PRODUCTION AND OPERATIONS

MANAGEMENT
 COURSE OBJECTIVE
• To understand the
concepts of production and
operations management in
an organisation and
analytical methods.
 COURSE OUTCOMES
Student will be able to understand:

 concepts of operations management

 Product and process design, analysis

 Plant location and layout

 Scheduling and material management

 UNIT I
INTRODUCTION TO OPERATIONS MANAGEMENT
FUNCTIONAL SUBSYSTEMS OF
ORGANISATION
 FUNCTIONAL SUBSYSTEMS OF
ORGANISATION
• The marketing function of an organisation aims to promote its products among
customers, which helps to obtain substantial sales order.

• This in turn is communicated to the production subsystem which is concerned with the
management of physical resources for the production of an item or provision of a
service.

• The finance function provides authorisation and control to all other subsystems to
utilize money more effectively through a well designed mechanism.

• The personnel function is a supporting function which plans and provides manpower
to all other subsystems of the organisation and to itself by formulating proper
recruitment and training programmes .

• It also monitors the performance of the employees for better direction, promotions and
results.
• It is therefore amply clear that all the functional subsystems of any business organisation are
interwoven by many linkages.
M
• They cannot function in isolation.

• For example, the marketing function, is carried out efficiently, can get sales order in large
volume.

• But if the production function is not fully geared to meet the sales requirement, then the
reputation of the company may be lost.

• Let us assume that production function is fully geared to cope up with the sales requirement,
but the required working capital is not made available at the right time, then also the
company may fail to fulfil the sales requirement or commitment.

• The efforts made by all the above functions would go waste if personnel function is unable
to exercise its duties properly in terms of providing training to its employees to meet the
changing requirements or resolving conflicts among employees.

• This would again lead to non fulfilment of the sales goals.

• Hence a complete integration among all the functional subsystems of the organisation is
absolutely essential for their effective functioning and an over all improvement of results.
 DEFINITION
• Production/operations management is the process which combines and transforms
various resources used in the Production/operations subsystem of the organisation into
value added products/services in a controlled manner as per the policies of the
organisation.

• Production/operations function, therefore, is the part of an organisation which is

concerned with the transformation of a range of inputs into the required outputs
(products/services) having the requisite quality level.

• The set of interrelated management activities which are involved in manufacturing

certain products is called as production management
• if the same concept is extend to services management, then the corresponding set of
management activities is called as operations management

• So, in general , the concept of manufacturing products/providing services is called as

production/operations management.
 Functions of POM
 Planning
 Design and engineering
 Production
 Maintenance
 Procurement of raw materials
 Logistics management
 HRM
 Finance
 Accounting
 Marketing
 Inputs of a
Production
• External System
– Legal, Economic, Social,
Technological
• Market
– Competition, Customer Desires,
Product Info.
• Primary Resources
– Materials, Personnel, Capital, Utilities
18
 Conversion
• Subsystem
Physic (Manufacturin
• al g) Services
Locational
• (Transportation)
Exchange (Retailing
Services
• Storage )
(Warehousin
• Services
Other Private g) (Insurance
Services
• Government )
(Federal
Services ,
State, Local)
19
 Outputs of a
Production
• Direct System
– Products
– Services
• Indirect
– Waste
– Pollution
– Technological
Advances
20
DECISIONS AT DIFFERENT LEVELS OF
MANAGEMNT
 In the process of managing various subsystems of organisation,
executives at different levels of the organisation need to take several
management decisions.

The management decisions are classified into strategic decisions,

tactical decisions, operational decisions.

The strategic decisions e.g. Defining the goals, making the policies and
determination of organisational objectives, etc. are taken at the top
management level.

The tactical decisions are taken at the middle management level, which
include acquisition of resources, plant location, new products
establishment and monitoring of budgets etc.

