Course:

Production Management

Unit-1:
Introduction to Production
Management

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Table of Contents
1.1. Introduction ............................................................................................................................... 4
1.2. Learning Objectives .................................................................................................................. 5
1.3. History of Production Management ......................................................................................... 6
1.4. Definition of Production Management ..................................................................................... 7
1.5. Dimensions of Production Management ................................................................................... 8
1.5.1. Product Design .................................................................................................................... 9
1.5.2. Insourcing and Outsourcing ................................................................................................. 9
1.5.3. Capacity Planning and Control ............................................................................................. 9
1.5.4. Purchasing Process............................................................................................................. 10
1.5.5. Evaluation, Selection and Measurement of Suppliers ......................................................... 10
1.5.6. Basic Inventory Systems .................................................................................................... 10
1.5.7. Aggregate Production Planning and Just-in-Time Systems ................................................. 11
1.5.8. Master Production Schedule ............................................................................................... 11
1.6. Production Strategies .............................................................................................................. 12
1.6.1. Strategy Targeting to Minimise Cost .................................................................................. 12
1.6.2. Strategy Aiming at Highest Quality .................................................................................... 12
1.6.3. Strategy of Innovation ........................................................................................................ 13
1.6.4. Strategy of Balancing the Competitive Priorities ................................................................ 13
1.7. Computer Integrated Manufacturing ..................................................................................... 14
1.7.1. Computer Technology........................................................................................................ 14
1.7.2. Computer-Aided Design (CAD) ......................................................................................... 15
1.7.3. Computer-Aided Manufacturing (CAM) ............................................................................ 15
1.7.4. Robotics ............................................................................................................................. 15
1.7.5. Electronic Data Interchange (EDI) ..................................................................................... 15
1.7.6. Manufacturing Resource Planning...................................................................................... 15
1.7.7. Automated Guided Vehicle Systems .................................................................................. 16
1.7.8. Group Technology ............................................................................................................. 16
1.7.9. Vendor Scheduling............................................................................................................. 16
1.8. Automation and Enterprise Resource Planning ..................................................................... 16
1.8.1. Supply Chain Management (SCM) Systems ....................................................................... 18
1.8.2. Customer Relationship Management (CRM) Systems ........................................................ 19
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1.8.3. Supplier Relationship Management (SRM) Systems .......................................................... 19

1.8.4. Product Lifecycle Management (PLM) Systems ................................................................. 19
1.8.5. Employee Lifecycle Management (ELM) Systems ............................................................. 19
1.8.6. Corporate Performance Management (CPM) Systems ........................................................ 19
1.8.7. Business to Consumer (B2C) Systems................................................................................ 19
1.8.8. Business to Business (B2B) Systems .................................................................................. 20
1.9. Summary.................................................................................................................................. 20
1.10. References .............................................................................................................................. 21

