Course: Production & Operation Management 8509

Semester Spring, 2019 Level MBA

Assignment No.1
Q No.1
Critically analysis why production management should be treated as a series of systems rather than a department?

Ans No.1
Production (or Operations) management is an umbrella term which encompasses a gamut of ideas within the
jingoistic managerial circles, mostly exemplified by the varied literal definitions of these terms based on the source.
But we’ll confine ourselves to straightforward (and understandable) definition to answer the basic question – ‘What
is operations management?

Difference between Production and Operations Management

Production and operations management are more similar than different: if manufacturing products is a prime
concern then it is called production management, whereas management of services is somewhat broader in scope
and called operations management (because manufacturing services sounds absurd, right?).
The line between products-based and services-based organizations is blurring rapidly as well— car manufactures
need to service their cars and the retailers manufacture their own brand labels.
We will be referring to them jointly as POM from here on in this article, for the benefit and convenience of all the
parties involved.
The fuss about production and systems
Production is a term which has caught the fancy of every industrialist ever since Adam Smith propounded the idea
of “specialization of labor”.
It is best envisioned as a piece-wise process (think about a typical production line with every worker doing one and
only one task at a frenetic speed), and this piece-wise production enabled better quality, higher throughput, lower
individual dependency and lesser labor costs.
It is a bit hard to fathom that the same fundamental idea is responsible for both cheap cars (Ford pioneered large
scale manufacturing sequences through assembly lines) and cheap burgers (though McDonald’s is actually in the
real estate business).

The production systems are frequently classified in the following buckets:

 Mass Production: Utilizes standardized discrete assemblies in a continuous process, suitable for very large
volumes of production—all outputs following the same path. Generally associated with mind-numbing
repetition, very specific machinery and a labor force low on skill/creativity.
 Continuous Production: Non-flexible mode of production in which the whole sequence of operations is
pre-arranged in a definite set-up.
 Batch production: American Production and Inventory Control defines batch production as “a form of
manufacturing in which the job passes through the functional departments in lots or batches and each lot
may have a different routing.” Enough said.
 Job Shop Production: Characterized by custom specifications by customers for a limited quantity of
products, use of general purpose machines and comparatively more creative/skilled labor.
 There are a few decision areas which are of utmost importance in POM, such as design, quality, location
selection, human resource allocation, supply chain management and maintenance.
 The decisions arising from a POM perspective often decide the core priorities of an organization— What
makes us better than the competitors? Will we compete on cost, quality, delivery time, design/form
factor, ease of use, or something else? Et cetera et cetera.
 There are some pre-defined objectives of production management, which can be broken down into:
 right quality,
 right quantity,
 right time and
 right cost
Production management can essentially be seen as an optimization problem — the goal is to make the process
as predictable as possible (as all of us do not share the same enthusiasm for surprises).

The objectives of operations management are a tad more extensive and take a couple of things more into the
fold: customer service and resource utilization.
 Almost all the things in operation management converge towards a single focal point: the customer.
Customer satisfaction is a barometer of things moving in the right direction.
 Resource utilization is equally imperative — the process of obtaining the output from input through the
path of least resistance, i.e. through least wastage and maximum utilization of resources.
 Scoring high on one usually leads to deterioration in performance of the other (utilization v/s customer
service), and their balance is usually the nightmare of an operations manager — but is definitely a worthy
goal to look forward to.

Q: No.2
Elaborate the general considerations in process analysis which are of concern for the operation manager?

Ans: No.2
An effective operations manager assures that suppliers, materials, manufacturing, and labor all work together in an
effective manner to reduce production cost.

It is concerned with managing an entire production system which is the process that converts inputs (in the forms of
raw materials, labor, and energy) into outputs (in the form of goods and/or services), or delivers a product or
services. Operations produce products, manage quality and creates service.
Utility is a function of the product's features and cost. ... The work of the Operations Manager most
directly impacts cost and quality.
Operations management is the administration of business practices to create the highest level of efficiency possible
within an organization. It is concerned with converting materials and labor into goods and services as efficiently as
possible to maximize the profit of an organization. Operations management teams attempt to balance costs with
revenue to achieve the highest net operating profit possible

A critical function of operations management relates to the management of inventory through the supply chain. To
be an effective operations management professional, one must be able to understand the processes that are
essential to what a company does and get them to flow and work together seamlessly. The coordination involved in
setting up business processes in an efficient way requires a solid understanding of logistics.

