Introduction to Production &

Operation Management
Course:MBA
Subject: Production & Operation
Management
Unit:1.1
 Production Management
 Production is a Broader Term that Spans both
Manufacturing and Services Functions
 Production is the Application of Resources,
People and Machinery, to Convert Inputs into
Finished Goods and Services
 Mass Production
Mass Production: Makes Outputs available in
Large Quantities at Lower Unit Costs than
Individually- Crafted Items
Characteristics of Mass Production
Labor Specialization
Mechanization
Standardization
 Assembly Lines
Assembly Line first Introduced by Eli Whitney (Cotton
Gin Inventor) to build Muskets for the US
Government In 1799
Used Ideas of Specialized Labor and Engineering
Standards (Tolerances) to produce Assemblies from
Parts in Repeatable Manner
 HENRY FORD
Introduced Moving Assembly Line: Dramatically
Reduced Manufacturing Costs While Delivering
Consistent, Low-Priced Product
Factory based on Chicago Meat Cutting Plants
 FORD MODEL “T”
First Produced:
October 1908
By 1927,
15,000,000
Produced
Any Color so
long as it’s
Black…
 ASSEMBLY LINE BENEFITS
 Initially, took 14 hours to Assemble
Model T - Mass Production reduced
Time to 1 Hour and 33 Minutes
 Model T’s Price dropped from $1,000
in 1908 to $360 in 1916
 Result was Ford becoming
Dominant Automobile Manufacturer
and Assembly Line Method as
Dominant Production Approach
 FORD ASSEMBLY LINES

Assembly Line pulled by Ropes Magneto Assembly

 MASS PRODUCTION
MODEL “T” – Machine that Changed the
World
 1914: Ford produced 308,162 cars, more than all
299 other auto manufacturers combined
 1927: Automobile Produced every 24 seconds
 Higher volumes → Lower cost → Lower Prices
→Increased Sales → Higher Volumes
 MASS PRODUCTION
“PUSH” Strategy – Driven by Inputs and Objectives
Control of Raw Materials and Labor plus Profit Goals
= Production Rate separate from Customer
Demands and Preferences
Performance measured by Budget Variances and
Quantitative Results (Defects or Unit Costs per Day,
Week or Month), not Quality Standards
 MASS PRODUCTION
 Low Product Variety; Small Orders Not Feasible
 Specialized Machinery and Centralized
Manufacturing
 “Economies of Scale” – High-Speed Sequential
Production
 Development Costs Spread Over Large Volume:
Low Cost per Unit Produced
 Low-Skill/Low-Wage Work Force
 Large Advertising and Marketing Budgets
FORD WORKING CONDITIONS
Monotony of Assembly Line Work: 300% Turnover
 $2 per Day and a 9-Hour Shift
Ford’s Response to Working Conditions Dilemma
 Increase Pay to $5 per Day and
Reduce Shifts from 9 Hours to 8 Hours
“The Chain System you have is a Slave Driver. My God,
Mr. Ford! My Husband has come Home and Thrown
Himself Down and won’t Eat his Supper, He’s so done
out. Can’t it be Remedied? That $5-a-day is a
Blessing; a Bigger One than you Know. But, Oh,
They Earn It!”
- Wife of Ford Assembly Line Worker
 MASS PRODUCTION
Flaws of Mass Production Approach
 Production Levels cannot Stop or Slow:
Defects resolved outside Production
(Added Costs of Rework)
 Long Changeover Times limits Product Variety
 Erratic Finished Products Inventory Levels
Incentives and 0% Financing
 MASS PRODUCTION
Market Orientation Flaw
 TOYOTA’S ORIGINS
• Toyoda Automated
Loom Works
1902 Modification: Loom
Stopped Automatically if
Thread Broke or Spool
Empty - Signal for
Attention
Result: No Waste from
Defective Work and Lower
Production Costs
 TOYOTA’S ORIGINS
During WWII, Toyoda became Toyota and
manufactured Motorcycles and Delivery Trucks