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1.1. Introduction
Automotive Manufacturing
Toyota faced new woes with another recall - this time involving its Tacoma
pickup trucks. This was happened after US President Barack Obama warned
carmakers not to drag their feet on beefing up vehicle safety. Toyota said it was
voluntarily recalling 8,000 of the 2010 model Tacoma four-wheel drive pickups
Exhibit 1.1
in the United States
The purpose of recalling is to inspect the front drive shaft. "The front shaft in these vehicles may
include a component that contains cracks that developed during the manufacturing process," said a
statement by Toyota Motor Sales, USA. "As those vehicles are used, the cracks may eventually lead
to the separation of the drive shaft at the joint portion," it added.
The Tacoma trouble is the latest embarrassment for the world's biggest automaker. Toyota has
recalled millions of vehicles in past months due to problems linked to accelerator and brake
functions. Those recalls cover the models with "sticky accelerators" that cause cars to race out of
control a defect cited in several deadly crashes. It has widened to brake system problems in the
Prius and other hybrid models.
The Tacoma pickup shafts were built by supplier Dana Corp from December until early this month,
a US government official said, speaking on condition of anonymity. Dana told the National
Highway Transportation Safety Administration, a government agency, that it was going to handle
the shaft recall on vehicles built for automakers Ford, Toyota and Nissan, the official said.
This was "because they had discovered a defect in their manufacturing process," the official said.
"So it looks like, out of caution, Toyota decided to submit its own recall notification to us because
technically, the vehicle manufacturer is responsible for recalls."
Separately, Toyota said in a letter to US lawmakers that it would investigate complaints on the
Tacoma relating to "engine idle speed changes when the vehicle is stopped and high idle speed
when the engine is cold." Also to be probed were complaints on "cruise control downshifting
behavior, engine speed changes when shifting (manual transmission) and lurching when a vehicle
is coming to a stop."
Amid the series of recalls, Toyota said it was studying the possibility of a new override system to
deactivate engines as an extra safety layer in emergency situations. "Toyota is considering adding
a multiple tap function to the start/stop button for vehicles produced in the future," said Toyota
spokesman Brian Lyons. The fix could make it easier to turn off engines in cases of accelerator
malfunctions in cars with keyless ignition systems.
A US woman filed a federal lawsuit in Los Angeles against Toyota, blaming the company for the
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death of her husband when the Prius she was driving suddenly accelerated. Jacquelyn Donoghue, a
67-year-old nurse, alleges in the suit that her car suddenly sped up and ploughed into another car
when she was driving home with her husband in December, and that a brake-to-idle override could
have prevented the crash.
Source: Toyota recalls 8,000 Tacoma trucks The Times of India, International Business, February 13, 2010.
http://timesofindia.indiatimes.com

Exhibit 1.1 provides a good backdrop for understanding the importance of Production Management.
A legendary company, such as Toyota, which has been hitherto known for its leading-edge
innovations in the field, is facing unprecedented criticism for its recent oversight.
Under the given situation discussed in Exhibit 1.1, some of the questions faced by Toyota are:
How did Toyota overlook the flaws when the vehicles/faulty components were being
designed?
Were there anomalies in the process that was used for assembling the failed components?
Was there slip ups during the vendor selection for the failed components?
Did Toyota perform proper controls to check if the components supplied by the vendors
were up to the specifications?
Was Toyota quick enough to respond to the complaints it received from the disgruntled
customers?
Were the managers of Toyota in the US adept enough to handle such a mammoth-sized
crisis?
The list of questions seems endless and it is clear that Toyota would find it hard to answer the same.
The dent in its world-class reputation seems irreparable. The lesson is obvious. Even the best of
organisations today cannot turn a blind eye to the customers. Organisations have to always strive hard
to create and sustain best practices in Production Management.

1.2. Learning Objectives

By the end of this unit, you will be able to:
Recall the basics of Production Management
Identify various dimensions of Production Management
Apply different tools used in computer integrated manufacturing
Recognise the need of basic knowledge of automated manufacturing and Enterprise
Resource Planning (ERP)

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1.3. History of Production Management

Figure 1.1 displays some of the world famous management gurus, about whom we will discuss in
detail. The history of Production Management can be traced back to the times of James Watt (1736 1819).

