Introduction to Production and set of inputs into a set of desired outputs.

Operations Management A production system has the following

Production/ Operations Management elements or parts:
Production/Operations ➔ Inputs,
Management is the process, which ➔ Conversion process or
combines and transforms various transformation process,
resources used in the ➔ Outputs
production/operations subsystem of the
➔ Transportation subsystem,
organization into value added
➔ Communication subsystem and
product/services in a controlled manner
as per the policies of the organization. ➔ Control or decision making
subsystem
The set of interrelated
management activities, which are involved 1.2. Production/Operations as an
in manufacturing certain products, is Organizational Function
called production management. If the
same concept is extended to services To create goods and services, all
management, then the corresponding set organizations, whether manufacturing
of management activities is called goods or providing services, perform three
operations management. basic functions. They are:
❖ Marketing: which generates the
demand or takes customers’
1. The Nature and Production and
Operations orders for a product or service.
2. a) Production/operations as a ❖ Production/Operations: which
system, creates the product (goods or
3. b) Production/operations as an services).
organizational function, ❖ Finance/Accounting: which keeps
4. c) Production/operations as a track of how well the organization
conversion or transformation is performing, and takes care of
process cash inflow and cash outflow.
5. d) Production/operations as a means
of creating utility. Production/operations managers need to
build and maintain strong relationships both
1.1. Production/Operations as a System intra-organizational and inter-organizational.
Inter-organisational relationship exists
This view is also known as between production/ operations department
"systems concept of production". A and suppliers, whereas intra-organisational
system is defined as the collection of relationship calls for cross-functional
interrelated entities. The systems coordination.
approach views any organisation or entity Cross functional coordination is essential
for effective production/operations
as an arrangement of interrelated parts
management.
that interact in ways that can be specified
and to some extent predicted. Production
is viewed as a system which converts a
 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
converting the raw materials into finished
goods, various types of utilities are
created while adding value to the outputs.
These types of utilities are:

a) Form utility

b) Place utility

c) Time utility

1.3. Production/Operations as a d) Possession utility

Conversion/ Transformation Process
e) Service utility
The conversion or transformation
sub-system is the core of a production f) Knowledge utility
system because it consists of processes
or activities wherein workers, materials, a. Form utility: which is created by
machines and equipment are used to changing the size, shape, form, weight,
convert inputs into outputs, i.e., color, smell of inputs in order to make the
outputs more useful to the customers. For
The conversion process may example, iron ore is changed to steel,
include manufacturing processes such as wood is changed to furniture, etc.
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 are some steps in the
overall process of producing a product or
service that leads to the final output.
b. Place utility: which is created by
changing the places of inputs or
transporting the inputs from the source of
their availability to the place of their use to
1.4. Production/Operations as a Means of be converted into outputs. For example the
Creating Utility iron ore and coal are transported from the
mines to the steel plant to be used in the
Production is defined as the conversion process.
 e. 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 service
directly to the client/customer.

f. Knowledge utility: which is created by

imparting knowledge to a person. For
c. Time utility: which is created by example, a sales presentation or an
storage or preservation of raw advertisement about some product
materials or finished goods which are communicates some information about
in abundance sometime, so that the the product to the customer, thereby
same can be used at a later time when imparting knowledge.
they become scarce due to higher
demand exceeding the quantity 2. Difference Between Operations
available. Management and Production
Management

Production Management

-refers to the application of management

principles to the production function in a
productive system such as a factory or a
manufacturing plant. (e.g., steel plant,
cement plant, etc.). It involves application
d. Possession utility: which is created of planning, organizing, directing and
by transferring the possession or controlling the production processes
ownership of an item from one employed for the conversion of inputs into
person to another person. For outputs in a productive system.
example, when a firm purchases
materials from a supplier, the Objectives of Production Management
possession utility of the materials
The objective of production management
will increase when they are
is to produce goods services of right
delivered to the buying firm.
quality and quantity at the right time and
at the right manufacturing cost.