The operational decisions are taken at the bottom level of

management. Some examples are effective and efficient use of existing
facilities and resources to carry out activities within the budget
 Decision Making in
POM
• Strategic
Decisions
• Operating
Decisions
• Control Decisions

22
 Strategic
Decisions
• These decisions are of
strategic importance and have
long-term significance for the
organization.
• Examples include deciding:
– the design for a new product’s
production process
– where to locate a new factory
– whether to launch a new-product
23
development plan
 Operating Decisions
• These decisions are necessary if the
ongoing production of goods and
services is to satisfy market
demands and provide profits.
• Examples include deciding:
– how much finished-goods inventory to
carry
– the amount of overtime to use next
week
– the details for purchasing raw material
next month 24
 Control
Decisions
• These decisions concern the day-
to- day activities of workers,
quality of products and services,
production and overhead costs,
and machine maintenance.
• Examples include deciding:
– labor cost standards for a new
product
– frequency of preventive
25
maintenance
SYSTEMS CONCEPT OF PODUCTION

INPUT OPERATIONS MANAGEMENT OUTPUT

materials

labour
Transformation Goods or services
equipment (conversion)
capital process
matma

FEEDBACK INFORMATION

ENVIRONMENT
System is a collection of interrelated activities

OM is the mgt of transformation systems which convert inputs into goods and/or services
by a suitable process technology.

The types of inputs used vary from one industry to another.

In the process of conversion definitely there will be some deviations in the in the products
attributes like quality, shape, size and number of units produced.

Just to cope up with predetermined plans and policies it is highly essential to communicate
these deviations to the input stage in the form of feedback for making necessary corrections.

Based on this feedback the system once again tries to produce the product/service with
modified parameters in order to meet the specifications.

The feedback mechanism is a continuous exercise to monitor the status of the system .
•
m
The system operates in an environment.

• So, the system has to take feedback from its environment and adjust its parameters
accordingly.

• The environment can be classified into internal and external environment.

• The top management may be treated as internal environment and its instructions and
expectations will form internal feedback.

• The system must respond to these modifications for achieving better results.

• The environment outside the firm may change in terms of legal, political, social or
economic conditions, there by necessitating the corresponding change in the
environment of production/operations.

• So the system must consider these changes as feedback from external environment
and adjust its parameters accordingly.
 Examples
The examples of a production system are
as
follows:
Tangible goods : Consider an example of
a manufacturing industry like a Sugar
Industry. Here, sugarcane is first used as
an input, then the juice of sugarcane is
processed through a conversion process,
finally to get an output known as a refined
sugar (used for mass consumption).
Examples
Intangible goods : Consider an
example from a service industry that
of a software- development firm or
company. Here, initially, written
program codes are used as an inputs.
These codes are then integrated in
some database and are provided with
a user-friendly interface through a
conversion process. Finally, an
output is made available in form of an
executable application program.
 Types of Production System
The normal way of classifying
production systems is under four
broad headings as follows.
1)Job production
2)Batch production
3)Mass production
4)Project production
 Job
production
This type of production system is concerned
with making a (usually) high-priced product
to an order which is not likely to be
repeated –i.e. a one-off job.
This calls for skilled workers, who can be
flexible in adapting their skills to producing
just what the customer requires.
A crucial consideration in job production is
the fact that nearly all the production costs
fall to the one job.
Since they cannot be spread over a long run
of production, the fixing of a correct selling
price is very important.
Example of Job
production
 Designing and implementing an
advertising campaign
Auditing the accounts of a large
public limited company
Building a new factory
Installing machinery in a factory
Advantages of Job
production
 The main advantages of using job
production include:
Advantages
Product usually high quality
Producer meets individual customer
needs
Greater job satisfaction – involved in
all
stages of production
Disadvantages of Job
production
The main disadvantages of using job
production include:
Disadvantages
Cost of producing one unit or job is
higher
Labour –intensive
Requires investment in skills and
training
 Batch production
This is the production of a given quantity of
goods
–i.e. a number of units of a similar
specification.
There may be repeat orders for these
goods, but there is no continuous flow of
production.
Batch production resembles job production
in that these are specialist goods made to fit
customers' requirements, but differs in that
the costs of production can be spread over a
Example of Batch
production
An example of batch production
might be aircraft engines for a
given type of aeroplane.
Advantages of Batch
production
The benefits of batch production include:
Making in batches reduces unit costs
Can still address specific customer needs
(e.g. size, weight, style)
Use of specialist machinery & skills can
increase output and productivity
Disadvantages of Batch
production
The drawbacks of batch production
include:
Time lost switching between
batches –
machinery may need to be reset
Need to keep stocks of raw
materials. Cash also investment in
work-in-progress
Potentially de-motivating for staff
 Mass production
This is the continuous output of
uniform, standardized products for a
mass market which offers a regular,
continuous demand.
The goods are relatively low priced
and are produced by the use of
machines and semi- skilled and
unskilled labour.
A sub-type of mass production is flow
production.
 Mass production
This makes use of machines and labour
in a sequence called a production line.
Cars for the mass market are
produced by materials and parts
moving along an assembly line until
eventually a finished car rolls off at the
end.
Flow production can take many of the
features of mass production and apply
them to the manufacture of relatively
high-cost goods like cars, washing
Examples of Mass
production
Examples include:
Cars
Chocolate bars and
Electronic goods.
 Advantages of Mass production