Mathew Bolton
James Watt
Frederick W. Taylor

Taichii Ohno
Henry Ford

Joseph Juran

W. E. Deming

Figure 1.1. World Famous Management Gurus

James Watt, was a Scottish inventor, who invented the steam engine. Watt obtained a patent for the
steam engine and started a steam engine manufacturing factory in partnership with Mathew Bolton in
1794. A foundry of the company called Soho Foundry Works, was managed by the sons of Watt and
Boulton.
James Watt Jr. (son of James Watt) and Robinson Boulton (son of Mathew Bolton) used systematic
techniques to manage their foundry. The techniques were demand forecasting, facility layout and
work flow, production planning, planned site selection, production standards and standardisation of
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product standards. They also created systems to determine costs and profits for each machine
manufactured (Pollard, 1974).
Frederick Winslow Taylor (1856 - 1915) is another major contributor to the field, with his seminal
work The Principles of Scientific Management. Taylor is renowned for his Stop Watch Time
Studies, in which he measured the time taken by workers to perform various tasks in a factory. In the
process, he arrived at the Standard Time that should be ideally taken by the workers. This helps in
comparing the performance of the workers. Taylor is often hailed as the father of Production
Management.
Henry Ford (1863 - 1947), the legendary inventor and businessman (Founder of Ford Motors),
invented the modern assembly line and used it effectively for the large-scale production of the
immensely successful Model T. It was his vision that made the car within the reach of the common
man during those times.
In more recent times, W. Edwards Deming (1900 - 1993) and Joseph M. Juran (1904 - 2008) are
hailed as Quality Gurus for their immense contributions to the field of Production Management. Both
these gentlemen were instrumental in bringing Japan to the global world map for its quality products
which were beyond competition during the 1980s compared to their Western counterparts.
Deming and Juran (both of them Americans) lectured throughout Japan during the 1950s and 1960s,
preaching the concepts of quality. Their preaching is hailed as the harbinger of Total Quality
Management (TQM) philosophy.
It is during this time that Taiichi Ohno (1912 - 1990), the then Vice-President of Toyota, invented the
famed Just-in-Time (JIT) production method (known as the Toyota Production System during that
time). JIT reduced the inventory in the factories drastically, thus reducing the overall cost of
production while improving the quality.
It is ironical that Toyota is facing acute quality crisis today and perhaps, needs to revisit the concepts
preached by Deming and Juran.

1.4. Definition of Production Management

Figure 1.2 shows the transformation process to which various types of inputs are subjected to, for
conversion into desired products. These inputs can be the land, building, machinery, equipment, tools,
raw materials, labour, managers, and so on. It is imperative that the quality of inputs is monitored to
check if they meet the required specifications.
Similarly, after the inputs are transformed into finished products, quality should again be monitored to
ensure that no defective item reaches the hands of the customer. Any variations in the expected output

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and the actual output need to be compared. Any gaps found should serve as a feedback mechanism to
take corrective action at the input stage or the transformation process stage.
At times, random disturbances, such as strike by labour, high turnover of workers (workers leaving
the job frequently), and so on, disrupt the transformation process.
Quality of
inputs
monitored

Quality of
outputs
monitored
Random disturbances

INPUTS

Transformation
Process

OUTPUTS

Feedback Mechanisms

Figure 1.2. The Transformation Process (Bedi, 2007)

We define Production Management on the basis of transformation process as below.

Production Management is defined as the design, operation and maintenance of
the transformation process, which converts various inputs into outputs of desired
products.

1.5. Dimensions of Production Management

Production Management has a vast scope of application and encompasses various dimensions. Let us
briefly understand some of these dimensions of Production Management.
Some of the important dimensions are quality management, supply chain management and so on
(These dimensions are covered as separate subjects and hence, are not mentioned in this unit).

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1.5.1. Product Design

Product design is an extensive process that involves inputs from some of the following sources.
Existing/Potential Customers
Design Engineers
Industrial Clients
Contemporary organisations try to capture the voice of the customer to have a clear understanding
of the exact expectations of the customers from the product to be designed.
Some companies perform reverse engineering of the products of competitors, whereby the products
are dismantled layer-by-layer to understand the underlying concepts that may be helpful in designing
the new products.
1.5.2. Insourcing and Outsourcing
First, the product design stage is completed and the desired features of the product are finalised. Next,
the company must decide on the following issues.
Which components/parts of the product the company would like to manufacture itself
(insource)?
Which ones it would like to buy from some vendors/suppliers (outsource)?
The decision on Insourcing and outsourcing requires diligent analysis of the companys core
competencies and cost-benefit analysis (CBA) of various insourcing/outsourcing options (We will
study about insourcing and outsourcing in detail in Unit-2: Insourcing and Outsourcing).
1.5.3. Capacity Planning and Control
Capacity planning is a capital expenditure decision, which is closely linked with facility location and
layout planning. Here, the production manager needs to decide how many maximum numbers of units
of the product can be manufactured in the facility in a given period of time (say, a year).
In simple terms, a decision has to be taken as to how large or small the factory should be. This is a
long-term decision and cannot be reversed easily. Hence, this long-term decision requires careful
analysis and planning.
During the operation of the plant, capacity needs to be controlled in the medium and short term to
optimise the production as per the demand projections (We will study about these aspects in detail in
Unit-3: Capacity Planning and Control).

