRODUCT PLANNING AND DEVELOPMENT 24

2.3 OBJECTIVES OF PRODUCT PLANNING AND DEVELOPMENT 25

2.4 NEW PRODUCT DEVELOPMENT PROCESS 25

2.5 FACTORS TO BE CONSIDERED IN PRODUCT DEVELOPMENT 27

2.6 PRODUCT DESIGN 28

2.7 IMPORTANCE OF PRODUCT DESIGN 29

2.8 OBJECTIVES OF PRODUCT DESIGN 29

2.9 FACTORS INFLUENCING PRODUCT DESIGN 29

2.10 THE PRODUCT DESIGN PROCESS AS A PART OF PRODUCTDEVELOPMENT PROCESS 30

2.11 STAGES IN PRODUCT DESIGN 31

2.12 DESIGN DOCUMENTS FOR PRODUCTION 32

2.13 EFFECT OF PRODUCT DESIGN ON PRODUCT COST 32


CHAPTER 3 : PLANT LOCATION AND PLANT LAYOUT 34 - 49

3.0 INTRODUCTION 34

3.1 THE NEED FOR LOCATION DECISIONS 34

3.2 THE NATURE OF LOCATION DECISIONS 35

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3.3 FACTORS AFFECTING LOCATION DECISIONS 36

3.4 PLANT LAYOUT 39

3.5 SIGNIFICANCE OF LAYOUT CHOICES 40

3.6 FACTORS INFLUENCING LAYOUT CHOICES 41

3.7 PRINCIPLES OF PLANT LAYOUT 42

3.8 TYPES OF LAYOUT 42


CHAPTER 4 : PURCHASING MANAGEMENT 50 - 65

4.0 INTRODUCTION 50

4.1 FUNCTIONS OF PURCHASING DEPARTMENT 50

4.2 IMPORTANCE OF PURCHASING 51

4.3 OBJECTIVES OF PURCHASING 52

4.4 PURCHASE PARAMETERS 53

4.5 PURCHASING MANAGEMENT 55

4.6 MAJOR DEVELOPMENTS IN SUPPLY MANAGEMENT 56

4.7 PURCHASING SYSTEMS 58

4.8 PURCHASING METHODS 60

4.9 PURCHASING MANAGEMENT PROCESS 63


UNIT 2 : MATERIALS MANAGEMENT

CHAPTER 5 : OVERVIEW OF MATERIALS MANAGEMENT 66 - 82

5.0 INTRODUCTION 66

5.1 IMPORTANCE OF MATERIALS MANAGEMENT 67

5.2 DEFINITIONS OF MATERIALS MANAGEMENT 67

5.3 OBJECTIVES OF MATERIALS MANAGEMENT 68

5.4 MATERIALS MANAGEMENT CONCEPTS 71

5.5 FUNCTIONS OF MATERIALS MANAGEMENT 72

5.6 MATERIALS HANDLING 74

5.7 TYPES OF MATERIALS HANDLING SYSTEMS 76

5.8 SELECTION AND DESIGN OF HANDLING SYSTEM 76

5.9 TYPES OF MATERIALS HANDLING EQUIPMENTS 77

5.10 EVALUATION OF MATERIALS HANDLING PERFORMANCE 80

5.11 EFFICIENCY IN HANDLING MATERIALS 80

5.12 SAFETY IN MATERIALS HANDLING 82


CHAPTER 6 : INVENTORY MANAGEMENT 83 - 108

6.0 INTRODUCTION 83

6.1 NATURE AND IMPORTANCE OF INVENTORY 83

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6.2 CLASSIFICATION OF INVENTORIES 84

6.3 FUNCTIONS OF INVENTORY 85

6.4 INVENTORY COSTS 85

6.5 INVENTORY DECISIONS 86

6.6 IMPORTANCE OF INVENTORY MANAGEMENT 92

6.7 INVENTORY CONTROL SYSTEMS 93

6.8 SELECTIVE INVENTORY CONTROL 96

6.9 SOLVED PROBLEMS 101


UNIT 3 : BASICS OF PRODUCTIVITY AND TQM

CHAPTER 7 : CONCEPTS OF QUALITY AND PRODUCTIVITY 109 - 128

7.0 INTRODUCTION 109

7.1 MEANING OF TERMS ‘QUALITY’ AND ‘QUALITY CONTROL’ 109

7.2 IMPORTANCE OF QUALITY 113

7.3 FACTORS AFFECTING QUALITY 115

7.4 PRODUCTIVITY 115

7.5 SOLVED PROBLEMS IN PRODUCTIVITY 118

7.6 TOTAL QUALITY MANAGEMENT (TQM) 121

7.7 PRINCIPLES OF TQM 122

7.8 ELEMENTS OF TOTAL QUALITY MANAGEMENT CONCEPT 125


CHAPTER 8 : PHILOSOPHICAL FRAMEWORK TO TQM 129 - 150

8.0 INTRODUCTION 129

8.1 THE DEMING PHILOSOPHY 129

8.2 THE JURAN PHILOSOPHY 135

8.3 THE CROSBY PHILOSOPHY 141

8.4 THE KAIZEN PHILOSOPHY 147


CHAPTER 9 : PRODUCT AND SERVICE QUALITY DIMENSIONS 151 - 164

9.0 CHARACTERISTICS OF QUALITY 151

9.1 DIMENSIONS OF QUALITY 151

9.2 QUALITY ASSURANCE 153

9.3 QUALITY CIRCLES 154

9.4 CAUSE-AND-EFFECT-DIAGRAM 158

9.5 SERVICE QUALITY 161

9.6 MEASURING SERVICE QUALITY 162


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CHAPTER 10 : QUALITY IMPROVEMENT STRATEGIESAND CERTIFICATIONS 165 - 188

10.1 LEAN THINKING 165

10.2 KEPNER-TREGOE METHODOLOGY FOR PROBLEM SOLVING ANDDECISION MAKING 167

10.3 SIX-SIGMA QUALITY 169

10.4 TAGUCHI’S QUALITY ENGINEERING 173

10.5 QUALITY MANAGEMENT SYSTEM 174

10.6 QUALITY AWARDS 180


ANNEXURES 189 - 196

INDEX 197 - 200

An Overview ofProduction Management

Chapter 1

1.0 INTRODUCTIONToday’s business organisations producing goods and/or services demanded by customers present

greater challenges to the people who manage them, more than ever before. Managers who are in chargeof manufacturing goods or creating services have the direct responsibility of getting the job done and theyhave clear line management responsibilities. They are responsible for producing the goods and/or servicesboth efficiently and effectively so that the organisation can achieve maximum customer satisfaction andat the same time reasonable return on investments. Hence, there is a need for production managers to beinvolved in planning, organising, executing and controlling of all activities that create goods and/orservices to satisfy the needs of customers. Of all the functional areas of management in any businessorganisation (especially manufacturing organisation) production management is considered to be crucialbecause it is responsible for converting raw materials into finished goods assuming that the objectivesregarding volume of production (quantity), quality of outputs, cost of production (i.e., productivity), thetimeliness of production, (i.e., delivery schedules to meet customer demand) and customer service aremet, ultimately to achieve the objective of achieving maximum customer satisfaction and thereby remainingcompetitive in the market.

