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Production Systems

Operations Management

Anubha Walia
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• Nature and scope of production/operation management
• Relationship with other functional areas
• Standardisation and simplification
• Reliability and redundancy
• Value engineering
• Ergonomic considerations
• Product (and service) design for differentiation
• Types of production systems and layouts
• Capacity requirements planning
• Facilities, location and influencing factors; evaluation of alternatives
• JIT, FMS, and Group Technology
• Method study: Basic procedure, charts, diagram
• Work measurement & Time study
• Work sampling, learning curve, production standards
• Aggregate production planning; heuristic methods
• Inventory management: Basic concepts; selective inventory control models; ordering
systems; material requirement planning; operations scheduling: Meaning; dynamic and
static scheduling; design rules
• Quality control; variables and attributes
• Process control and acceptance sampling
• Maintenance: Facilities; total productive maintenance
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• Inputs (6Ms-Man, Machine, Method, Material,

Money, Management)
• Process- Conversion
• Output-Good / Services

• Production is heart of Org – Fin, Mktg, HR

Material Mgmt dependant

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(Input Conversion / Transformation Output)
Environment :- *Customer * Competitors *Suppliers
*Government regulations * Technology * Economy
Resources The Transformation
Material Process Output
Customer Physical Properties Good or
Informational Properties Services
Input Transforming Storage/Accommodation
Resources Physiological State Volume
Psychological State Variety
Facilities Variation
Staff Visibility

Monitoring & Control

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Production Management Function

• Planning- Course of Action. Pdt planning,

facility planning, Designing
• Organizing- Est structure of tasks and
assigning authority.
• Controlling – ensure actual performance is in
accordance with planned performance. We
prepare standard

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• Operations management is the management of an

organization’s productive resources or its production
• A production system takes inputs and converts them
into outputs.
• The conversion process is the predominant activity
of a production system.
• The primary concern of an operations manager is the
activities of the conversion process.
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Organizational Model
Sales HRM


MIS Accounting

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Some inter-functional relationships between the
operations function and other core and
support functions
Engineering/ Understanding of the Product/service
technical capabilities and development
function constraints of the function
operations process
Analysis of new
technology options Understanding of
process technology
Accounting needs New product and
Provision service ideas
and finance of relevant Understanding of the
function data capabilities and
Operations constraints of the
Financial analysis function operations process
for performance
and decisions Market
Understanding of human function
resource needs Understanding Provision of systems for
of infrastuctural design, planning and
Recruitment and system control, and improvement
development needs
and training
Human Information
resources technology
function (IT) function

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Objective of PM

• Optimal use of resources

• Max use of Manpower and resource
• Quality of good at minimal cost
• Contributing towards all round productivity
through Decision Making & QT

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• 1- Activities relating to designing or formulation of

the prod system
– Designing tools & drawing
– Designing Development and installation equipment
– Selection of overall plan
– Location plan
– Plant layout
– Material Handling system

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• 2 – Activities relating to analyzing and controlling of
prod operation after the prod sys has been activated
– Prod Planning – Prep of short term prod schedules, plan
for maintaining records of RM – finished good-semi
finished stock
– Prod Controlling – Work assignment, check and remove
discrepancies (control on inventory RM, purchase parts,
finished goods), Control on WIP and quality through
process control

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Scope of POM

1Operations Management
(Input Conversion / Transformation
2Strategic Role ( Strategy and performance

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Scope of POM Cont…
3 Design of Products and Services
4 Design of Operations Network
a) Capacity Decision
b) Layout Decision
c) Location Decision

5 Process Technology
6 Job Design & Work Organization

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Scope of POM Cont…


7 Capacity Planning and Control
8 Inventory Planning and Control
9 Supply Chain Planning and Control
10 MRP ( Material Requirement Planning )
11 Quality Planning and Control
12 Project Planning and Control
13 JIT ( Just In Time) Planning and Control
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Scope of POM Cont…

14 Failure Prevention & Recovery
15 TQM ( Total Quality Management)

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Scope of POM Cont…

a) Globalization and Environmental Protection
b) Social Responsibility
c) Technology Awareness
d) Knowledge Management
e) Industrial Safety and Security

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Why Should you study POM
• A business education is incomplete without an
understanding of modern approaches to managing
• Operations management provides a systematic
way of looking at organizational processes.
• Operations management presents interesting career
• The concepts and tools of OM are widely used in
managing other functions of a business.

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Back office Kitchen unit
operation in manufacturing
a bank operation

They are all


Take-out /
Retail restaurant
operation operation

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The operations function is fashionable!