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1.5.4. Purchasing Process

Various inputs, such as raw materials, components, parts, sub-assemblies, tools, equipment and so on,
have to be purchased by an organisation. The purchase cycle commences with the placement of order
with the vendor and ends with the payment made to the vendor.
Vendors in todays times are more of strategic partners. Organisations are striving hard to manage
vendor relationships to their advantage (We will study about Purchasing Process in detail in Unit-4:
Purchasing Process).
1.5.5. Evaluation, Selection and Measurement of Suppliers
An organisation needs to identify the various supply sources for its requirements. The capabilities of
the vendors identified needs to be meticulously evaluated in terms of:
Quality
Delivery
Performance
Price
Communication
Repair service
Attitude
Packaging ability
Training aids
Vendors who offer maximum value to the company are finally selected to place orders. Their actual
performance needs to be measured continually to decide whether to continue taking their services or
not in future. Quality standards, such as ISO 9000, provide useful guidelines in this regard (We will
study Evaluation, Selection and Measurement of Suppliers in detail in Unit- 5: Suppliers Evaluation, Selection and Measurement).
1.5.6. Basic Inventory Systems
Inventory is a stock of idle resources, which are stored for future use. Excessive inventory is
undesirable, as it unnecessarily ties up the money while adding to the costs related to its storage.
Low levels of inventory, on the contrary, may result in lost sales if the demand during that period
turns out to be high. Thus, an optimal level of inventory is required to be maintained.

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There are inventory models that help us in determining the following tasks.
When an order should be placed to the suppliers
How much should be the size of each order
(We will study about inventory systems in detail in Unit-6: Basic Inventory Systems).
1.5.7. Aggregate Production Planning and Just-in-Time Systems
Just-in-time (JIT) systems target to achieve minimum possible inventory so as to minimise the
associated costs. The idea in using the Just-in-time approach is:
To source materials just-in-time when required
To manufacture components or parts just-in-time
To assemble parts just-in-time to create the finished products ready for customers
The intention in JIT approach is to avoid inventory build-up at any stage of the production process.
JIT systems are based upon pull-production concept. On the other hand, aggregate production
planning systems are based upon push production concept.
In pull-production concept, a customer order pulls the material into the production process. In
push production concept, products are produced to stock on the basis of demand forecasting.
Aggregate production planning involves deciding how many units of a product should be produced on
a weekly or monthly basis for the next six to eighteen months duration (Aggregate production
planning would be studied extensively in Unit-7: Aggregate Production Planning and Just-in-Time
Systems).
1.5.8. Master Production Schedule
The aggregate production plan is utilised to further break up into details. The details are about the
exact models of the product and the quantities thereof to be produced in the coming periods of time.
All these tasks relate to the master production schedule.
The master production schedule takes into account the left-over units from the past periods of time,
due to any abrupt changes in the demand forecast. It, therefore, provides useful insights to the
marketing department about how much quantities can be promised to the prospective clients to be
delivered in a given period (These details would be discussed in Unit-8: The Master Production
Schedule).

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1.6. Production Strategies

The manufacturing environment is getting more and more competitive world-wide. Companies today
are trying to compete with each other in many ways. In this process, companies are not leaving any
stone unturned.
Over the past decade we have witnessed major corporations in the West shifting their factories to
China and India. The purpose of shifting may be to derive cost advantages, while maintaining the
quality and performance standards.
Strategies are long-term plans that are derived keeping in view the strengths and weaknesses of an
organisation. These strategies are derived while banking on the opportunities offered by the business
environment and overcoming its threats. The production strategy should be in line with the overall
business strategy of the firm.
Martin-Pena and Diaz-Garrido (2008) identified four forms of production strategies. Let us
understand these four forms.
1.6.1. Strategy Targeting to Minimise Cost
The organisations pursuing this strategy strive hard to improve efficiencies, eliminate wastes in their
production processes, and try to always meet the delivery timelines given by the customers.