1.1 WHAT IS PRODUCTION MANAGEMENT?The term “Production management” was earlier used to refer to the management of an organisation’s

productive resources or its production system which converts inputs into tangible outputs, (i.e., physicalproducts) needed by the customers of the organisation. But many organisations create both goods andservices through the transformation of inputs into outputs. Since the importance of services (either along withtangible goods or as pure services) is gaining ground, the term production management hasbeen changed to “Production and Operations Management” as many business organisations produce bothgoods and services as their outputs. However, there are many organisations that do not create physicalproducts (or goods) and the production function in such organisations may be less obvious. Often whenservices are performed, no tangible goods are produced (for example, educational, medical and transportservices). But, regardless of whether the end product is a good or a service, the production activities that goon in the organisations are often referred to as operations and function of planning, directing and controllingthe processes that transform inputs into finished goods and/or services is termed as “OperationsManagement”. However, all these three terms, viz., “Production Management”, “Production andOperations Management” and “Operations Management” are used interchangeably. Today, this disciplineis generally referred to as “Operations Management” even though it includes both the management of

UNIT 1 : PRODUCTION MANAGEMENT

1

2 Production and Total Quality Management

activities for producing goods and management of activities concerned with providing services to thecustomers.

Why Study Production/Operations Management?Five reasons are:

(i) Production/operations management is one of the four major functions of any organisation, the otherthree being marketing management, financial management, and human resource management

(ii) To know how goods and services are produced(iii) To understand what production managers do, so that one can develop the skills necessary to become

such a manager.(iv) Production management function spends a large percentage of a firm’s revenue and offers great

scope for cost reduction.(v) Production management provides a major opportunity for an organisation to improve its profitability

and enhance its service to the society.

Meaning of “Production”Production implies the creation of goods and services to satisfy human needs. It involves conversion

of inputs (resources) into outputs (products). It is a process by which, raw materials and other inputs areconverted into finished products. Earlier the word "manufacturing" was used synonymously with the word"production", but nowadays, we use the term "manufacturing" to refer to the process of producing onlytangible goods whereas the word "production" (or operation) is used to refer to the process of creating bothgoods (which are tangibles) as well as services (which are intangibles).

Any process which involves the conversion of raw materials and bought-out components into finishedproducts for sale is known as production. Such conversion of inputs adds to the value or utility of theproducts produced by the conversion or transformation process. The utility or added value is the differencebetween the value of outputs and the value of inputs. The value addition to inputs is brought about byalteration, transportation, storage or preservation and quality assurance.

1.2 NATURE OF PRODUCTIONThe nature of production can be better understood by viewing the manufacturing function as discussed

in the following section:

Production as a SystemThis view is also known as "systems concept of production". A system is defined as the collection

of interrelated entities. The systems approach views any organisation or entity as an arrangement of inter-related parts that interact in ways that can be specified and to some extent predicted. Production is viewedas a system which converts a set of inputs into a set of desired outputs. A production system has thefollowing elements or parts: (i) Inputs, (ii) Conversion process or transformation process,(iii) Outputs (iv) Transportation subsystem, (v) Communication subsystem, and (vi) Control or decision-making subsystem.

Exhibit 1.1 illustrates the systems view of production function.

An Overview of Production Management 3

Exhibit 1.1 : Systems View of Production Function

Production as an Organisational FunctionTo create goods and services, all organisations whether manufacturing goods or providing

services perform four basic functions. They are: (i) Marketing function (ii) Production or Operationsfunction. (iii) Finance function, and (iv) Human Resource function. Production is considered as a crucialfunction which creates goods and services, whereas marketing function generates demand for products orobtains customers’ orders, finance function keeps track of how well the organisation performs and takes careof all cash inflows and cash outflows, and human resources function looks into the people aspect of theorganisation and the best utilisation of people in the organisation. Production function plays a central role inachieving the objectives of any business organisation.

Production as a Conversion/Transformation ProcessThe conversion or transformation sub-system is the core of a production system because it consists of

processes or activities wherein workers, materials, machines and equipments are used to convert inputs intooutputs, i.e.,

InputsConversion Process

Outputs(A simple production system)

The conversion process may include manufacturing processes such as cutting, drilling, machining,welding, painting, etc., and other processes such as packing, selling, etc.

Any conversion process consists of several small activities referred to as "operations" which aresome steps in the overall process of producing a product or service that leads to the final output.Table 1.1 illustrates some examples of conversion processes used in the production systems.

Inputs

Materials• • Labour• Equipment• Capital• Energy• Money• Management• Information

Output

• Goods and/or Services of Utility

External Environment

Customer/Client Participation

Conversion/Transformation

Process

Control Subsystem

Decision-maker(Production

Management)

.

External Environment

FeedbackFeedback


Table 1.1 : Examples of Conversion Processes used in Production Systems

ProductionInputs

ConversionOutputsSystem Process

Steel Plant Iron ore, coal/coke limestone, Smelting, rolling Steel sections,labour, machinery sheets

Restaurant Hungry customers, chefs, Cooking and Satisfiedservices, equipments serving food customers

Automobile Raw materials and components, Fabrication of parts and AutomobilePlant machinery, labour assembly of automobiles

Oil Refinery Crude oil, equipments, Chemical processes Petroleumlabour (fractional distillation) Products

Supermarkets Customers with needs, Selling/retailing Satisfiedsalespersons customers

College or High school students, Teaching (Imparting GraduatesUniversity teachers knowledge and skills) (Educated persons)

Airline Aeroplanes, pilots, engineers, Air transportation Satisfiedflight attendants customers to

their destinations

Production as a Means of Creating UtilityProduction is defined as the process of adding to the value of outputs or the process of creating

utility in outputs. "Utility" is the power of satisfying human needs. During the process of convertingthe raw-materials into finished goods, various types of utilities are created while adding value to theoutputs. These types of utilities are:

(i) Form utility: which is created by changing the size, shape, form, weight, colour, smell of inputs inorder to make the outputs more useful to the customers. For example, iron ore is changed to steel,wood is changed to furnitures, etc.

