Chapter 10

Production and Operations Management

Utility: The want-satisfying power of a good or service

- Businesses can create or improve four basic kinds of utility

o Time
o Place
o Ownership
o Form

Production: The use of resources to convert materials into finished goods and services

Production and Operations Management: The process of overseeing the production process by
managing the people and machinery that convert materials and resources into finished goods
and services

- Production and Manufacturing do not mean the same thing

- Production is used in both manufacturing and nonmanufacturing industries
- Production process always converts inputs into outputs

Types of Production

Mass Production

- System for manufacturing large quantities of products by using effective combinations

of employees with specialized skills, mechanisation and standardization
- With specialization, work is divided into its simplest forms, so each worker can focus on
one task
- With mechanization, machines do much of the work previously done by people
- Standardization involves producing identical, interchangeable goods and parts
- MP is highly efficient for producing large numbers of similar products, but is highly
inefficient when producing small batches of different items

Flexible Production

- Usually more cost effective than MP for producing smaller runs

- Uses three resources
o IT to share details of consumer orders
o Programmable equipment to fill the orders
o Skilled people to carry out tasks needed to complete an order
 - Works best when combined with lean production methods that use automation and IT
- Needs a lot of communication among everyone in the organization

Customer-Driven Production

- Assesses customer demands to make a connection between the products that are
manufactured, and products people want to buy
- Can set up computer links between factories and retailers’ scanners
- Can also wait for a consumer orders a product and then produce it

Four Main Categories of Production Processes

Analytic Production System

- Reduces raw material to its component, or individual, parts to extract one or more
marketable products
- This is evident in petroleum industry, where crude oil is broken down to obtain gasoline,
aviation fuel etc.

Synthetic Production System

- Combines two or more raw materials or parts, or transforms raw materials, to produce
finished products
- Evident in camera, car manufacturing

Continuous Production Process

- Creates finished products over a long period of time

- Is evident in steel industry

Intermittent Production Process

- Creates products in short production runs

- Machines may be shut down frequently or changed so they produce different products
- Accounts, plumbers and dentists use intermittent production process as each customer
offers a different situation

Green Manufacturing Process

- More and more manufacturing firms are investing in developing processes that results
in less waste, lower energy use and little/no pollution
- Companies of all sizes are doing so
- Firms involved in building construction are turning attention to LEED (Leadership in
Energy and Environmental Design) Certification
 - LEED certification process is tough, and aimed at promoting most sustainable
construction processes available

Robots

- Robot is a machine that can be programmed to perform tasks that require repeated use
of materials and tools
- Due to improvements in technology, robots are now less expensive and more useful
than they once were
- Pick-and-place robot picks up item from one spot and places in another spot
- Field robots assist people in nonmanufacturing, often dangerous, environments e.g.
nuclear power plant

Computer Aided Design: A process used by engineers to design parts and entire products on a
computer

- Engineers who use CAD can work faster and with fewer mistakes than those who use
traditional drafting systems

Computer-Aided Manufacturing: A computer tool that a manufacturer uses to analyze CAD

output and the steps that a machine must take to produce a needed product or part

Flexible Manufacturing System: A production facility that workers can quickly change to
manufacture different products

Computer-Integrated Manufacturing: An integrated production system that uses computers to

help workers design products, control machines, handle materials and control production
function

Factors Involved in a Plant Location Decision

Human Factors

- Labour Supply
- Local Zoning Regulations
- Taxes

Physical Factors

- Water Supply
- Energy
- Hazardous Wastes

Transportation Factors
 - Closeness to Markets
- Closeness to Raw Materials
- Availability of transportation options

Recent Trends in Location Strategy

- Bringing production facilities closer to the final markets where the goods will be sold
o Leads to reduced time and cost for shipping
o Closer relationship between parent company and supplier

Environmental Impact Study: Study which analyzes how a proposed plant will affect the quality
of life in the surrounding area

Tasks of Production Managers

1. Planning the Production Process

- Begins by choosing goods or services to offer to customers

- Also requires choosing machinery, pricing and selection of retail outlets
- Products must satisfy consumers and be produced as efficiently and inexpensively as
possible
- In traditional terms, each production manager has specific area of authority, but a
downside is that purchasing manager will compete against the inventory control
manager
- More organizations have moved towards team oriented structures

2. Selecting the Facility Layout

- Efficient facility layout can reduce material handling, decrease costs and improve
product flow
- There are three common layout designs

Process Layout

o Groups machinery and equipment according to their functions

o Work in process moves around the plant to different workstations
o Makes it easier to produce a variety of nonstandard items in relatively small
batches