A good example of this strategy can be SpiceJet, which promotes itself with the tagline Lowest
fares with the highest value. In 2009, it achieved the highest on-time performance for its flights.
1.6.2. Strategy Aiming at Highest Quality
Organisations aiming at the highest quality have the motto of leading the show with best quality
products in the marketplace. They tend to become synonymous with quality.
Such organisations always try to keep an eye on the pulse of the customer. They are always ready to
modify their products promptly as per the changing requirements of the customers. Not only they aim
at producing and delivering products quickly, but also provide exemplary after-sales service to
complement their product quality.

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A good example for strategy aiming at highest quality is Maruti Udyog Limited.
Maruti Udyog Limited is a market leader in India in terms of car sales for the past several decades. It
has introduced several models continually keeping in view the competition and changing preferences
of the Indian customers. Quality of cars has been its hallmark and the after-sales-service network
created by it throughout India is phenomenal.
1.6.3. Strategy of Innovation
Organisations focusing upon the strategy of innovation always lead the pack with continual
innovations in their products and processes. They introduce state-of-the-art technologies one after the
other, which often render the existing products out of competition or obsolete.
New designs and models of products are introduced at regular intervals, thus providing ample options
to the customers to choose from.

Sony Corporation offers an excellent example here. Sony has always remained the leader in
introducing leading-edge products. Sonys products are so advanced that it takes the competition
some time to catch up with such innovations. Be it the Walkman or the Handycam, Sony has been
on the forefront of innovation.
1.6.4. Strategy of Balancing the Competitive Priorities
Organisations who adopt the strategy of balancing the competitive priorities try to nullify the
traditional view. Organisations with the traditional view believe that there must be a trade-off between
various competitive priorities, such as:
Cost
Quality
Innovation
Flexibility,
Delivery,
After-sales-Service
Environmental Protection
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Organisations who adopt the strategy of balancing the competitive priorities try to exemplify that
many of these competitive priorities can be taken care of simultaneously.

Bharti Airtel is a suitable example in this category, for it has proved time and again that its
competitors in the Indian telecom market cannot easily match with it in terms of many of these
competitive priorities taken together. No wonders that it has been the market leader in the wake of
competition from Indias biggest corporate houses, namely, the Ambanis, Birlas and Tatas.

1.7. Computer Integrated Manufacturing

The term Computer Integrated Manufacturing (CIM) comprises of the following three terms.
Computer signifies the use of computer hardware and software
Integrated means the different isolated islands of automation are interlinked through a
distributed processing system
Manufacturing represents the functional area of production (including design, analysis,
planning, purchasing, cost accounting, inventory control, material handling and all process
operations) and other supporting functions
Thurawachter (1985) defines CIM as:
CIM is the logical organisation of engineering, production, marketing and supporting functions into a
computer integrated system. Functional areas of the enterprise, such as design, analysis, planning,
purchasing, cost accounting, inventory control and distribution, are integrated with the factory floor
functions (such as materials handling, and management with direct control and monitoring of all the
process operations) through computers.
CIM comprises of a suite of tools with varied applications as identified by Polakoff (1990). Let us
study in detail about the CIM tools.
1.7.1. Computer Technology
Computer technology allows for seamless integration of hardware and software such that artificial
intelligence and expert systems are easily supported. The use of computer technology enhances the
decision-making capabilities of the managers by manifold.