(ii) Place utility: which is created by changing the places of inputs or transporting the inputs from thesource of their availability to the place of their use to be converted into outputs. For example, theiron ore and coal are transported from the mines to the steel plant to be used in the conversionprocess.

(iii) Time utility: which is created by storage or preservation of raw materials or finished goods whichare in abundance at sometime so that the same can be used at a later time when they become scarcedue to higher demand exceeding the quantity available.

(iv) Possession utility: which is created by transferring the possession or ownership of an item fromone person to another person. For example, when a firm purchases materials from a supplier, thepossession utility of the materials will increase when they are delivered to the buying firm.

(v) Service utility: which is the utility created by rendering some service to the customer. For example,a doctor or a lawyer or an engineer creates service utility to a client/customer by rendering servicedirectly to the client/customer.

(vi) Knowledge utility: which is created by imparting knowledge to a person. For example, a salespresentation or an advertisement about some product communicates some information about theproduct to the customer, thereby imparting knowledge.

The activities carried out while creating the utilities discussed above are referred to as productionfunctions.


Production FunctionProduction function may be defined as the creation of useful products for sale with the help of inputs

such as materials, machines, labour, land, capital and management. The production function representsbasically a physical relationship between inputs and outputs. It may be represented as

Q = (a, b, c, d...)Where ‘Q’ is the quantity of output and a, b, c, d, etc., represent the quantities of various inputs such

as material, machine hours, labour hours, energy, etc. The production function specifies the amount ofoutputs resulting from the amount of inputs used during a specified period of time. The productive use of theresources is described by the term productivity. Productivity is an index that measures outputs (goods andservices) relative to the inputs (materials, energy and other resources).

It is usually expressed as, Productivity = OutputInput

Productivity is also known as productive efficiency or the efficiency of the production process. Itindicates how well a productive process is carried out to convert a set of inputs into a set of outputs of valueto the customer which also provides reasonable profits to the manufacturer or seller.

Importance of Production FunctionThe production is the core function of any business organisation. Production function creates goods

and services and organisations exist primarily to create goods and/or to provide services. Without productionfunction, there would be no need for any other function such as marketing, finance or human resourcefunction. Also, more than 50 per cent of employees in a business organisation have jobs in the area ofproduction. Moreover, the production function is responsible for a major portion of assets in most organisations.Consumption of goods and services is an integral part of any society and production function facilitatescreation of goods and services for the benefit of people in the society.

Box 1.1 lists some of the areas in which production management can offer competitive advantage to afirm.

Box 1.1 : Areas in which Production Management can offer Competitive Advantage

(i) Shorter new product lead time (i.e., speed to market)(ii) Higher inventory turnover (i.e., low inventory)(iii) Shorter manufacturing cycle time(iv) Higher product quality, (i.e., reduced defects)(v) Greater flexibility(vi) Better customer-service(vii) Reduced wastages(viii) Higher productivity (i.e., reduced costs)

1.3 MANAGING A PRODUCTION SYSTEMProduction management refers to the application of management principles to the production function

in a production system. It consists of application of planning, organising, staffing, directing and controllingfunctions in the process of converting the inputs to the desired outputs, efficiently and effectively.

Production management is the process which combines and transforms various resources (inputs) usedin a production system into value-added outputs (products/services) in a controlled manner. The term productionmanagement is usually used for a production system which produces tangible goods, whereas, the termoperations management is more frequently used where the inputs are converted into intangible services.However, many authors use the common term "production and operations management" to represent eithera manufacturing system or a service system.


Objectives of Production ManagementSome of the important objectives of production management are:(i) Maximum customer satisfaction through quality, reliability, cost and delivery time.

(ii) Minimum scrap/rework resulting in better product quality.(iii) Minimum possible inventory levels, (i.e., optimum inventory levels).(iv) Maximum utilisation of all kinds of resources needed.(v) Minimum cash outflow.

(vi) Maximum employee satisfaction.(vii) Maximum possible production, (i.e., outputs).

(viii) Higher operating efficiency.(ix) Minimum production cycle time.(x) Maximum possible profit or return on investment.

(xi) Concern for protection of environment.(xii) Maximum possible productivity.

Responsibilities of Production ManagersThe following are the major responsibilities of production managers:(i) Meeting requirements of quality demanded by customers.

(ii) Establishing realistic delivery or completion dates.(iii) Producing the required volume of products to meet the demand.(iv) Selection and application of most economic methods or processes.(v) Controlling the cost of inputs and conversion process and thereby keeping the cost of outputs

within the desired limits.Production managers are responsible for the amalgamation of five Ps namely Product, Plant,

Processes, Programmes and People. The product is the most obvious interface between production andmarketing. It includes characteristics such as performance, aesthetics, quality, reliability, selling price,delivery dates and/or lead times. The plant includes buildings, equipments and machinery required toproduce the product.

The plant should have the capacities to meet the present needs as well as that of the future. Theconsiderations are: (i) design and layout of buildings, (ii) performance and reliability of machines andequipments, (iii) maintenance of machines and equipments, (iv) safety of installation and operation ofmachinery and equipments, and (v) environment protection.

The processes include the transformation or conversion processes which convert the inputs intooutputs. The factors to be examined in deciding upon a process are: (i) available capacity, (ii) availablelabour skills, (iii) type of production, (iv) layout of plant and equipments, (v) safety requirements inoperations, and (vi) costs to be achieved.

The programmes consist of schedules or time tables which set times for delivery of products orservices to customers. These delivery schedules in turn decide the time schedules for various activitiessuch as design, purchase, manufacture, assembly, packing and despatch, etc.

The people aspect of production management includes the skills, knowledge, intelligence, etc., oflabour and managerial personnel which is crucial for the efficient and effective utilisation of resources forthe production of outputs.