Product Layout
 o Sets up production equipment along a product-flow line; also called an assembly
line
o Effectively produces large numbers of similar items, but it may be inflexible, with
room for only a few product variations

Fixed-Position Layout

o Places product in one place, and workers, materials and equipment go to

product’s location
o Approach suits very large, bulky, heavy products e.g. ships

Customer-Oriented Layout

o Facility enhanced to enhance interactions between customers and its services

o Hospitals use a customer-oriented layout

3. Carrying Out The Production Plan

- Make, Buy or Lease Decision

o Producer must decide whether to manufacture a product or part in-house, buy it
from an outside supplier, or lease it
o Factors which affect make, buy or lease decision
 Cost of leasing/purchasing parts from outside suppliers compared with
in-house
 Quality and quantity of supplier products
 Need for confidentiality
 Short/Long term need for supplies
o Production managers should still keep a relationship with other supply sources
 Means firms can get materials it needs even during strikers, quality
assurance problems etc.
o Outsourcing is used to reduce costs and focus on core business activities
o Outsourcing can lead to layoffs and decrease in quality of firm’s outputs

Selection of Suppliers

o Factors to consider when choosing suppliers

 Quality
 Prices
 Dependability of delivery
o Firms often purchase raw materials and parts on long-term contracts, and build
long-term relationships with suppliers

4. Controlling Production Process

 - Inventory Control
o Function that balances cost of storing inventory with need to have stock on hand
to meet demand
o Firms waste money if they store more inventory than needed, but too little
inventory may lead to a shortage of raw materials, parts or goods
o Perpetual Inventory Systems rely on computers and automatically generate
orders when stock is low
o Vendor-Managed Inventory involves handing over inventory control function to
suppliers

- Just-In-Time (JIT) System

o Provides right part at the right place at just the right time, just before it is
needed in production
o Based on a broad management philosophy that reaches beyond narrow activity
of inventory control
o Production that uses JIT system shifts most of inventory responsibilities to
suppliers
o Supplier use forecasts to decide how much inventory to carry
o Strong demand can overtax JIT systems

- Materials Requirement Planning

o A computer-based planning system that ensures a firm has all the parts and
materials It needs to produce its output at the right time and place
o Production managers use MRP Programs to create schedules that list specific
parts and materials needed to produce an item

Production Control: Creating well-defined procedures for coordinating people, materials, and
machinery to provide the greatest production efficiency

Steps of Production Control

Planning

- Managers decide on amount of resources needed to produce a certain output

- Production Planning Process can lead to a list of all needed parts and materials

Routing

- Manager decides on sequence of work throughout the facility

o Who will perform each part of the work?
o Where the work will be done?
- Routing choices depend on two factors:
 o Nature of good or service
o Facility Layout

Scheduling

- Managers develop timetables that show how long each operation in production process
takes and when workers should perform it
- Gantt chart can tracks projected and actual work progress overtime; effective for
scheduling simple projects
- PERT Chart reduces number of delays by coordinating all parts of the production process
- PERT diagrams have critical paths – sequence of operations that requires the longest
time for completion

Dispatching

- Management instructs each department on the work it needs to do and how long it has
to do the work
- Dispatcher authorizes performance, provides instructions, and lists job priorities

Follow-Up

- Managers, employees and team members spot problems in production process and
come up with solutions
- Production Control System must identify and report these delays to managers of work
teams so they can adjust schedules and correct underlying problems

Quality: The state of being free of deficiencies or imperfections

Benchmarking: Process of looking at how well other companies perform business functions and
using their performance as a standard for measuring another company’s performance

Ways a Company Can Track Output Quality

Benchmarking

- Process of looking at how well other companies perform business functions and using
their performance as a standard for measuring another company’s performance
- When benchmarking, a firm must decide what it wants to accomplish, what it wants to
measure, and which company can provide most useful benchmarking information

Quality Control

- Involves measuring output against quality standards

 - Can be used to spot defective products and avoid delivering poor quality goods to
customers
- Can be checked using visual inspections, electronic sensors and robots

Six Sigma Concept

- Large organizations try to make error-free products 99.9997% of the time

- Goal of Six Sigma is to eliminate nearly all defects in output, process and transactions

ISO Standards

- ISO 9000 Standards help organizations to ensure that their products and services:
o Are of high quality
o Provide a basis for continual improvement
- ISO 14000 Standards for environmental management help organizations to ensure that
their operations:
o Cause as little harm as possible to environment
o Continually improve their environmental performance
- Studies show that business partners, customers and suppliers prefer to deal with
companies that are ISO 9000 certified