After WWII, Japanese Industry needed to re-build

 TOYOTA’S ORIGINS
1956 – Taiichi Ohno went to US to study Ford’s
Manufacturing Facilities

Found Mass Production

Principles not Applicable:
Scale of Japanese Markets
Desire for Product Variety
Unable to Afford Resources and Inventories
 TOYOTA’S ORIGINS
Before returning to Japan, Ohno went to an
American Grocery Store

Discovered Production and

Operation Methods that
Were Linked to Customer
Actions: Inventories
Replenished by Sales
(“PULL” Strategy)
Delivered Product Variety
and Scale
Minimized Waste
 TOYOTA’S ORIGINS

Toyota Exports its

First Car: The
Forgettable
“Crown”
Under-powered
and Unstable at
Freeway speeds,
Production is
stopped in 1959
 TOYOTA PRODUCTION SYSTEM

In 1961, Toyota adopts “Systems Perspective”

KAIZEN – Continuous Improvement Attitude that
Minimizes Waste and Emphasizes High Quality
Processes are analyzed to eliminate flaws rather
than fixing defective products
WASTE – Comprehensive View that includes
Time, Resources and Materials
Over-Production
Time Spent Waiting
Unnecessary Movements of Items
 TOYOTA PRODUCTION SYSTEM

–Waste is anything other than the minimum

amount of equipment, materials, parts,
space, and workers’ time which are
absolutely essential to add value to the
product.
– - Shoichiro Toyoda
President, Toyota Motor Co.
 TOYOTA PRODUCTION SYSTEM

KANBAN - Downstream
Demand drives Upstream
Activity (“Pull Strategy”)
Orders flow “Up” System, not
from Top-down
Only what is Needed is
Ordered and Produced
 TOYOTA PRODUCTION SYSTEM

ANDON – Work Stops when

Problem Encountered
Counter-measures taken to
Cure Cause, Not re-work
Defective Result. Authority
delegated to Production
Team
Production and Problem-
solving Functions
combined. No Special
Trouble-shooting Teams
 TOYOTA PRODUCTION SYSTEM

Result of TPS is “Just-in-Time” Inventory System

 Comes from System’s Operation, Not a
Requirement of It: Element of “Waste”
Management Philosophy
 JIT relies on Supplier Relationships that
Integrate Inventory Arrivals and Production
Needs
 JIT depends on Mutual Commitment of
Toyota Loyalty and Supplier Performance
 TOYOTA PRODUCTION SYSTEM

Why Hasn’t TPS Been Universally Adopted?

 Equipment Transition Costs: Short
Turnover Times (High Variety)
combined with High Quality
 Different Management Paradigm:
Empower Assembly Line Workers to
Stop Production and Order Process-
correcting Counter-measures
 World’s Second Largest
Manufacturer of Automobiles
About 240,000 Employees
Produces a Vehicle about
every Six Seconds
Consistently Profitable GM:
$1.1 Billion Quarter Loss
What Is Operations Management?
• Operations management (OM) is the set
of activities that create value in the
form of goods and services by
transforming inputs into outputs
 Organizing to Produce Goods and
Services
• Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the product
3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
4. Human Resources – provides labor, wage and
salary administration and job evaluation
 Organizational Charts

Commercial Bank

Operations Marketing
Finance
Teller Scheduling Loans Human Resources
Investments
Check Clearing Commercial Recruitment
Security
Collection Industrial Job evaluation
Real estate
Transaction processing Financial Performance evaluation
Accounting
Facilities design/layout Personal Wage and Salary Adm.
Auditing
Vault operations Mortgage Personnel records