1.4 DECISION-MAKING IN PRODUCTION /OPERATIONS MANAGEMENT

What Production/Operations Managers Do?The production/operations managers manage all activities of the production/operations systems which

convert inputs into the desired outputs (goods and services). The production/operations managers havethe ultimate responsibility for the creation of goods or provision of services. Even though the kind of jobsthat production/operations managers oversee vary from organisation to organisation, (because of thedifferent products or services involved) their job is essentially managerial. They must coordinate the useof resources through the managerial process of planning, organising, staffing, directing (or influencing)and controlling. Box 1.2 shows some of the responsibilities of productions/operations managers.

Box 1.2 : Responsibilities of Production/Operations Managers

(i) Planning : Capacity, location, products and services, make or buy, layout, projects andscheduling.

(ii) Organising : Degree of centralisation, subcontracting.

(iii) Staffing : Hiring/laying off of employees.

(iv) Directing : Incentive plans, issue of work orders, job assignments.

(v) Controlling : Inventory control, Quality control, Cost control.

A better insight to how production/operations managers manage can be had by examining the decisionsin production and operations management, since all managerial functions such as planning, organising,staffing, directing and controlling involve decision-making.

The decisions which production/operations managers make may be classified into three generalcategories:

(i) Strategic Decisions: Decisions about products, processes and facilities. These decisions are strategicallyimportant and have long-term significance for the organisation.

(ii) Operating Decisions: Decisions about planning production to meet demand.(iii) Control Decisions: Decisions about controlling operations concerned with day-to-day activities of the

workers, quality of products and services, production costs, overhead costs and maintenance of plantand equipment.Some examples of strategic, operating and controlling decisions are discussed below:

Strategic Decisions: These are decisions concerning long range production/operations strategies. Someof the examples of strategic production/operations management (POM) decisions are:

(i) Deciding about launching of a new-product development project.(ii) Deciding on the design for a production process for a new product.

(iii) Deciding on how to allocate scarce resources such as materials, machine and labour capacities andutilities.

(iv) Deciding about what new facilities are needed and where to locate them.

Operating Decisions: These decisions must help to resolve the issues concerned with planning productionto meet customers’ demands for products and services and to achieve customer satisfaction at reasonablecosts. Examples of operating decisions are:

(i) Deciding how much finished goods inventory to be carried for each product.(ii) Deciding the next month’s production schedule for producing the products.

(iii) Deciding about hiring of casual (temporary) workers for the next month.(iv) Deciding about the volume of purchase from each vendor next month.


Control Decisions: These decisions are concerned with problems in production such as variations inlabour output (productivity), variations in product quality, breakdown of production equipments, etc.Production/operations managers need to control poor worker performance, inferior product quality andexcessive equipment breakdowns so that the profitable operation of the productive system is not affected.Examples of control decisions are:

(i) Deciding the course of action about a department’s failure to meet the planned labour cost target.(ii) Developing labour cost standards for a new or modified product design which is about to be taken

up for production.(iii) Deciding about the new quality control acceptance criteria for a product for which the design has

been changed.(iv) Deciding about the frequency of preventive maintenance for key machinery or equipments.

Table 1.2 lists the types of production management decisions and their applications.

Table 1.2 : Production management decisions and their applications

Type ofArea of Involvement Nature of ActivitiesDecisions

1. Strategic (i) Manufacturing processes (i) Product design,decisions and technology design process design(Planning (ii) Plant location (ii) Choice of production technologyproducts, and plant layoutprocesses (iii) Long range capacity (iii) Choosing the best locationand facilities) planning (Equipment (iv) Deciding about the type of plant

and labour capacity) layout and shop layout.(v) Deciding the installed capacity of

the plant

2. Operating (i) Production planning (i) Preparing the master productiondecisions schedule(Matching (ii) Inventory planning (ii) Planning inventory levels for rawproduction materials, work-in-process andwith demand) finished goods

(iii) Resource requirement (iii) Planning for requirements of materialsplanning and capacities (Labour and equipment)

(iv) Production scheduling (iv) Detailed scheduling and machineloading charts

(v) Procurement planning (v) Vendor selection

3. Control (i) Labour productivity (i) Controlling labour output throughdecisions establishment of performance

standards(ii) Quality (ii) Controlling quality of incoming

materials, semifinished goods andfinished goods.

(iii) Projects (iii) Controlling projects (Costs andcompletion dates) using PERT/CPMtechniques.

(iv) Maintenance (iv) Controlling machine down-timeand repair time by goodmaintenance practices.

Box 1.3 shows ten important decision areas of production and operations management.


Box 1.3 : Ten decision areas of production/operations management

(i) Managing quality

(ii) Design of goods and services (product design)

(iii) Process strategy (process design)

(iv) Location strategies

(v) Layout strategies

(vi) Human resources strategies

(vii) Supply-chain management

(viii) Inventory management

(ix) Scheduling

(x) Maintenance

The ten decision areas in production/operations management shown in Box 1.3 are illustratedin detail in Table 1.3 below:

Table 1.3 : Ten critical decision areas of POM and their related issues

Decision Area Related Issues

1. Quality (a) Who is responsible for quality?management (b) How do we define the quality we want in our product or service?

2. Product and (a) What product or service should we offer?service design (b) How should we design these products and services?

3. Process and (a) What process will these products or services require and incapacity design what sequence?

(b) What technology and equipment is necessary for these processes?

4. Location selection (a) Where should the facility be located?

(b) On what criteria should we base the location selection decision?

5. Layout design (a) How should we arrange the facility?

(b) How large the facility be to meet our production plan?

6. Human resources (a) How do we provide a reasonable work environment?and job design (b) How much can we expect our employees to produce?

7. Supply-chain (a) Should we make or buy a particular component?management (b) Who are our preferred suppliers and how many suppliers should

we have?

8. Inventory (a) How much inventory of each item should be held?management (b) When do we re-order?

9. Scheduling (a) Should we subcontract production to outside sources?

(b) Should we retain our employees on the payroll during slowdowns.

10. Maintenance (a) Who is responsible for maintenance?

(b) What should be our maintenance policy?

Organising to Produce Goods and ServicesTo create goods and services, all organisations, whether manufacturing goods or providing

services, perform three basic functions. They are:


(i) Marketing: which generates the demand or takes customers’ orders for a product or service.(ii) Production/Operations: which creates the product (goods or services).

(iii) Finance/Accounting: which keeps track of how well the organisation is performing, and takescare of cash inflow and cash outflow.

Exhibit 1.2 illustrates organisation charts for a manufacturing and a service organisation.

