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Nature AND Scope OF Production AND Operations Management
Financial Management (4B07BBA)
Kannur University
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NATURE AND SCOPE OF PRODUCTION AND
OPERATIONS MANAGEMENT
The Association of Operations Management (APICS) defines operations management as 'the field of study that focuses on the effective planning, scheduling, use and control of manufacturing or service organisation through the study of concepts from design engineering, industrial engineering, Management Information System (MIS), quality management, production management, industrial management and other functions as they affect the organization. According to Shrin and Joel G. Siegel, 'production and operation management is the management of all activities directly related to the production of goods and services.' It may be remembered that goods are produced and services are rendered. Difference between Production and Operations Production and operations involve the conversion of input into output through a transformation process. In the early days, production involved the processes followed for mass production, which produced tangible goods. As the complexities of business grew, managing the systems responsible for production became essential. Later, even services began to be 'produced' or rendered. These were intangible. Therefore, some principles were needed that could encompass the entire system that produced a good or delivered a service. It was found that the same principles could be effectively applied in the management of processes that produced goods as well as those that produced services. This is production and
operations management. P&OM (as it is called) uses the decision-making tools of operations research and the principles of industrial engineering, quantitative techniques, shop floor control, organizational behaviour, safety management and maintenance management. Thus, production and operations management deals with the concepts and principles that are employed by organizations to make them efficient and effective. Production Process It has already been stated that production involves conversion of input to output through a transformation process, which adds value to the input Production and Operations Management: An Overview
(a) Input: It includes the six Ms-man, machine, materials, money, method and management.
(b) Transformation process: This is the process by which inputs are converted into outputs. It is a value- addition process that modifies or adds value to the input and converts it into a form that is more useful and salable to a customer. This value addition can be in any of the following ways:
(i) Alteration: This includes activities such as change in physical state of input, changing dimensions, adding chemicals, heating, rolling and galvanizing. The methods of transformation are numerous, and there is one distinct method for every available product in the market.
2 can be produced, stored and transported according to demand since the value is stored in the good.
3 is produced in a factory environment, usually away from the customer.
4 are often standardized. Quality is inherent to the good.
Services
1 are intangible. They are just ideas, concepts or information.
2 cannot be produced beforehand, stored or transported. Value of a service is conveyed as used.
3 are produced in a market environment in collaboration with the customer.
4 are often customized.
Quality is inherent to the process since it is a function of people.
As the complexities of an organization grew, it was found that merely converting an input to an output was not enough. Feedback from the output stage was necessary to make the required changes either in the
input or in the transformation process. So production control was done to take care of fluctuation, if any, in inputs. The quality of the produced output was now constantly compared with the quality of the desired output, and feedback mechanisms were put in place to monitor the performance of the transformation process. At times, random disturbances that hamper the transformation process are also noticed. These random disturbances are sometimes unexpected and so not planned for. They occur due to an external environment and can be in the form of strikes, government interference and recession. Thus, in reality, the cycle of production and operations management looks like as presented in Figure 1. Random Disturbances INPUT OUTPUT Transformation Process Quality of Input Monitored Quality of Output Monitored FEEDBACK MECHANISM Figure. 1 Cycle of Production and Operations Management Production is the Heart of an Organization Production is the primary business of an organization. All other wings or activities of an organization exist subject to the existence of production. Without production or anything to sell, there is no organization at all. An organization usually has several departments and each department has a specialized function (refer Figure 1). Marketing establishes the demand for goods and sells what is produced. Finance provides the capital for equipment and resources. Human resource management provides and manages manpower. Purchasing is concerned with procurement of materials needed to run the
products should be competitive and commensurate with the features offered by the product. A good organization produces goods and services of the right quality that meet all product specifications and are optimally priced. In order to make good profits, an organization should focus on minimizing cost and maximizing revenue. 6 Timeliness The product produced or service rendered may be qualitative and cost-effective but if it does not reach the consumer when required, the organization loses out on the product's market. This is because consumers do not wait for a product or a service; instead they acquire it from a competitor. Therefore, production and operations management plays a vital role in the timely provision of a product or a service by effectively maintaining production schedules. To summarize, you can say that an effective P&OM needs to produce products or render services of the right quality, in the right quantities, at the right time and at minimal costs. It should also ensure that no matter what, wastages do not occur in the system because these result in cost escalations and cause severe delays. The above-mentioned factors can also result in the failure of the management in achieving its objectives and targets. Scope of Production and Operations Management I Production and operations management encompasses all the activities involved in producing a good or a service. Imagine how an entrepreneur would go about it. He would first decide what product or service he wants to sell. He would then decide what process he will use, where he will make it, etc. Following the same