An operations management professional understands local and global trends, customer demand and the available
resources for production. Operations management approaches the acquisition of materials and the use of labor in a
timely, cost-effective manner to deliver customer expectations. Inventory levels are monitored to ensure excessive
quantities are on hand. Operations management is responsible for finding vendors that supply the appropriate
goods at reasonable prices and have the ability to deliver the product when needed.

Another large facet of operations management involves the delivery of goods to customers. This includes ensuring
products are delivered within the agreed time commitment. Operations management also typically follows up with
customers to ensure the products meet quality and functionality needs. Finally, operations management takes the
feedback received and distributes the relevant information to each department to use in process improvement.
Operations managers are involved in coordinating and developing new processes while reevaluating current
structures. Organization and productivity are two key drivers of being an operations manager, and the work often
requires versatility and innovation.

Q: No.3
Discuss in detail with example how to growth of automation can affect the product/services development process?
Take a specific product/service as example.

Ans: No.3
Automation is the technology by which a process or procedure is performed with minimal human assistance.
[1] Automation
[2] or automatic control is the use of various control systems for operating equipment
such as machinery, processes in factories, boilers and heat treating ovens, switching on telephone networks,
steering and stabilization of ships, aircraft and other applications and vehicles with minimal or reduced human
intervention.

Automation covers applications ranging from a household thermostat controlling a boiler, to a large industrial
control system with ten of thousands of input measurements and output control signals. In control complexity, it
can range from simple on-off control to multi-variable high-level algorithms.
In the simplest type of an automatic control loop, a controller compares a measured value of a process with a
desired set value, and processes the resulting error signal to change some input to the process, in such a way that
the process stays at its set point despite disturbances. This closed-loop control is an application of negative
feedback to a system. The mathematical basis of control theory was begun in the 18th century and advanced
rapidly in the 20th.
Automation has been achieved by various means including mechanical, hydraulic, pneumatic, electrical, electronic
devices and computers, usually in combination. Complicated systems, such as modern
factories, airplanes and ships typically use all these combined techniques. The benefit of automation includes labor
savings, savings in electricity costs, savings in material costs, and improvements to quality, accuracy, and precision.

Automation in Daily Life (Example)

In addition to the manufacturing applications of automation technology, there have been significant achievements
in such areas as communications, transportation, service industries, and consumer products.

Communications
One of the earliest practical applications of automation was in telephone switching. The first switching machines,
invented near the end of the 19th century, were simple mechanical switches that were remotely controlled by the
telephone user pushing buttons or turning a dial on the phone. Modern electronic telephone switching systems are
based on highly sophisticated digital computers that perform functions such as monitoring thousands of telephone
lines, determining which lines require service, storing the digits of each telephone number as it is being dialed,
setting up the required connections, sending electrical signals to ring the receiver’s phone, monitoring the call
during its progress, and disconnecting the phone when the call is completed. These systems also are used to time
and bill toll calls and to transmit billing information and other data relative to the business operations of the phone
company. In addition to the various functions mentioned, the newest electronic systems automatically transfer calls
to alternate numbers, call back the user when busy lines become free, and perform other customer services in
response to dialed codes. These systems also perform function tests on their own operations, diagnose problems
when they arise, and print out detailed instructions for repairs.
Other applications of automation in communications systems include local area networks, communications
satellites, and automated mail-sorting machines. A local area network (LAN) operates like an automated telephone
company within a single building or group of buildings. Local area networks are generally capable of transmitting
not only voice but also digital data between terminals in the system. satellites have become essential for
communicating telephone or video signals across great distances. Such communications would not be possible
without the automated guidance systems that place and retain the satellites in predetermined orbits. Automatic
mail-sorting machines have been developed for use in many post offices throughout the world to read codes on
envelopes and sort the envelopes according to destination.

Q: No.4
Thrash out with arguments that the general conditions under which each major type control would be a logical
choice from among the various types available?

Ans: No.4

General Conditions by type of control

Managers make problem‐solving decisions under three different conditions: certainty, risk, and uncertainty. All
managers make decisions under each condition, but risk and uncertainty are common to the more complex and
unstructured problems faced by top managers.

Decisions are made under the condition of certainty when the manager has perfect knowledge of all the
information needed to make a decision. This condition is ideal for problem solving. The challenge is simply to study
the alternatives and choose the best solution.