Exhibit 1.2 :

(a) Organisation chart for a manufacturing organisation

AutomobileManufacturing Firm

Production/Operations Finance/Accounting Marketing

(a) Facilities-construction (a) Disbursements/credit (a) Personal sellingand maintenance (i) Accounts receivable (b) Advertising

(b) Production and inventory (ii) Accounts payable (c) Sales promotioncontrol, scheduling, materials (b) Funds management (d) Market researchcontrol (i) Money market (e) Distribution

(c) Quality control and assurance (ii) International exchange(d) Supply-chain management (c) Capital requirements(e) Manufacturing – (Tooling, (i) Stock issue

fabrication and assembly). (ii) Bond issue and recall(f) Product design and development(g) Industrial engineering

(Efficient use of resources)(h) Process analysis and

process design.

(b) Organisation chart for a service organisation.

Commercial Bank

Operations Finance Marketing

(i) Teller scheduling (i) Investments (i) Loans (Commercial,(ii) Check clearing (Securities, Real Estate) Industrial, Financial,(iii) Collection (ii) Accounting Personal, Mortgage)(iv) Transaction processing (iii) Auditing (ii) Trust department(v) Facilities design/layout(vi) Locker operations(vii) Maintenance(viii) Security

Production/operations managers need to build and maintain strong relationships both intra-organisationally and inter-organisationally. Inter-organisational relationship exists between production/operations department and suppliers, whereas intra-organisational relationship calls for cross-functionalcoordination.

Cross-functional coordination is essential for effective production/operations management. Forexample, marketing function determines the need for new products and services and the demand for existingones and operations managers must bring together human and capital resources to meet these demandseffectively.


Also, operations managers must consider facility location and relocations to serve new markets and thedesign of layouts for service organisations must match the image that marketing seeks to project to thecustomers. Operations managers must plan output rates and capacities to match the demand forecasts anddelivery promises made to the customers.

Operations managers need feedback from the accounting function to understand their current performance.Financial measures help the operations managers to assess labour costs, the long-term benefits of newtechnologies and quality improvement projects. Accounting helps in computing the production costs and inbills payment to suppliers.

1.5 FUNCTIONS OF PRODUCTION MANAGERSThe major functions of production managers may be categorised as shown below:

(i) Production Techniques: Equipment Design, Process Design, Plant Layout and Shop Layout, Designof Materials Handling System.

(ii) Capacity Management: Forecasting Demand, Delivery Commitment, Facility Location and ResourceAllocation.

(iii) Industrial Engineering (or Work Study): Method Study, Work Measurement.(iv) Production Planning and Control: Estimating, Forecasting, Routing, Scheduling, Dispatching and

Progressing.(v) Inventory Control: Purchasing, Storing and Controlling Inventory Levels and Material Issues.

(vi) Quality Control: Inspection, Quality Control, Quality Assurance and Reliability, Statistical QualityControl and Total Quality Control.

(vii) Maintenance: Servicing, Repairing, Breakdown/Preventive Maintenance, Spare Parts InventoryControl and Equipment Replacement.

Skills Needed for Production ManagersThe production managers need the following skills or competencies:

(i) Technical Competence: (a) Basic understanding of technology with which the production systemworks, and (b) Adequate knowledge of the work they have to manage.

(ii) Behavioural Competence: Interpersonal relationships, the ability to work with other people.

1.6 PROBLEMS OF PRODUCTION MANAGEMENTThe problems involved in production management require two major types of decisions relating to:

(i) Design of the production system and(ii) Operation and control of the production system.

Decisions related to the design of production system are long -run decisions, whereas decisionsrelated to operation and control of the production system are short-run decisions.

The problems involve the relative balance of the emphasis on such factors as cost, service and reliabilityof both functional and time performance, which depends on the basic purposes of the total enterprise andon the general nature of goods and services produced. In general, manufacturing organisations emphasisemore on cost, consistent with quality and delivery commitments, whereas service organisations may emphasisereliability and service, consistent with cost objectives (for example, hospitals).

Long-run DecisionsLong-run decisions related to the design of the production system are:


(i) Selection and Design of Products: Product selections and designs with productive capability, (i.e.,producibility of products) are interdependent.

(ii) Selection of Equipment and Processes: Selection of the most economic equipments and processesamong the various alternatives considered, the firm's capability to invest in capital assets and its basicapproach to production, (i.e., job, batch, mass or continuous production) must be considered.

(iii) Production Design of Parts Processed: Production design aims at selection of equipments, processes,and tools for economic production which set limits on the cost of outputs.

(iv) Job Design: It involves basic organisation of work as well as matching workers to their jobs in orderto reduce fatigue and improve productivity.

(v) Location of the System: It is a trade-off decision since there is no one best location for a productivesystem to be located. The balance of cost factors determined by various considerations is critical.

(vi) Facility Layout: This involves decisions related to design capacity, basic modes of production, shiftsof working, use of overtime and subcontracting. In addition, operations and equipments must be locatedin relation to each other such that the overall material handling cost is minimised. Other factors involvedare heating, lighting and other utility requirements, the allocation of storage space, wash space and thedesign of the building to house the layout.

Short-run DecisionsShort-run decisions related to the operations and control of the system are:

(i) Inventory and Production Control: Decisions made are concerned with allocation of productive capacityconsistent with demand and inventory policy. Feasible schedules must be worked out and the load onmachines and labour and the flow of production must be controlled.

(ii) Maintenance and Reliability of the System: Decisions must be made regarding the maintenance effort,maintenance policy and practice recognising the fact that machine down time may lead to idling oflabour and production stoppage resulting in lost sales.

(iii) Quality Control: Decisions must be made to set permissible levels of risk that bad parts are producedand shipped or the risk that good parts are scrapped due to sampling inspection. Inspection costs mustbe balanced with the probable losses due to passing defective materials or products. Decisions regardingcontrolling the quality of ongoing processes must be taken.

(iv) Labour Control: Labour is the major cost element in most products and services. Hence, workmeasurement and wage incentive systems must be developed to control labour costs and to increaselabour productivity.

(v) Cost Control and Improvement: Day-to-day decisions which involve the balance of labour, materialand overhead costs must be made by production supervisors.The relative importance of these problems of production management varies considerably depending

on the nature of the production system. The production manager must be able to sense the relative importanceof these various problems in a given situation and take appropriate decisions to solve these problems.