The benefits of mass production

include:
Labour costs are usually lower.
Materials can be purchased in
large
quantities, so they are often
cheaper.
Large number of goods are
 Disadvantages of Mass
production
The main disadvantages of using mass production include:
Machinery is very expensive to buy, so production lines
are very expensive to set up.

Workers are not very motivated, since their work is

very repetitive.

Not very flexible, as a production line is difficult to adapt.

If one part of the line breaks, the whole production

process will have to stop until it is repaired.
 The project production
• A project refers to the process of creating a
complex one-of-a-kind product or service with
a set of well defined tasks in terms of
resources required and time phasing. Some
examples of projects are:
• Dam constructions
• Starting new industries
• Fabricating
 m
STRATEGIC MANAGEMENT
The environment of organisations is becoming more and more complex because of the
increased rate of environmental social and technological change, the increased
internationalisation of business organisations and the increased scarcity and cost of natural
resources.
The process of making decisions about their future in this complex and changing
environment is called strategic management.
SM involves making those decisions that define the organisation’s Mission and Objectives
SM determines the organisation’s most effective utilisation of resources and seek to
assure the effectiveness of the organisation within its environment.

4
4
 STRATEGIC MANAGEMENT
PROCESS
“Process of formulation, implementation, evaluation
and control of strategies to realize the organization's
strategic intent.” The strategic management
process encompasses three phases, which together
involve a number of systematic steps.

1.Strategy formulation

2.Implementation

3.Evaluation & control.

4
5
FORMATION OF CONSIDERATI
MISSION & SWOT ANALYSIS ON OF
OBJECTIVES STRATEGIC
ALTERNATIVES

EVALUATION IMPLEMENTATION CHOICEOF

AND STRATEGY
CONTROL

STRATEGIC MANAGEMENT PROCESS 7

STRATEGIC MANAGEMENT
PROCESS

4
7
 M
 STRATEGY FORMULATION:

• concerned with making decisions with regard to :

 Defining organisation’s philosophy and mission.

 Establishing long and short range objectives to achieve its mission.
 Selecting the strategy to be used in achieving the organisation’s
objectives.
 Strategy formulation
Developing vision and mission
Identifying external opportunities and threats

Determining internal strengths and weaknesses

Establishing long term objectives

Generating alternative strategies

Choosing particular strategies to pursue

Deciding what new business to enter

How to allocate resources

Expand or diversify operations

Entering or not international market

Merge or form joint venture

How to avoid a hostile takeover



4
9
STRATEGY IMPLEMENTATION
 Concerned with aligning the organisational structure , systems and processes
with the chosen strategy. The hierarchy of strategies can be given as :
 Mission
 Objectives
 Corporate strategies
 Business unit strategies
 Functional strategies

The Mission statement of an organisation defines its lines or line of business, identifies its
products and services and specifies the market it serves at present and will serve within a
time frame of 3-5 years.

Objectives can be classified into long-term and short-term objectives.

Long term objectives specify the results desired in pursuing the organisations mission.
Short term objectives are performance targets, normally of less than one year duration.
LEVELS OF STRATEGY
1. CORPORATE LEVEL STRATEGY
• The top management of a company is entrusted with defining its corporate profile
describing the companies overall direction and the attitude towards growth along
with the management of its resources at the grand level .

• The management has to identify the areas in which the company is or should be
operating.

• Corporate kevel strategies that are formulated by the top management for the entire
organization.

• CLS are meant to serve the company with providing the direction in which it
should employ its resources, be it the case of small business firm involved in single
business or a large diversified conglomerate.

• These strategies are also known as Grand/Master strategies.

• These strategies present an organization with the strategic alternatives that are
available.
 CONCENTRIC DIVERSIFICATION
• It is growth strategy which involves adding new products or services that are similar to the
organization's present products or services. The products or services that are added must lie
within the scope of organization's know-how and experience in technology, product line,
distribution channels or customer base.