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1.7.2. Computer-Aided Design (CAD)

Using Computer-Aided Design (CAD), the designers can easily create three-dimensional diagrams of
the products as per the specifications of the customers/clients. Any modifications in these designs can
be easily performed. Geographically dispersed experts can contribute to the refinement of the designs,
as these can be easily transmitted to distant locations.
1.7.3. Computer-Aided Manufacturing (CAM)
Computer-Aided Manufacturing (CAM) makes use of computer numerically-controlled (CNC)
machines, which are programmed and controlled by computers. Thus, CAM not only helps in process
control, but also in quality control.
1.7.4. Robotics
Robotics is used for intricate operations requiring precision that cannot be easily achieved by the
human work force or are unsafe for humans.
The following are some of the application areas where robots are used extensively.
Precise Welding
Excessive Lifting
Picking/Packing in Manufacturing Industries
Transporting Hazardous Materials
During Military Wars
Performing Medical Surgeries
1.7.5. Electronic Data Interchange (EDI)
Electronic data interchange (EDI) is an application used for order management. EDI is utilised to
capture customer orders on a real-time basis. It allows visibility to the customer to available capacity
of the supplier so that the customer may place orders accordingly.
1.7.6. Manufacturing Resource Planning
The simulation of the master production schedule with dynamic updates of demand forecasts on a
real-time basis, allows for realistic production plans. Manufacturing resource planning keeps track of
the following activities, while having in view the capacity constraints.
Available Inventory
Actual Orders Received
Real-time Updated Demand Forecast
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1.7.7. Automated Guided Vehicle Systems

Automated storage and retrieval systems are the driverless forklifts, automated packaging systems and
automated cranes and so on. These automated guided vehicle systems have aided the manufacturing
companies immensely especially in the Just-in-time (JIT) production systems.
1.7.8. Group Technology
Group Technology (GT) aids in coding and classification of similar parts and components. The use of
GT is helpful in inventory management and JIT manufacturing.
1.7.9. Vendor Scheduling
Orders are placed to the vendors on a real-time basis using Electronic Data Interchange (EDI). The
delivery schedules, quantities to be supplied, specifications of parts and so on are automatically
communicated to the vendors on the basis of customer orders received. The incoming and outgoing
transportation is scheduled so as not to congest the factory premises.

1.8. Automation and Enterprise Resource Planning

Enterprise Resource Planning (ERP) software integrates the diverse functional areas of an
organisation. The functional areas, such as financials, sales and distribution, logistics, manufacturing,
and human resources are integrated on a single platform. This integration results in seamless flow of
data, avoids reentry of data and reduces possibilities of errors drastically, while making substantial
savings on various types of costs. ERP is the most contemporary form of automation of an enterprise.
Figure 1.3 shows the evolution of automation in manufacturing (adapted from Moller, 2005). The
1950s were dominated by Inventory Control Systems (ICS). During 1950s, the production systems
were push-based and inventories were an integral part of manufacturing. Products were
manufactured on the basis of demand forecasts and stocked as inventory to be consumed in the due
course of time.
Inventory
Control
Systems
(ICS)

Material
Requirement
Planning
(MRP)

Manufacturing
Resource
Planning
(MRP-II)

Computer
Integrated
Manufacturing
(CIM)

Enterprise
Resource
Planning
(ERP)

ERP-II

1970s

1980s

1990s

2000s

Time
1950s

1960s

Figure 1.3. Evolution of Automation in Manufacturing (adapted from Moller, 2005)