1.7 COMPONENTS OR SUB-FUNCTIONAL AREAS OF PRODUCTION/OPERATIONSMANAGEMENTThe various subfunctional areas of production/operations management are broadly classified as:

(i) Materials Management, (ii) Maintenance Management, (iii) Quality Management, and (iv) ProductionPlanning and Control. These sub-functional areas of production/operations management are brieflydiscussed in the following section.


(i) Materials ManagementThe importance of materials in organisational performance has been felt for several decades. Only

recently, however, have the production and operations managers found it necessary to develop an organisedbody of knowledge on this subject. The resulting set of related disciplines is known as materials management.

Materials are any commodities used directly or indirectly in producing a product or service such asraw materials, component parts, assemblies and supplies. In the manufacturing organisations, the importantinputs are referred to as 5 Ms viz., Men (Labour), Machines, Money, Materials and Methods. The relativeimportance among these five Ms have shifted from time-to-time. In the beginning of industrialisation thefocus was on machines, men (labour) and methods, but in recent years (from 1970 onwards) the emphasis ison materials. Material is an important and inevitable input of a production system since the cost of materialsand cost on materials (cost incurred in purchasing and storing the materials) put together account for 50 to85% of the production cost depending on the nature of the product and the type of the production system.

(ii) Maintenance ManagementMaintaining the production capability of an organisation is an important function of production and

operations management in any production system. Maintenance refers to the upkeep and protection of plant,building, machinery, and other fixed assets of a firm which are subject to deterioration due to their use andexposure to environmental conditions over a period of time. Maintenance encompasses all those activitiesrequired to keep the physical facilities and equipments in good working condition and making necessaryrepairs when breakdowns occur, so that the system can perform as intended.

Two categories of maintenance activities in a firm are:(i) Maintaining buildings, parking lots, lawns, fences, services and utilities.

(ii) Maintaining equipments, machinery, material handling equipments, transport vehicles, tools,meteorology tools, (inspection gages), test instruments, office equipments (computer, fax, xeroxmachines), etc.

What is Maintenance?Maintenance is defined as "that function of production management that is concerned with the day-to-

day problem of keeping the physical plant in good operating condition. It is an essential activity in everymanufacturing firm, because it is necessary to ensure the availability of the machines, buildings and servicesneeded by other parts of the organisation for the performance of their function at an optimum return oninvestment in machines, materials and employees".

What is Maintenance Engineering?Maintenance engineering is that function of production management that is concerned with the day-to-

day problems of keeping the physical plant in good operating condition.

What is Maintenance Management?Maintenance management is concerned with the direction and organisation of resources in order to

control the availability and performance of the industrial plants to some specified level. It is a functionsupporting production function and is entrusted with the task of keeping the machinery, equipment and plantservices in proper working condition. It also involves maintenance planning, maintenance scheduling, executionof maintenance activities (repair, breakdown and preventive maintenance) and also controlling costs ofmaintenance.

(iii) Quality ManagementQuality is broadly defined as the ability of a product or service to consistently meet or exceed customer

expectations.


Quality is one of the objectives of production/operations. In order to meet the quality objective, it isimportant to manage and control all aspects of quality.

The management of quality should encompass all aspects of quality from design of the product orservice through production and use. All quality efforts should be guided by a corporate policy on quality anda planning and control system which ensures a quality product. This system should involve all individuals inthe firm and stress the prevention of errors in all operation areas of the firm.

Managing quality involves managerial functions such as planning, organising, staffing, directing andcontrolling the activities — all focussed towards establishing a total quality system which ensures integrationof all processes and functional units to meet the objective and/or goals of the organisation. Quality managementis concerned with prevention of nonconformities and to design, manufacture and maintain the product orservice at the least possible cost while still meeting all customer requirements. Quality management is mainlyconcerned with Quality planning, Quality control and Quality improvement.

Quality Planning: Involves quality mission and objectives, quality strategies and quality policies.Organising for Quality: Involves creating an organisational structure to establish the lines of authority

and responsibility to improve communication, quality and productivity. It defines quality-related activitiesand the interrelationships between them, assigning responsibility for each of the tasks and subdividing tasksdown to the worker level.

Staffing for Quality: Involves placing personnel with the appropriate training in statistical qualitycontrol techniques in key positions to facilitate the implementation of quality programmes. The employeesof the organisation must be committed to the quality philosophy for the success of a company wide qualityprogramme. Every employee must develop a quality culture so as to develop a sense of ownership in theproduction of quality outputs.

Directing for Quality: Involves measures to ensure that the item produced conform to the designspecifications. Conforming to the quality specified in the product or service design depends on the qualityof purchased raw materials and components and hence it is necessary to closely monitor the vendors forquality. Statistical quality control measures must be used and documented by the vendors. Long-termrelationships with vendors promote a more uniform and acceptable quality level of incoming goods.

Controlling for Quality: Involves monitoring and controlling activities during the production and postproduction stages. The objective is to determine out of control process conditions and product nonconformanceas early in the production stage as possible. Two statistical techniques namely “Statistical Process Control”(SPC) and “Acceptance Sampling” are used for controlling quality. It is also necessary to control the costsof quality such as costs of prevention, appraisal, internal failure and external failure.

A modern approach to quality management is known as “Total Quality Management” (TQM)which involves such key elements as:

(i) Top management commitment to quality(ii) Customer involvement and focus

(iii) Employee involvement and focus(iv) Leadership and strategic planning for quality(v) Companywide quality culture

(vi) Continuous improvement (known as Kaizen in Japan), and(vii) Customer satisfaction and customer delight.

(iv) Production Planning and ControlProduction planning and control functions can be classified as under:

(i) Production planning or operations planning, and(ii) Production control or operations control.


Production Planning: Production planning involves the organisation of an overall manufacturing orservice system to produce a product (good or service).

The various activities involved in production/operations planning are:(i) Designing the product (good or service)

(ii) Determining the kind of equipment or machinery required to carryout the conversion process (facilityplanning)

(iii) Determining the process and operations required to be carried out and also the kind of tools requiredto facilitate the operations (process planning and tools planning)

(iv) Determining the capacity requirements (capacity planning)(v) Designing the layout of physical facilities and materials handling system.

(vi) Determining the sequence of operations and path of materials flow (routing)(vii) Determining the time required to carryout each operation (standard time or allowed time), and(viii) Specifying the production quantity and quality levels. (planning for quantity and quality)

Objective of production planning is to provide a physical system together with a set of operatingguidelines for efficient conversion of raw materials, human skills and other inputs into finished products.