• Vertical diversification:
This strategy has two options namely, forward integration(FI) and backward
integration(BI) .
FI moves an organization into distributing its own products or services.
BI moves an organization into supplying some or all of the products or services used in producing
its present products or services.

Horizontal diversification:
It is a growth strategy in which an organization buys one of its competitors
facility or gets into his market. It can be accomplished through mergers.

Conglomerate diversification:
It is a growth strategy which aims to add new products or services that are
 RETRENCHMENT STRATEGIES
• These are used during economic recessions and during poor financial
performance of organizations.
• These are short term strategies.
• These include:
– Turnaround strategy
– Divestment strategy
– Liquidation strategy
 The turnaround strategy aims to cut costs by using the
following measures:
 Change mgt personnel both at top and bottom levels
 Cut down on capital expenditure
 Reduce recruitment
 Reduce advertising and promotion expenditure
 Fire employees if required
 Sell off some assets
 Tighten inventory control
 Improve the collection of accounts receivable
 The divestment strategy involves selling off a major part of
the business which can be a SBU, a product line or a division.

 Liquidation strategy involves terminating the

organization’s existence either by selling off its assets or by
shutting down the entire operation.
 Objectives of corporate strategies
 To raise sales volume
 To enhance profit level
 To increase earnings per share
 To grab considerable market share
 To increase employment opportunities
 To rise the return on investment
 To improve country’s economic cindition
 NOBODY CAN GO
BACK AND START
A NEW BEGINNING
BUT ANYONE CAN
START TODAY
AND MAKE A NEW ENDING
2. BUSINESS LEVEL STRATEGIES
• These strategies are employed at business unit or
product level and emphasizes the competitiveness
of the company’s product or services in the specific
segment.
• A BLS is the strategy opted by a firm for each of its
businesses separately, to serve the identified
customer groups by providing value to these
customers by satisfaction of their needs.
• In the process, the manager craft competitive
strategies for each business unit to create, sustain
and enhance competitive advantage using its
 INTRODUCTION

• Michael Porter suggested that businesses can secure a sustainable

competitive advantage by adopting one of three generic business
strategies.

 Overall cost leadership strategy

 Differentiation strategy
 Focus strategy

• also identified a fourth strategy "middle of the road" strategy,

which although adopted by some businesses, is unlikely to
create a competitive advantage.
 Generic strategies
• Cost Leadership Strategy
• Differentiation Strategy
• Focus Strategy
• Stuck In The Middle
 Cost Leadership Strategy
• This strategy involves the organisation aiming to be the lowest cost
producer and/or distributor within their industry. The organisation
aims to drive cost down for all production elements from the
sourcing of materials, to labour costs.
• by reducing production costs and therefore increasing the amount
of profit made on each sale as the business believes that its brand
can command a premium price or- by reducing production costs
and passing on the cost saving to customers in the hope that it will
increase sales and market share
• Example
• Low cost producers include Easy Group, Ryan Air, and Walmart.
 Differentiation Strategy
• To be different, is what organisations strive for; companies and
product ranges that appeal to customers and "stand out from the
crowd" have a competitive advantage.
• With a differentiation strategy the business develops product or
service features which are different from competitors and appeal to
customers including functionality, customer support and product
quality.
• Example
• Brompton folding bicycles when folded are more compact than
other folding bikes. Folding bikes are usually purchased by
people with limited storage space at home or on the move; a
compact bike is therefore a valued product feature and
differentiates Brompton bicycles from other folding bicycles.
 Focus Strategy
• Under a focus strategy a business focuses its effort on one
particular segment of the market and aims to become well
known for providing products/services for that segment.
They form a competitive advantage by catering for the
specific needs and wants of their niche market.
• A focus strategy is known as a narrow scope strategy
because the business is focusing on a narrow (specific)
segment of the market.
• Example
• Roll Royce, Bentley and Saga a UK company catering
for the needs of people over the age of 50.
Roll Royce
Bentley
 Are You "Stuck In The
Middle"
• Some businesses will attempt to adopt all
three strategies; cost leadership,
differentiation and niche (focus).
• A business adopting all three strategies is
known as "stuck in the middle".
• They have no clear business strategy and are
attempting to be everything to everyone. This
is likely to increase running costs and cause
confusion, as it is difficult to please all sectors
of the market. Middle of the road businesses
usually do the worst in their industry because
they are not concentrating on one business
strength.
 Conclusion
• To create a competitive advantage businesses should
review their strengths and pick the most appropriate
strategy cost leadership, differentiation or focus.
• Although each of these strategies are known as
generic strategies (because they can be applied to
every industry) they will not suit every business.
• Whatever strategy a business decides to adopt they
should make sure that it isn't middle of the road
because one business can not do everything well.
 SOMETIMES WE
ARE TESTED
NOT TO SHOW
OUR WEAKNESS
BUT TO DISCOVER
OUR STRENGTHS
 3. FUNCTIONAL LEVEL STRATEGIES
• After the strategies have been developed at corporate and business level,
strategies should be formulated at functional unit level as well.