The consultancy services market

% of world revenues of 40 largest firms

Financial Marketing/sales
6 2

11 Operations and process


IT strategy Corporate strategy

17 17

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• Plan, design and operate production system / subsystems
that create and deliver the firm’s primary products and
services and to achieve organizational goals
• Note that:
– Operations management deals with process
– Management in a broad, systems sense
– Subsystems are operations too
– Multiple goals: efficiency, productivity, cost minimization

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Managers Need Knowledge Of

• Production processes
• Operations management processes
• Decision making tools

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Analytical Tools Used In
• Forecasting methods
• Optimization models
• Queuing analysis
• Decision analysis
• Simulation

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Operations Management as a

Figure 1.3
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Operations Management As a
Skill Areas
• Quantitative
• Organizational
• General management
• Information systems
• Economics
• International
• Business ethics
and law
Figure 1.3
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The position of the operations function

Accounting Product
Marketing Operations
and finance development

Call on Manage Retranslate Conduct

Church newcomers appeals scriptures weddings

Fast food Advertise on Pay Design Make

chain television suppliers hamburgers hamburgers

Furniture Sell to Design new Assemble

Pay staff
manufacturer stores furniture furniture

Process Identify Raise Develop Make and

perspective needs capital product distribute

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Continuum of Characteristics
More like a More like
manufacturing a service
organization organization

• Physical, durable product • Intangible, perishable

• Output that can be product
inventoried • Output that cannot be
• Low customer contact inventoried
• Long response time • High customer contact
• Regional, national, or • Short response time
international markets • Local markets
• Large facilities • Small facilities
• Capital intensive • Labor intensive
• Quality
Figure 1.4 easily measured
• Quality not easily measured
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Physical / Informational Output
• Physical Outputs • Informational Outputs
• Seller no longer owns • Seller continues to
when sold possess after sale and
• Replication requires can sell again
manufacturing • Replication at negligible
• Output exists in single cost and without limit
location • Output can exist in
• Wears Out multiple locations
• Does not wear out
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The output from most types of operation is a
mixture of goods and services
Pure goods
Crude oil production

Can be stored
Aluminium smelting

Specialist machine tool Production precedes

Low customer

Can be transported
Quality is evident

Computer systems


Psychotherapy clinic
Cannot be stored
Production and
consumption are
High customer contact
Cannot be transported
Quality difficult to
Pure services

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Facilitating Good Concept
• Often confusion in trying to classify
organization as manufacturer or service
• Facilitating good concept avoids this ambiguity
• All organizations defined as service
• The tangible part of the service is defined as
facilitating good
• Pure Services

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The Range From Services to

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Classification and Evolution of
Economic Offerings

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Comparison of Alternative
Economic Offerings
Economic Commodities Goods Services Experiences

Value added by Extracting Producing Delivering Staging

Form of output Fungible Tangible Intangible Memorable

Key Natural Standardized Customized Personalized


Buyer Market User Client Guest

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A Typology of
Low repetition High repeatability
Each staff member Low Volume High Specialization
performs more of job Systemization
Less systemization Capital intensive
High unit costs Low unit cost

Well defined
Flexible Routine
Complex High Variety Low Standardized
Match customer needs
High unit cost Low unit costs

Changing capacity Stable

Anticipation Routine
Flexibility High Variation in demand Low Predictable
In touch with demand High utilization
High unit cost Low unit costs

Time lag between

Short waiting tolerance production and
Satisfaction governed by consumption
customer perception Standardized
Customer contact skills Low contact skills
needed High Visibility Low
High staff utilization
Received variety is high
High unit cost
Low unit costs

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Japanese Production System

• Quality comes first

• Continuous improvement of products &
• Eliminate all forms of waste
– 7 waste

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Operations Management Today

• Service economy
• Environmental awareness

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D. Operations Management,
Productivity & Competitiveness
(1990-93) (1982-93)
Productivity Labor cost
growth (%) increase (%)
U.S. 2.5 16.1
Canada 2.4 16.2
Japan 1.8 123.9
Germany 1.2 100.8
Sweden 4.2 26.3
U.K. 4.5 27.0
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Operations Management Uses

• apply quality tools to tax work

• project management used on merger
• inventory theory for personal purchases
• job design improves home chores
• flexible spending accounts analyzed as
inventory models

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POM Models
• Verbal Models- Express in words the
relationship among variable – a motorist asks
you to give directions for the nearest fast food
• Schematic – Pictorial relationship – map
• Iconic – Physical replica of process eg – arch
model of new building
• Mathematical – functional relationship among
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Productivity & Wastivity

• Effectiveness of PM is measured by efficiency

through which the i/p are converted into o/p
– Productivity – output / input –Standard / Actual
• Wastivity
– 1/Productivity
– Amt of waste generated in the system. If we could
measure waste, then it becomes a tool for measuring the
efficiency of the i/p call wastivity

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Example of waste

• Idling of resources – material waiting in the

form of inventory in store, job order waiting to
be processed
• Production of Defective good and services

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Productivity problem
• In a manf unit the standard time allowed for the
production of a unit is 5 hrs. If in a particular month 126
units are produced by employing 4 persons and the
allowable delays are found to be 44 man hours, find the
productivity and wastivity
• Earned Standard Hrs – 630 hrs
Std time – 5hrs, prod – 126 unit = 5x126=630hrs
• Available Man hr = 756 hrs
– Manpower emp – 4 person, Monthly working hr – 4x25x8
=800 hrs
– Allowed delay – Actual Man hr 800-44 = 756