When problems tend to arise on a regular basis, a manager may address them through standard or prepared
responses called programmed decisions. These solutions are already available from past experiences and are
appropriate for the problem at hand. A good example is the decision to reorder inventory automatically when stock
falls below a determined level. Today, an increasing number of programmed decisions are being assisted or handled
by computers using decision‐support software.

Structured problems are familiar, straightforward, and clear with respect to the information needed to resolve
them. A manager can often anticipate these problems and plan to prevent or solve them. For example, personnel
problems are common in regard to pay raises, promotions, vacation requests, and committee assignments, as
examples. Proactive managers can plan processes for handling these complaints effectively before they even occur.

Risk
In a risk environment, the manager lacks complete information. This condition is more difficult. A manager may
understand the problem and the alternatives, but has no guarantee how each solution will work. Risk is a fairly
common decision condition for managers.

When new and unfamiliar problems arise, nonprogrammer decisions are specifically tailored to the situations at
hand. The information requirements for defining and resolving no routine problems are typically high. Although
computer support may assist in information processing, the decision will most likely involve human judgment. Most
problems faced by higher‐level manager’s demand nonprogrammer decisions. This fact explains why the demands
on a manager's conceptual skills increase as he or she moves into higher levels of managerial responsibility.

A crisis problem is an unexpected problem that can lead to disaster if it's not resolved quickly and appropriately. No
organization can avoid crises, and the public is well aware of the immensity of corporate crises in the modern world.
The Chernobyl nuclear plant explosion in the former Soviet Union and the Exxon Valdez spill of years past are a
couple of sensational examples. Managers in more progressive organizations now anticipate that crises,
unfortunately, will occur. These managers are installing early‐warning crisis information systems and developing
crisis management plans to deal with these situations in the best possible ways.
Uncertainty
When information is so poor that managers can't even assign probabilities to the likely outcomes of alternatives,
the manager is making a decision in an uncertain environment. This condition is the most difficult for a manager.
Decision making under conditions of uncertainty is like being a pioneer entering unexplored territory. Uncertainty
forces managers to rely heavily on creativity in solving problems: It requires unique and often totally innovative
alternatives to existing processes. Groups are frequently used for problem solving in such situations. In all cases, the
responses to uncertainty depend greatly on intuition, educated guesses, and hunches — all of which leave
considerable room for error.

These unstructured problems involve ambiguities and information deficiencies and often occur as new or
unexpected situations. These problems are most often unanticipated and are addressed reactively as they occur.
Unstructured problems require novel solutions. Proactive managers are sometimes able to get a jump on
unstructured problems by realizing that a situation is susceptible to problems and then making contingency plans.
For example, at the Vanguard Group, executives are tireless in their preparations for a variety of events that could
disrupt their mutual fund business. Their biggest fear is an investor panic that overloads their customer service
system during a major plunge in the bond or stock markets. In anticipation of this occurrence, the firm has trained
accountants, lawyers, and fund managers to staff the telephones if needed.

Q: No.5
Discuss the fundamental differences in short term and long term capacity decision, discuss the major considerations
in each with example?

Ans: No.5

Types of capacities and terms

Design Capacity:
Maximum output or service capacity that a facility is designed for. This is the theoretical maximum that the facility
can deliver.

Effective Capacity:
Accounting for equipment failures, absenteeism, maintenance, and slow operations

Long-term:
Align with strategic goals of organization anywhere from 3-10 years. Planning uses forecasting while considering
factors like trends, seasonality, and cyclic behavior of demand.

Short-term:
Extends from a day to a quarter. As demand changes, a new plan comes into play. Concerns more about variable
resources like personnel, raw materials, components and support services

The Short and Long of Capacity Planning

When crunch time hits, does your team have the bandwidth for new work – or even for work already in progress?
Learn critical project management and capacity-planning techniques to maintain visibility across projects and
achieve balance as you go.
Capacity is the maximum amount of work an accounting practice is capable of completing in a given period of
time. Capacity planning is the process of determining the resources (time, people, etc.) that the firm needs to meet
changing demands for its services – in other words, how it will meet its current and future client needs.
The Basics: Bottlenecks and Critical Paths
When evaluating your capacity and thinking about capacity planning, you must understand two concepts from the
outset: bottlenecks and critical paths.
A bottleneck is a part of a process with a limited capacity in comparison with the rest, reducing the capacity of the
overall process. Is it a specific department? A decision maker? The crunching of numbers, or the advisory analysis?
With well-defined processes, hold-ups should be apparent.