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During the 1960s, inventory management of components and parts became more sophisticated with
the advent of Material Requirement Planning (MRP). MRP reports helped in determining exactly
when the purchase order should be released keeping in view the lead time of the vendors of various
components.
As the computing technology evolved during the 1970s, Manufacturing Resource Planning (MRP-II)
software came into existence, which started helping in generating production plans in a closed-loop
manner by taking into consideration the MRP and capacity constraints. (The 1980s brought the era of
CIM, which we have discussed in detail in the previous section). The 1990s were dominated by the
advent of an ERP software created and marketed by companies.
Well known ERP software vendors in the market are SAP, BAAN, Oracle, PeopleSoft and so on. The
current era of 2000s has brought to the fore the next-generation ERP, known as an ERP-II.
Before understanding the features of an ERP-II, let us discuss in layman terms exactly how an ERP
helps businesses by integrating the diverse functional areas. Let us take an example of a simple
illustration that gives an idea about the power and utility of an ERP.
The purchase department of an organisation has placed an order to a vendor to supply X quantity of a
component. The purchase order (PO) contains various details, such as:
Specifications of the component
Quantity, per unit price of the component
Delivery date
In a non-ERP system, the following activities occur sequentially.
1. Print-outs of the purchase order sent to the department that would
receive the supplies from the vendor
2. Quality Control (QC) department performs the incoming inspection
3. Finance department that would release the payment (provided the QC
department gives its approval)
In such isolated islands of automation, each of these departments would need
to enter the details of the PO in their respective computer systems.
Such re-entry of data at different isolated systems increases the chances of
manual data-entry errors. This is so because different employees would be
entering the same data in their respective computer systems.
Re-entering of same data increases the risk of human error. In addition, lot of
time and effort is consumed on part of personnel in these departments.
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A
Non-ERP
System

An
ERP System

In an ERP-based system, all the three departments would be interlinked

through the same platform and the details of the PO would automatically
be reflected real-time in their respective computer terminals.
Thus, the need for data re-entry would be completely eliminated. There is
no time-lag and no effort wasted on part of the employees in the three
departments.
In addition, the cost of taking paper print-outs and sending them to various
departments is done away with.

Let us now understand what kind of additional applications are supported by the second generation
ERPs known as ERP-II (Moller, 2005).
1.8.1. Supply Chain Management (SCM) Systems
A supply chain comprises of several enterprises that serve as vendors to each other. Figure 1.4
represents an illustration of a supply chain.
Tier-III
Vendor

Tier-II
Vendor
Supplies
Raw Materials

Tier-I
Vendor
Supplies
Components or
Parts

Manufacturer
Supplies
Sub-assemblies

Figure 1.4. Illustration of a Supply Chain

A manufacturer takes supplies (say, sub-assemblies) from Tier-1 vendor, which in turn takes supplies
(say, components/parts) from Tier-II vendor. Tier-II vendor sources its supplies (say, raw materials)
from Tier-III vendor. This chain of supplies from one vendor to the other is the supply chain.
A seamless communication and coordination between these vendors in the supply chain would result
in optimal inventory all across the supply chain. Hence, maintaining the optimal inventory minimises
the overall cost of production. The SCM component of ERP-II provides this functionality in terms of
real time visibility across the supply chain.

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1.8.2. Customer Relationship Management (CRM) Systems

Identifying the various categories of customers, keeping their records (regarding details, such as
purchases made by them, their preferences, and so on), and providing customer service, are some of
the facets of CRM systems.
1.8.3. Supplier Relationship Management (SRM) Systems
Akin to the CRM, SRM systems help in managing relationships with suppliers in the long-term.
Suppliers are treated by organisations today as partners and therefore, healthy and congenial relations
with them are a key to success.
1.8.4. Product Lifecycle Management (PLM) Systems
Developing a new product generates enormous amount of useful data that needs to be managed.
During the life-cycle of a product, new features may be added from time-to-time as per the customer
requirements and expectations.
A careful record and subsequent analysis thereof may provide valuable insights for development of
new products in future. The PLM component of ERP-II is helpful in this regard.
1.8.5. Employee Lifecycle Management (ELM) Systems
ELM systems of ERP-II help in keeping a record of employees in the organisation from their
recruitment to retirement/resignation. The competencies developed in the employees through training
interventions are recorded and their effectiveness is gauged. This analysis aids in designing future
training interventions. Similarly, the career progression of employees within the company is
monitored, while assessing their level of job satisfaction.
1.8.6. Corporate Performance Management (CPM) Systems
In this sub-system, ERP-II provides tools to keep track of the overall performance of the company on
various financial and non-financial parameters. Thus, top management gets a holistic view of the
companys performance in a given period of time.
1.8.7. Business to Consumer (B2C) Systems
Many companies have started reaching out to the consumers through retail-selling internet portals.
This requires extensive software and hardware infrastructure, comprising of online product
catalogues, online ordering facilities (so that the customers may place orders online), status checking
(so that the customers may check the status of the orders placed by them) and so on.. The ERP-II