Maintenance Trust Department

Security
 Organizational Charts

Manufacturing

Operations
Finance/ accounting Human Resources
Facilities Disbursements/
Construction; maintenance credits Recruitment
Production and inventory control Receivables
Scheduling; materials control Marketing
Payables Job evaluation
Quality assurance and control
Supply-chain management General ledger Sales
Manufacturing Funds Management promotion Performance evaluation
Tooling; fabrication; assembly Money market
Design
International
Advertising
Product development and design Sales Wage and Salary Adm.
Detailed product specifications exchange
Industrial engineering Capital requirements Market research Personnel records
Efficient use of machines, space, Stock issue
and personnel
Bond issue
Process analysis
Development and installation of and recall
production tools and equipment
 Why Study OM?
• OM is one of four major functions of any
organization, we want to study how people
organize themselves for productive enterprise
• To know how goods and services are produced
• We want to understand what operations
managers do
• OM is such a costly part of an organization
 What Operations
Managers Do
• Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
 Ten Critical Decisions
1. Design of goods and services
2. Managing quality
3. Process and capacity
design
4. Location strategy
5. Layout strategy
6. Human resources and
job design
7. Supply-chain
management
8. Inventory, MRP, JIT
9. Scheduling
10. Maintenance
 The Critical Decisions
1. Design of goods and services
– What good or service should we offer?
– How should we design these products and
services?
2. Managing quality
– How do we define quality?
– Who is responsible for quality?
 The Critical Decisions
3. Process and capacity design
– What process and what capacity will these
products require?
– What equipment and technology is necessary
for these processes?
4. Location strategy
– Where should we put the facility?
– On what criteria should we base the location
decision?
 The Critical Decisions
5. Layout strategy
– How should we arrange the facility?
– How large must the facility be to meet our
plan?
6. Human resources and job design
– How do we provide a reasonable work
environment?
– How much can we expect our employees to
produce?
 The Critical Decisions
7. Supply-chain management
– Should we make or buy this component?
– Who should be our suppliers and how can we
integrate them into our strategy?
8. Inventory, material requirements planning,
and JIT
– How much inventory of each item should we
have?
– When do we re-order?
 The Critical Decisions
9. Intermediate and short–term scheduling
– Are we better off keeping people on the payroll
during slowdowns?
– Which jobs do we perform next?
10. Maintenance
– How do we build reliability into our processes?
– Who is responsible for maintenance?
Significant Events in OM
 Productivity Challenge
• Productivity is the ratio of outputs (goods
and services) divided by the inputs (resources
such as labor and capital)
• The objective is to improve
productivity!
Important Note!
Production is a measure of output only and not a
measure of efficiency
 Efficiency Versus Effectiveness
• The difference between efficient and effective is
that efficiency refers to how well you do
something, whereas effectiveness refers to how
useful it is.
• “Efficiency is doing things right; effectiveness is
doing the right things.”
• Doing the Right Things is More Important than
Doing Things Right
 Efficiency Versus Effectivenes
• For example, if a company is not doing well
and they decide to train their workforce on a
new technology. The training goes really well -
they train all their employees in avery short
time and tests show they have absorbed the
training well. But overall productivity doesn't
improve. In this case the company's strategy
was efficient but not effective.
 Productivity

Units produced
Productivity =
Input used

 Measure of process improvement

 Represents output relative to input
 Only through productivity increases can our
standard of living improve
 Productivity Calculations
• Labor Productivity

Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

 Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars

Multiple resource inputs  multi-factor productivity

 Measurement Problems
• Quality may change while the quantity
of inputs and outputs remains constant
(HDTV, iphones)
• External elements may cause an
increase or decrease in productivity
(using more reliable electric power
system)
• Precise units of measure may be
lacking
 Key Variables for Improved Labor
Productivity
1. Basic education appropriate for the labor
force
2. Diet of the labor force
3. Social overhead that makes labor available
such as transportation and sanitation
 Challenge is in maintaining and enhancing
skills in the midst of rapidly changing
technology and knowledge
 Service Productivity

1. Typically labor intensive (teaching, counseling)

2. Frequently focused on unique individual desires (customer

representatives in banks)
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
 Ethics and
Social Responsibility

Challenges facing
operations managers:
 Developing and producing safe, quality
products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring stakeholder commitments
 Entry-Level Jobs in PMOM
– Purchasing planner/buyer
– Production (or operations) supervisor
– Production (or operations) scheduler/controller
– Production (or operations) analyst
– Inventory analyst
– Quality specialist
– Others …
 Reference
• www.academia.edu
• www.poms.ucl.ac.
• www.wright.edu