• For entire organization to move in the overall direction that has been pursued by
the formulation of corporate strategy with the aid of business level strategy, the
strategy should be formulated at the functional levels as well to support the
implementation of the overall strategy at the ground level.

• FLS deals with a relatively restricted plan designed to achieve objectives in a

specific functional area, allocation of resources among different operations
within the functional area and coordination among different functional areas for
accomplishment of the business and corporate level objectives.

• These strategies are derived from business level and corporate level strategies
and are implemented through functional and operational implementation.
 FUNCTIONAL STRATEGIES
OBJECTIVES
• Profitability:- Producing at a net profit in business.
• Market share:- Gaining and holding a specific share of a
product market.
• Human talent:- Recruiting and maintaining a high- quality
workforce.
• Financial health:- Acquiring financial capital and earning positive
returns.
• Cost efficiency:-Using resources well to operate at low cost.
• Product quality:- Producing high-quality goods or services.
• Innovation:- developing new products and /or processes.
• Social responsibility- Making a positive control of society.
 TYPES OF FUNCTIONAL STRATEGIES

• MANUFACTURING STRATEGY
• MARKETING STRATEGY
• HUMAN RESOURCE STRATEGY
• RESEARCH AND DEVELOPMENT
STRATEGY
• FINANCIAL MANAGEMENT STRATEGY
 MANUFACTURING STRATEGY
• Manufacturing Strategy determines how and where
a product or service is to be manufactured, the level
of vertical integration in the production process.
• Deals with the development of method for
improving performance.
MANUFACTURING FUNCTIONAL STRATEGY
 MARKETING
STRATEGY
• According to A.M.A. “marketing is the performance of Business
activities that direct the flow of goods and serviced from the
producer to the customer.”
• Marketing strategy is the most element of the functional structure,
for the company trying to gain a loyal customer.
MARKETING FUNCTIONAL STRATEGY
• Survey of the Market
• Selection of target market
• Study of Customer expectations
• Grouping of the Customer as per need
• Linking manufacturing activities with customer
• Fulfilled the requirement of Customer
• Feedback
• Controlling of functional marketing strategy
 HUMAN RESOURCE STRATEGY
• HRM strategies are an organization’s plans for managing
people, culture, structure and training and development and
for determining how people fit into an organization’s future
growth.
• FUNCTIONAL HR STRATEGY
• Identify Need of the Organisation
• Ensure required Man force available or not
• Selection procedures
• Training
• Placing an right employee at right job
• Evolution performance
• Control of HR strategy
 RESEARCH AND DEVELOPMENT STRATEGY
• Mainly deals with the product development. Involves decisions
regarding the modification on the basic of the existing product.
• It is also focused on the licensing and conduct of the patent policy
for the prevention of the use of developed models or generated
revenue for their sale.
• FUNCTIONAL R &D SRTATEGY
• Survey of Market
• Analysis of Existing Business
• Technology
• Evolution the stockholders expectations
• Feedback
• Control
 FINANCIAL MANAGEMENT STRATEGY
Financial Management involves the Enterprise Asset Management. In
order to generate optimal revenue, the company establishes the structure
of the investment of previously accumulated cash.
• FUNCTIONAL STRATEGY OF FINANCIAL MANAGEMENT
Recording proper
• Transaction record
• All transaction taking place
• Timely close all accounting books
• Accounting procedures & Rules
• Time to time training
• Ensure the accounting system reducing of fraud
• Proper evaluate Accounting Books
• Feedback
• Control
EYES ON THE
STARS
AND
YOUR FEET
ON THE
PRODUCTIVITY
There are seven keys to becoming a world-class
manufacturer:
Reduce lead times
Speed time-to-market
Streamline outsourcing processes
Cut operations costs
Exceed customer expectations
Manage the global enterprise
Improve business performance
visibility