Fixing or improving throughput in your bottlenecks will likely have the biggest impact in your capacity, either by
improving staff productivity or freeing up more time. That means more work can flow through the system in the
short and long term.
Understanding the processes that crisscross your organization from start to finish can uncover how processes
overlap one another and share resources. One method to do this is via the critical path, which is the longest
sequence of activities that must be finished on time for the project to be completed by the due date.

Understanding your critical path helps make dependencies visible, reduce project duration (by compressing the
critical path activities) and enable quick analysis of the impact of missing a key milestone. Critical path insights can
also help determine the maximum amount of slack allowable for each non-critical chain activity, without affecting
the project schedule. While the critical path is often used for large, complex systems, it is also quite helpful in multi-
partner accountancies that deploy multiple processes.
The Numbers
According to David Smith from Smithink, an effective capacity plan requires two calculations:
1. The “bottom up” calculation looks at the number of productive hours that team members should generate
each month, multiplied by estimated charge rates.
2. The “top down” calculation estimates the fees that will be generated from each client, plus an additional
amount for estimated special work from existing clients.

The Impact of Your Firm’s Organizational Design

How you approach capacity planning differs depending on whether your firm is organized vertically, horizontally or
as a hybrid.
Vertical
In a vertical accounting firm, a partner often owns the entire relationship with a client and a pod or team that is
responsible for completing all the work. This simplifies capacity planning because you only need to know the
partner’s (or team’s) ability to accomplish any given service for any given client.
By combining how long each service will take with what processes are typically performed, you can calculate how
many projects will fill the partner’s and the team’s time and, subsequently, how many clients they can take on
simultaneously.
Horizontal
In a horizontal practice, people pass work between them to fully serve the client. For example, you might have an
accountant doing tax lodgments, a bookkeeper doing compliance work and a senior manager delivering advisory
services, for the same client at the same time.

Since you’re now organized in departments doing more focused work, you should have a clear idea of how long
each process will take and of each person’s comparable throughput (since they’re doing the same kind of work time
and time again). It’s then a matter of mapping the processes for current and prospective clients to determine the
required capacity to fulfill those requests.
Planning Strategies: Push vs. Pull
Delivering services implies having a process, which can usually be matched to a production plan. There are two key
strategies that you can implement:
Push: You determine what services to “push” downstream.
This strategy favors systematic service delivery when the offering doesn’t vary much from client to client. The key is
consistency: If processes aren’t standardized, any change in timing or deliverables will have a big impact on the rest
of the chain. Horizontal firms tend to favor this process, since each department delivers the same services over and
over again.
Pull: Your service offering is determined by your clients’ needs.
When a firm’s demand is uncertain, it should move towards “pull.” In this strategy, work is “pulled through” to the
end of the process and no new work is added until something has been completed. This keeps resources from
becoming overwhelmed.

Kanban is a popular method used to illustrate the pull strategy, where work is divided into three broad stages – to-
do, doing and done – and written on cards that are moved from left to right, from column to column or from stage
to stage.

As a card is moved into the “done” phase, another one is pulled from the “to-do” phase and into the “doing” phase.
This method helps keep bottlenecks from becoming complete blockages.

Accounting firms typically use push strategies for long-term planning and pull strategies for short-term executions.
This is usually because upcoming work can be forecasted but can’t be executed until a contract is in place and
resources are assigned.
Using a Push Strategy for Capacity Planning
Know Your Workforce
How much work can your team handle, and at what level of proficiency can they complete each task?

Map out your services and staff members, and then use a few metrics to grade them, such as quality of work,
execution speed and knowledge base. Give each person a rating from 1 to 5 (1 being poor and 5 being excellent),
across an evaluation criteria chart.

The result is a detailed overview of how everyone performs against one another. You’ll uncover who your rock stars
are, who has the most versatility and who is best suited for specific tasks. All of these factors are important when it
comes to your gap analysis.
Analyze Your Team’s Output
Now that you better understand each member’s strengths and weaknesses, take a look at how the team performs
collectively.

How long does each step or process take, on average? Determine how much the team can complete, and how fast,
when fully focused. Understand what resource constraints exist and where.
Conduct a Demand Analysis (How much work do you need to
complete?)
Once you understand your team’s output, it’s time to take stock of the demands on the work they perform, such as
their capacity.