line of thought, the scope of production and operations management is listed below: L Product selection and development: This deals with the study of how a product is selected and developed for commercial production. 2. Process selection: This deals with how the process required to produce a product for commercial purposes is selected. 3. Facilities location: This includes the parameters that need to be considered Ο for locating factory premises. Ο Layout planning: This deals with the study of how the factory or plant should be laid out for optimum production. an re 5. Material handling: This deals with the study of the significance of material flow in an organization, the different methods of material handling, etc. au 6 Manufacturing system: It is the study of different types of manufacturing systems and their applicability 7 Production planning and production control: This includes the methods followed in different kinds of manufacturing systems e., the methods followed for job loading, scheduling, dispatching, PERT/CPM and linear programming. & Work studies: This involves method study and work measurement. 19. Materials management: This deals with methods to control inventory, inventory analysis, etc. 10. Quality: This deals with quality standards and techniques, total quality management (TQM), six sigma, etc. 11. Safety management: This involves safety management principles, methods, etc. Planning Function of Production and Operations Management >EFа==і я Just like any other field of management, production and
activity indulged in by the management to achieve the desired results by executing their ability, either personally or through other people. Only effective and timely decisions achieve success. The effectiveness comes with right planning, efficient execution, quality production and timely delivery to the customer. All these are the essential ingredients of operation management under which various types of decisions are made. The decisions are made either to provide right guidance or to sort out any major or minor problem. The management decisions broadly fall into the following categories (Figure 1): • Short-term decisions known as operational decisions • Mid-term or intermediate decisions known as tactical decisions • Long-term decisions known as strategic decisions Operational decisions Operational decisions are made at the functional level by the operations managers. The authority to make such decisions is bestowed on them by the top management. The decisions at that level are made for short term and are of small value as pre decided by the head office. For example, in a manufacturing unit, at the time of fabrication of a metal plate, the screw or the bolt to be fitted breaks down. To procure suitable bolt or the screw immediately from the market is an operational decision. Such a decision would save the precious time of completion of manufacturing the assembly. Such small decisions are the responsibility of the functional-level managers. Tactical decisions Tactical decisions are made at the level of the departmental head. For example, suppose
the production manager finds that the manufacture of a subassembly at his plant would cause delay in timely completion of the bigger equipment, he may decide to procure the said subassembly from the market and go ahead with the manufacturing of the finished good for timely supply of the equipment to the customer. Such decisions are of tactical importance to ensure that the overall performance does not suffer. Strategic decisions Strategic decisions are made at the top management level with a view to ensure that the organizational aims and the objectives are met. Such decisions are also taken for the expansion of the business and also to augment the resources to increase the capability of the enterprise. Strategic decisions are also taken to counter the compatibility and to achieve the competitive edge for business success in the long run. Basic Steps in Decision Making The operations managers make certain quick decisions at the functional level that are necessary for keeping the chain of activities effective for the completion of the given job. Although the options to make specific decision may be different to tackle different problems under different situations and conditions, the basic considerations of the type of steps to take remain the same. 1. Firstly, understand the nature of the problem and the urgency of making the decision. 2. Secondly, collect the necessary information about the available alternatives. 3. Thirdly, select and implement the most suitable alternative available. The ability to apply the said steps varies from individual to individual, due to the different attitude and capability to
issued orders to workers. Many inventions, such as James Watt's steam engine, Jenny Cartwright's powerlooms and Maudslay's cutting lathes, contributed to the Industrial Revolution. During this period, Adam Smith, the father of modern economics, published An Enquiry into the Nature and Causes of Wealth of Nations, popularly called The Wealth of Nations. The three main concepts propounded by him were division of labour, pursuit of self-interest and freedom of trade. He felt that other costs besides wages, such as rent and profit, also affected the price of a commodity. Smith believed that the division of labour could greatly increase production. He wrote, 'If one worker could make twenty pins a day and if ten people divided up the eighteen steps required to make a pin, they could make a combined amount of 48000 pins in one day.' Era of Scientific Management The era of scientific management began in the United States of America in the early 20th century. Fredrick Winslow Taylor is called the Father of Scientific Management. He propounded the following four principles:
- Replace the rule of thumb work method with methods based on a scientific study of tasks.
- Scientifically select, train and develop each employee rather than leaving them to train themselves.
- Provide detailed instruction and supervision to each worker.
- Divide work nearly equally between managers and workers; the duty of establishing standards and enforcing them rests with the management alone.
Taylor also propounded the Time and Motion Study. This involved breaking up the job into its component parts and measuring each component in terms of the time required to do it. This study was carried forward by his associates, the husband and wife duo of Lilian and Frank B. Gilbreth, who coined the term 'Motion Study'. The Gilbreths used a camera to record and examine the detailed micro-movements and invented cyclographs and chronocycle graphs to observe rhythm and movements. Another known pioneer of the scientific management era was Henry Gantt. The Gantt chart that he created is a visual display chart used for scheduling work based on time; he showed the humane face of management and listed out the conditions that have a favourable psychological effect on the workers. By the end of the 19th century, the internal combustion engine had been invented and the first assembly line manufacture of cars was started by Henry Ford in Detroit, USA. Era of Human Relations The impact of behaviour of workmen on their performance was increasingly recognized and some experiments were carried out at the Hawthorne Works in Chicago, USA. These tests, called the Hawthorne Studies or the Hawthorne Experiments, form the basis of several behavioural and motivation theories. Other important contributors of this era are A. Maslow, F. Hertzberg, Douglas McGregor, etc. Era of Quantitative Techniques Quantitative techniques originated during World War II. Operations research teams were formed to deal with strategic and technical problems faced by the military.
Nature AND Scope OF Production AND Operations Management
Course: Financial Management (4B07BBA)
University: Kannur University
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