Production Control: Production control function involves:(i) Providing for the production of parts, assemblies and products of required quality and quantity at the

required time.(ii) Co-ordinating, monitoring and providing feedback to production management the results of production

activities, analysing and interpreting their significance and taking corrective action if necessary.(iii) Providing for optimum utilisation of all kinds of resources.(iv) Achieving the broad objectives of low cost production and reliable customer-service.

The various areas of production control are:(i) Control of quality and quantity of output

(ii) Control of inventory(iii) Control of labour output, and(iv) Control of cost of production.

Production planning and control is a management tool employed for the direction of manufacturingoperations and their coordination with other activities of the firm. It is considered as the nerve centre of theproduction system. It coordinates with various departments such as marketing, product design, purchase,stores, industrial engineering, quality control, maintenance, manufacturing (fabrication and assembly), testing,packing and despatching departments in the production system. It is responsible for coordinating variousactivities concerned with production management, right from design to despatch of the products to customers.

1.8 PRODUCTION SYSTEMSIn the previous section we discussed production as a system which is also called as "systems

concept of production". We also discussed simple production model having elements such as inputs,conversion process, outputs, transportation subsystem, communication subsystem and control subsystem.

In this section we discuss production system in greater detail and also the various types of production,the types of production systems and the differentiating features of production systems.

Designing and Operating Production SystemsAs already mentioned in the previous section, the production manager is responsible for the creation

of goods and services. This involves acquisition of resources and the conversion of these inputs into


(i) Intermittent production systemJob shop production

Batch production

Process production

Assembly line production

Mass ProductionAnalytical

Synthetic

(ii) Continuous orflow shopproductionsystem

outputs using one or more suitable transformation processes. The transformation process involvesmanagerial functions such as planning, coordinating and controlling the elements of the process includingworkers, equipments, facilities, allocation of resources and work methods. One of the major decisions thatare made by production managers is the product design and/or service design which is taken in conjunctionwith marketing. Marketing people can be a source of ideas for new products and services and also forimprovements to existing ones. Production people can also be a source of new ideas for improvements inthe processes and product designs. Product and process designs are crucial for any organisation that wantsto remain competitive in the marketplace. Production managers make decisions to guide the productionsystem. Some decisions affect the design of the system and others affect the operation of the system.

System Design and Systems OperationSystem design involves decisions relating to the capacity of the production system, the geographic

location of facilities, arrangement of departments (plant layout) and placement of machines and equipments(shop layout) within the physical structures (buildings), product planning and acquisition of equipmentsand machinery.

Systems operation involves management of people, inventory planning and control, productionscheduling, project planning and control and quality assurance. Production managers are also involved inday-to-day operating decisions. However, production managers have greater concern for system designbecause system design essentially determines many parameters of systems operation such as costs, space,capacities, and quality that are affected by design decisions.

A Production System ModelA production system receives inputs in the form of materials, personnel, capital, utilities and

information, which are then changed in a conversion subsystem into desired product/services, (called asoutputs), A control subsystem monitors the quantity, cost and quality of outputs. The control subsystemensures system performance by providing feedback to enable managers to take appropriate correctiveaction if and when necessary. Exhibit 1.3 illustrate a production system model and Box 1.4 shows howproduction systems are classified.

Box 1.4 : Classification of Production Systems


ExternalLegal/Political, Social, technological and economical

PhysicalManufacturing, MiningLocational services (Transportation)Exchange services (Wholesaling / Retailing)Storage services (Warehousing)

Insurance, Finance, Banking, Real Estate, Health and Personal Services, Government Services

Other Services

MarketCompetition, Product information, customer desires

Primary Resources

Materials and Supplies, Personnel, Capital assets, Utilities, Money

DirectOutputs

Product, Services

Taxes, wages, salaries, Technological developments, Environmental impact, employee impact, Societal impact

Indirect Outputs

Control Subsystem

Feedback information

Inputs OutputsConversion subsystem

Exhibit 1.3 : A Production System Model

Inputs: Three general categories of inputs are:(i) External Inputs: Usually informational in character and tend to provide production managers knowledge

about conditions of the external environment of the system. Examples of external inputs are legal orpolitical inputs, social, economic and technological inputs. The production managers must operatewithin the constraints imposed by the legal/political inputs (rules and regulations of government andbusiness laws). Social and economic inputs indicate the trends (customers’ likes and dislikes, changesin lifestyle and buying power) that may affect the system. Technological inputs enable productionmanagers to improve the physical facilities, materials, methods, tools, processes, etc.

(ii) Market Inputs: Market inputs also tend to be informational. It provides information about competition,product design, customer needs and desires, and other aspects of the market which are essential for theproduction managers to operate the system so as to respond to the market needs.

(iii) Primary Resources: These are inputs which directly support the production and delivery of outputs.For example, materials and supplies, personnel, capital and capital assets and utilities such as water, gas,coal, electricity, steam, compressed air, etc.Outputs: Outputs are categorised as: (i) direct out puts, and (ii) indirect outputs.The direct outputs are usually either tangible or intangible. The tangible goods are outputs of production

systems, whereas the intangible services are outputs of service systems. However, there are some indirect


outputs in both production and service systems. They are taxes, wages and salaries, technologicaladvancements, waste effluents, pollution, and impact on employees (health and safety) and on society/community.

Conversion Subsystem: It is the core of the production system. It consists of workers, materials, andmachines used to convert inputs into outputs. All organisations have the conversion or transformation insome form or the other and it varies greatly among organisations.

Control Subsystem: This consists of the decisions making groups which is known as ProductionManagement. The production managers manage all activities of the production system. They obtain feed-back information from the conversion subsystem and outputs to identify variations in performance if any andtake decisions to carryout appropriate corrective actions as and when necessary.

Production System DiversityAll organisations have at least one production system. A wide variety of these systems exist,

several examples of which are given in Table 1.4.

Table 1.4 : Some Typical Production Systems

Production Primary Conversion OutputsSystem Inputs Subsystem

Automobile Purchased parts, raw Transforms raw materials AutomobilesFactory materials, supplies, paints, into automobiles

tools, equipment, personnel, through fabrication andbuildings and utilities assembly operations

Department Buildings, displays, shopping Attracts customers, Marketed goods andStore carts, machines, stock goods, stores goods, sells goods, satisfied customers

personnel, supplies, utilities, (exchange)and customers.