– Productivity – ESH/AWH = 630/756x100=83.3%

– Wastivity – 100-83.3 – 16.6%

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• British term –systematic study of how people
physically interact with the working environment, as
well as their equipment, facilities, and pdt.
• Alternative name is human factor, becoz people differ
in size, age, there are significant design question that
must be decided
• Eg- AT&T Henry Dreyfuss designers created one of
the first single unit mouth and ear telephone that was
used by both adult and kids
• Ergonomics starts with physical efficiency, issue of
safety and comfort

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2 topic

• Types of production systems and layouts

• Capacity requirements planning
• Facilities, location and influencing factors;
evaluation of alternatives
• JIT, FMS, and Group Technology

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Plant Layout & Location

• Factory – Place in which the factors of

production – land, labour, capital and
enterprises are brought together for creation of
good and service. The term plant layout is used
with factory layout

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Optimal Criteria for Selecting Plant location
• Criteria is to achieve max ROI return on investment
over long run
• ROI depends on Profit Margin and Investment Turnover
• ROI (Average) = IT x PM
• IT =~ long run investment PM= ~ long run profit margin
• IT = SR / TA SR = Sales Revenue TA – Total Assests
• PM = P / SR P = ~long run profit SR – Sales Rev
• ROI = (SR / TA) x (P / SR) = P / TA
• P = SR – TC were TC is Total Cost
• SR depends upon the market and not location hence ROI is
directly proportional to TC/TA

• THUS, to MAX ROR, the location must be chosen so as to minimise the TA

(land, building, equipment, material, cash) and TC (cost of material, transp
cost, labour cost, conversion cost)
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Types of Production System (PS)
• 2 types = Continuous and Intermittent PS
• CPS – Continuous physical flow of material.
Standard pdts are manuf which are large in dd.
Standardized I/p and sequence of operations,
machine tools and equipment are used. Less
supervision, Possibility of Rigid Quality
• CPS are of two types- Mass production and
Process production

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Mass and Process
• Mass – One type of product or max 2 or 3 type
of pdt are manf in large quantities and much
emphasis is not given to consumer order.
• Process – This system is used for manf those
items whose demand is continuous or high.
Here single Raw material can be transformed
into different kinds of pdt a different stage of
the production. (oil refinery to kerosene,

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Intermittent PS
• Good are manf specifically to fulfill order by
customers rather than producing against stock.
Eg switch gear
• Two types – Job and Batch production
• Job – production of a single complete unit by
one operator or a group operators eg bridge
construction – whole project considered as one
operation. Require skilled labour
• Batch – Items are processed in lots. Printing
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Plant capacity
• Capacity may be defined as the max or limiting
capability of a production unit to produce ina
specified period.
• This is expressed in terms of o/p per unit of
• Measure of capacity – different org used
different measure of capacity. Steel plant-tons,
beer – cans produced, auto plant – auto parts

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Capacity Planning
• Designed capacity – i.e maximum capacity that
a producing unit can produce under ideal
• Whenever the existing dd changes or addition
of new product has been made, then re-
assessment of capacity at various stage of
production, depending upon the process details
(i.e identifying ways of meeting desired
capacity through – better utilization, higher
efficiency, overtime, adding machinery or
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• Effective capacity- effective is % utility of the
designed capacity
Achievable x100
Designed capacity
• Rate Capacity – Rated capacity is the actual
capacity achievable under stated condition.
achievable capacity x efficiency
Were as Achievable capacity = (Designed capacity x Utilisation)

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• LINE LAYOUT all equipment reqd for one part or pdt
are grouped together in one department in sequence of
the operation performed – higher rate of o/p as no
interruption, high division of work, less inspection,
lower material handling cost, better machine utilization
– S, U, L shape
• Process / FUNCTIONAL LAYOUT The product is
fabricated by moving it from one dept to another dept
acc to sequence of operation to be performed ( high
degree of pdt can be manf, flexibility to change, mach
breakdown do

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Checklist of factors affecting regional location
• Cost of Raw material supplied (i.e cost of
transportation )
• Cost of conversion (Cost of conversion i/p to
• Cost of distribution (to dealers and distributor)

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Factors affecting Selection of a regional plant

• Raw material
• Labour supply
• Marketing
• Factory Service
• Climate condition
• Law and codes

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Multiple Location problem

• When the same market areas have to be

supplied from more than one manf unit the
problem of adding a new place is said to be
multiple location plant.

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FMS- Flexible Manf System
• The age of mass prod is gone and era of flexible
prod is being started as competitive world is
there pdt introduced, phase out results to lower
order quantities.
• Rapid intro of new pdt
• Quick modification in pdt
• Consistently Q Control
• Ability to produce variety of pdt
• Increase productivity
• Saves labour cost
• Shorter preparation time for new pdt.
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