★ Right Quality – the quality of

product is established base upon
the customers’ needs. The right
quality is not necessarily best
 quality. It is determined by the ★ The Resource Utilization
cost of the product and the Objective. To achieve adequate
technical characteristics as suited levels of resource utilization (or
to the specific requirements. productivity) e.g., to achieve
agreed levels of utilization of
★ Right Quantity – the materials, machines and labour.
manufacturing organization
should produce the products in Operations Management
right number. If they produced in
- refers to a set of activities that
excess of demand the capital will
creates value in the form of
block up in the form of inventory
goods and/ or services by
and if the quantity is produced in
transforming inputs into outputs.
short demand, leads to shortage
Operations management designs
of products.
and operates productive systems
or operating systems such as
★ Right Time – timeliness of
banks, hospitals, hotels,
delivery is one of the important
government agencies and
parameter to judge the
manufacturing plants. Operations
effectiveness of production
management includes activities
department. So, the production
such as organizing work, selecting
department has to make the
processes, arranging layouts,
optimal utilization of input
locating facilities, designing jobs,
resources to achieve its objective.
measuring performance,
controlling quality, scheduling
★ Right Manufacturing Cost –
work, managing inventory and
manufacturing costs are
planning production.
established before the product is
actually manufactured. Hence, all
The two apparent differences between
attempts should be made to
production management and operations
produce the products are
management are:
pre-established cost, so as to
A. The term “production
reduce the variation between
management” is mainly used for a
actual and the standard
productive system where tangible
(pre-established) cost.
goods are produced; whereas the
★ The Customer Service Objective.
term “operations management” is
To provide agreed/adequate levels
more frequently used where
of customer service (and hence
various inputs are transformed
customer satisfaction) by
into intangible services.
providing goods or services with
the right specification, at the right
B. Operations management is the
cost at the right time.
more recent term used to
activities involved in the process
 of transforming inputs into residence of the customer/client.
outputs (goods and/or services) g) Goods can be inventoried and can be
in a productive system, whereas resold whereas reselling of services is
the term “production unusual and services cannot be
management” (or manufacturing inventoried.
management) was used earlier to h) Some aspects of quality of goods are
refer to activities related to the measurable whereas many aspects of
process of transforming inputs quantity of services are difficult to
into outputs (mainly tangible measure.
goods). i) Selling and production are distinct in
case of goods whereas in case of services
3. Difference Between GOODS and selling is often a part of the service.
SERVICES j) Goods can be transported whereas
GOODS VS SERVICES
service cannot be transported but the
a) Services are usually intangible service provider can be transported.
whereas goods are tangible (i.e., k) Location of facility to manufacture
can be touched and seen) goods, affects costs whereas location of
b) Services are often produced and service facility affects customer contact.
consumed simultaneously, services l) Manufacturing of goods can be easily
cannot be stored whereas goods automated whereas service is often
can be produced and inventoried difficult to automate.
before consumption or use.
c) Services are often unique, for example 4. Responsibilities of Operations Manager
insurance policies, medical treatment The following are the major
procedures, haircut styles, etc. responsibilities of production/operations
d) Services have high customer managers:
interaction, services are often a. Meeting requirements of quality
difficult to standardize and demanded by customers.
automate because customer b. Establishing realistic delivery or
interaction demands uniqueness. completion dates.
The service product may have to be c. Producing the required volume
customized in most of the service of products to meet the
offerings. demand.
e) Services are often knowledge based, d. Selection and application of
for example educational, most economic methods or
health-care, legal and consultancy processes.
services and, therefore, difficult to e. Controlling the cost of inputs
standardize and automate. and conversion process and
f) Services are frequently dispersed thereby keeping the cost of
because services may have to be delivered outputs within the desired
to the client/customer at his/her place or limits.
office, a retail outlet or even at the
 Amalgamation of five (5) Ps
Production managers are According to Smith, if workers
responsible for the amalgamation of five divided their tasks, then they could
Ps namely Product, Plant, Processes, produce their products more efficiently
than if the same number of workers each
Programs and People.
built products from start to finish.
The product is the most obvious
interface between production and
marketing. It includes characteristics such
as performance, aesthetics, quality,
reliability, selling price, delivery dates and/
or lead times.

The plant includes buildings,

equipment and machinery required to 5.2 Post- Industrial Revolution
produce the product.
Henry Ford increased efficiency in
The processes include the production by introducing assembly line
transformation or conversion processes production and improved the supply chain
which convert the inputs into outputs. through just-in-time delivery.

The programs consist of schedules

or timetables which set times for delivery
of products or services to customers.
These delivery schedules in turn decide
the time schedules for various activities
such as design, purchase, manufacture,
assembly, packing and despatch etc.

The people aspect of production

management includes the skills,
Taylor developed a scientific
knowledge, intelligence, etc., of labour and
approach for operations management,
managerial personnel which is crucial for
collecting data about production,
the efficient and effective utilization of
analyzing this data and using it to make
resources for the production of outputs.
improvements to operations.
5. HISTORY OF PRODUCTION & OPERATIONS
MANAGEMENT

5.1 Pre-Industrial Revolution

In 1776 Smith wrote "The Wealth of

Nations," in which he described the
division of labor.
5.3 Post-World War II expand markets, or improve
customer service.
Technological developments
during the second world war created new c. Quality problems.
possibilities for managers looking to
improve their operations. Specifically, the d. Risk management. Managing risks
development of computational technology starts with identifying risks,
allowed for a greater degree of data to be assessing vulnerability and
analyzed by firms. potential damage (liability costs,
reputation, demand), and taking
5.4 Modern Day steps to reduce or share risks.

Quality management systems are e. Competing in a global economy.

popular in today's operations Companies must carefully weigh
management. Quality management is a their options, which include
system for mapping, improving and outsourcing some or all of their
monitoring operations processes. A operations to low-wage areas,
variety of quality management systems reducing costs internally, changing
are in use among top firms, the most designs, and working to improve
notable systems being the ISO systems productivity.
and Six Sigma.
5.4.2 Ethical Considerations
These systems aim to increase the
efficiency of business processes. a. The Rights Principle is that actions
should respect and protect the
5.4.1 Key Issues for Today's moral rights of others.
Business Operations
b. The Fairness Principle is that
a. Economic conditions. The lingering equals should be held to, or
recession and slow recovery in evaluated by, the same standards.
various sectors of the economy has
made managers cautious about c. The Common Good Principle is that
investment and rehiring workers who actions should contribute to the
had been laid off during the common good of the community.
recession.
d. The Virtue Principle is that actions
b. Innovating. Finding new or should be consistent with certain
improved products or services are ideal virtues.
only two of the many possibilities
that can provide value to an
organization. Innovations can be
made in processes, the use of the
Internet, or the supply chain that
reduce costs, increase productivity,