College or Students, books, supplies, Transmits information and EducatedUniversity personnel, buildings, utilities develops skills and persons

knowledge

Having discussed the concepts of the production system, it is necessary to know about the types ofproduction systems and their features.

Types of Production SystemsBroadly production systems can be classified as:(a) Manufacturing systems and service systems.(b) Series and parallel production systems.(c) Continuous flow and intermittent production systems.These production systems are discussed in detail in the following paragraphs:

1. Manufacturing Systems Versus Service SystemsProduction systems that produce goods are often referred to as manufacturing systems and the

production of tangible goods is called manufacturing. Some common examples of manufactured goodsare chemicals, steel, cement, automobiles, aeroplanes, beverages, packaged food and furnitures.

Production systems that produce services are referred to as service systems. Services are intangibleproducts that satisfy some need of a consumer including the enhancement of tangible goods. Examples ofservices systems are: health care services, legal assistance, financial services, accounting services,educational services, transportation services and warehousing services.


Products can also be combination of goods and services. Restaurants produce the tangible productsalong with the intangible services of delivery, cleaning of dishes and providing pleasant environment to thecustomers.

2. Series and Parallel Production SystemsProduction systems may exist in series; for example, when completed products are shipped from the

factory to a warehouse, they are leaving the factory system only to arrive at a second production system,called a warehouse. The factory and the warehouse are two production systems which are in series.

Production system may also exist in parallel, such as when a number of factories produce similarproducts and supply several market areas. These factories may be considered as one large productionsystem, (i.e., an industry) For example, several factories producing automobile spare parts are treated aspart of larger system known as automobile spare parts industry.

3. Continuous Flow Versus Intermittent Production SystemsContinuous Flow Production Systems are those where the facilities are standardised as to routings

and flow. A standard set of processes and sequence of processes can be adopted. Continuous flow productionsystems are represented by production and assembly lines, large scale office operations and chemicalprocesses.

Intermittent Production Systems are those where facilities must be flexible enough to handle awide variety of products and sizes. In situations such as this no single sequence of operations is appropriate.Transportation facilities between operations must be flexible to accommodate a wide variety of routesthat the inputs may require. Considerable storage between operations is required so that individual operationscan be carried on somewhat independently, resulting in ease of scheduling and better utilisation of menand machines. Intermittent production is represented by custom or job-order machine shops, hospitals andbatch chemical processes.

The production system model shown in Exhibit 1.3 can be made to fit both the intermittent andcontinuous-flow situations by the specification of some of the detailed characteristics. Exhibit 1.4 representsthe intermittent production system.

Exhibit 1.12 : An Intermittent Production System

Receiptoperation

a

Productionsystem

boundary System inputsMaterialsPartsPaperwork formsCustomersPatients

System outputsCompleted partsProductsCompleted paperworkServiced customersServiced patients

Informationand control

system

Decisionmaker

Shippingoperation

n

operationb

operationc

operationd

operationeStorage

operationf

operationg

Finishedgoodsstore


In the intermittent production system, inputs may be processed in any specified sequence of operationsand are transported between operations. The number of operations may vary from one to any finitenumber. Storage occurs between all operations and the time in storage may vary from essentially negligibleto any finite amount. It should be noted that in Exhibit 1.4, there are interconnections between alloperations b through f, although only those originating at b are shown. The information and controlsystem interconnects all activities and provides the basis for management decisions.

Exhibit 1.5 represents a continuous flow production system.

Exhibit 1.5 : A Continuous Production System

In the continuous flow production system the input-output characteristics are standardised, allowingstandardisation of operations and their sequence. Minor storage of input occurs after receipt. Once on thetransportation system, any storage between operations is combined with transportation (for example,conveyorised assembly line operations). In the ideal situation the operations are also combined withtransportation so that inputs are processed while they are being moved (for example, painting of jobs whichare being moved by means of a conveyor).

Having understood the meaning of production as a function of a production system it is necessary tounderstand the nature of various types of production.

The process by which goods and services are produced can be categorised on the basis of thefollowing classifications.

(a) Job Shop Production: In this type of production a wide variety of customised products are made bya highly skilled workforce using general purpose equipments. It is also known as unit-production, one-off production, custom-built or tailor-made production. Ship-building, furnace manufacture, tool makingand printing orders are some of the examples of job-shop production.

(b) Intermittent Flow or Batch Production: In this type of production, a mixture of general purpose andspecial purpose equipment is used to produce small to large batch of products. Batch production is oneform of intermittent flow production. It is used to produce moderate volumes of similar products. For


example, ready-made garments and book manufacturers adopt batch production. Ice cream manufacturersproduce a batch of ice creams of different flavour such as vanilla and strawberry.

(c) Repetitive Flow or Mass Production: In this type of production several standardised products followa predetermined flow through sequentially dependent work centres. Workers typically are assigned toa narrow range of tasks and work with highly specialised equipment. Examples are automobile andcomputer assembly lines.

(d) Continuous Flow or Flow Shop Production: Continuous processing or continuous production isemployed when a highly standardised product or service is produced or rendered. Processing of chemicals,oil refineries, sugar and cement production are some of the examples of continuous flow production.Industries that use continuous processing involving chemical or metallurgical processes are sometimesreferred to as process industries and the type of production adopted is known as process production.Production processes are usually performed round-the-clock in process industries to avoid costly shutdown.

1.9 REVIEW QUESTIONS1. Define the terms "Production", "Production system" and "Production Management".2. Discuss the following views of the nature of production:

(i) Production as a system.(ii) Production as an organisational function.

(iii) Production as a conversion process.(iv) Production as a means of creating utility.

3. What is "Production function"? State its importance.4. State the objectives of production management.5. Discuss the major responsibilities of production managers.6. Describe the various decisions made by production managers under three categories, viz., strategic,

operational and control decision areas of production management.7. Discuss the ten decision areas in production and operations management.8. Explain what is meant by "organising to produce goods and services". Draw a typical organisational

chart for a manufacturing and for a service organisation.9. Discuss the major functions of production managers and the skills needed for them.

10. Discuss the problems that may arise in production management and the decisions production managershave to take to solve these problems.

11. Discuss the components or sub-functional areas of production/operations management.12. Distinguish between system design and system operation.13. Discuss a “production system model’ with a diagram. Describe its elements such as inputs, conversion

and control subsystems and outputs.14. Discuss the various types of production system.15. Discuss the various types of production giving examples for each.

production and – inventory control techniques – abc, ved, fsn, golf, xyz, sos and hml. eoq:...

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