Take all of the work you have contractually agreed to deliver to your clients and look at it as a whole, and then
break it down into all of the tasks.

From there, estimate the average time and resources required to complete the work. To help with this, you might
consider using a Gantt chart with a time horizon of about a week or two.
Conduct a Supply Analysis (How many resources do you have?)
Which staff members are on vacation or sick? Once you know who you have to work with, measure their
throughput on a relative scale.

For example, if you have someone who works 40 hours per week at an average pace and another who works 20
hours a week but 1.5 times faster, the latter effectively works 30 hours compared with the average team member.
Do this across the board over the same time horizon, and use the result for your demand analysis.

Build a Gap Analysis and Strategy

Now, compare your demand and supply analyses. Take the number of hours needed for each of the services and fill
them, from the role with the least overlap in skill to the role with the most overlap. For example, you may fill the
hours needed for an advisory role first because you have only a few people who can provide that service.

Once you’ve filled the remaining hours as best you can, there may still be gaps in supply vs. demand. You might
have demand for services that you don’t have the people to deliver and you might have staff that will have no work
to deliver in one month’s time.

Once you identify the gaps, you can bridge them:

Short-term strategies to bridge gaps:
 Increase capacity: Have people work overtime, or bring in skilled contract labor.
 Increase time: Call the client and push back the deadline.
 Decrease quality: Cut corners (not recommended).
Longer-term strategies to bridge gaps:
 Cross-train your staff: The more people with broader skill sets, the easier it will be to fill gaps as
they arise.
 Time-phase the work: By doing a single type of work in phases, you can create the most efficiencies
in that period. However, you may still need to push back some deadlines with this strategy.
 Hire up: Swapping one of your staff with someone more efficient will create capacity.
Implement a Workforce Plan
Unfortunately, with a push strategy, you constantly need to rebuild your plans. Once your time horizon has
concluded, you must redo the supply, demand and gap analyses, and then reapply them to fill the gaps.

For this reason, firms with a push strategy often use Excel spreadsheets to manage and adjust plans as they see fit.
This is also why accountants frequently use the push strategy for planning purposes – and why there needs to be a
better way to plan for the long term. Which brings us to pull strategy.
Using a Pull Strategy (Kanban process) for Capacity Planning
Map out your processes at granularity of work passing between people. If a team member is handling a process on
their own from start to finish, you may need the visual aid of the Kanban cards less than you do an understanding of
how many projects the individual can handle at once. But, if you’re handing off work between people across phases,
the cards can be a great way to visualize that flow.
Show process stages on an x-axis and people on a y-axis. With this setup, you can see who’s currently doing what
across your entire team.
Visually show who can’t participate in certain activities. Indicate who’s unable to do certain tasks, so that you aren’t
confused when they don’t do certain things along the process.
Map project cards across the process and the people. Set up the board with the different stages, with to-do, doing
and done as the basic setup – but, be much more granular.
Create cards for each of your projects. Track the due dates on the cards and place them where they are in the
process to easily see what’s on schedule. This will help you estimate how long things actually take, as opposed to
the time you may have budgeted for them.
Move cards from left to right across the process. As you move the cards, you’ll immediately start to see how things
are syncing up and where work is bottlenecking. This will allow you to not only address bottlenecks before they
occur, but also more clearly understand everything that’s happening in your practice.

3 Reasons Why 85% is the Key

Why does value pricing expert Ron Baker consistently recommend that you “run your practice like an airline –
always stay at about 85% to 90% capacity?”
Reason #1: To Leave Room for Last-Minute Clients
There are only so many seats on a plane. If you’re at full capacity and a really excellent client comes along, you’ll
have to turn the client away.
Reason #2: To Absorb System Shocks
If you’re running at full capacity, any unforeseen changes in your resources (e.g., staff on sick leave) or workload
(e.g., unexpected extra tasks) can’t be dealt with appropriately.
Reason #3: To Always be Selling!
Having that extra 15% capacity left leaves open the opportunity to cross- or up-sell your current clients. (Upgrades
to first class, anyone?)

So, now that you’re running at 85%, what do you do with that extra bandwidth when you aren’t taking on new
clients or absorbing shocks? You can use it to improve your processes and deal with bottlenecks. You can also keep
it in reserve to give your staff a better work/life balance. There are so many things you can be doing internally to
move your business forward that you should have no trouble using that extra capacity when it’s available. At the
very least, it gives you the flexibility to decide how it should be used .
End Thanks for attention