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serves as the back-end processing support to the front-end internet tools in this context of ecommerce.
1.8.8. Business to Business (B2B) Systems
For e-procurement of items, B2B systems of the ERP-II come into play. Here, the whole process of
procurement of items is executed online. The requisition of items are generated by an employee/
department by filling an online form after browsing through the list of approved vendors and their
online product catalogues.
The necessary approvals are taken by the B2B systems online from the relevant authorities of the
company and the purchase order is automatically released to the vendor. The vendor, in turn supplies
the goods directly to the employee/department. The payment is then released by the finance
department to the vendor electronically (through electronic data interchange, EDI).

1.9. Summary
Here is a quick recap of what you have learnt in this unit.
Production Management is defined as the design, operation and maintenance of the
transformation process, which converts various inputs into outputs of desired products.
The history of Production Management can be traced back to the times of James Watt
(1736-1819), the Scottish inventor, who invented the steam engine.
Contemporary organisations try to capture the voice of the customer. The purpose is to
have a clear understanding of the exact expectations of the customers from the product to be
designed.
Vendors in todays times are more of strategic partners. Organisations are striving hard to
manage vendor relationships to their advantage.
Inventory is a stock of idle resources, which are stored for future use.
The idea of Just-in-time (JIT) is to:

Source materials just-in-time when required

Manufacture components/parts just-in-time
Assemble the components just-in-time to create the finished products

Aggregate production planning involves deciding how many units of a product should be
produced on a weekly or monthly basis for the next six to eighteen months duration.
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Master production schedule takes into account the left-over units from the past periods of
time, any abrupt changes in the demand forecast and provides useful insights to the
marketing department about how much quantities can be promised to the prospective clients
to be delivered in a given period.
Strategies are long-term plans that are derived keeping in view the strengths and weaknesses
of an organisation.
Computer Integrated Manufacturing (CIM) is the logical organisation of engineering,
production and marketing and supporting functions into a computer integrated system.
Using Computer-Aided Design (CAD), the designers of products can easily create threedimensional diagrams as per the specifications of the customers/clients.
Computer-Aided Manufacturing (CAM) makes use of computer numerically-controlled
(CNC) machines, which are programmed and controlled by computers.
Enterprise Resource Planning (ERP) is a type of software that integrates the diverse
functional areas of an organisation on a single platform. The functional areas include
financials, sales and distribution, logistics, manufacturing, and human resources.
The current era of 2000s has brought to the fore the next-generation ERP, known as ERP-II.

1.10. References

Book References

Bedi K, Production & Operations Management, Second Edition, Oxford University

Press, New Delhi, 2007
Pollard H.R. (1974), Developments in Management Thought, William Heinemann,
London

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Articles/Information for Further Reading

Martin-Pena M. L. and Diaz-Garrido E. (2008) Typologies and taxonomies of operations
strategy: a literature review, Management Research News, Vol. 31 No. 3, pp. 200-218
Moller C. (2005) ERP II: a conceptual framework for next-generation enterprise
systems?, Journal of Enterprise Information Management, 18, 4, pp. 483-497
Polakoff J. C. (1990) Computer Integrated Manufacturing: A New Look at Cost
Justifications Journal of Accountancy, 169, 3, pp. 24-29
Thurawachter W. A. (1985) FMS vs FMC, Computer Integrated Manufacturing Flexible
System Seminar Proceedings, New Orleans, LA, pp. 179-188

Web References
Toyota recalls 8,000 Tacoma trucks The Times of India, International Business,
February 13, 2010, http://timesofindia.indiatimes.com/biz/international-business/Toyotarecalls-8000-Tacoma-trucks/articleshow/5569718.cms

Video References
Virgin Galactic Full Introduction film Nov 09 Version 2,
http://www.youtube.com/watch?v=1hc49hI8soQ

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