PRODUCTION

AND
OPERATIONS
MANAGEMENT

World transferred

Competition in all spheres.

Leading to shift towards new paradigm

Survival of business depends upon

At a typical manufacturing company

Profit 5%
Other Costs 21%

Marketing
Cost 26%

Manufacturing
Cost 48%

Options for Increasing Contribution/ Profit

Marketing
Option
Increase
Sales
Current (Rs.) Revenue 50%
Sales
100,000
Cost of Goods (80%) 80,000
Gross Margin
20,000
Finance Costs
6,000
Subtotal
14,000
Taxes at 25%
3,500
Contribution/ Profit 10,500

150,000
120,000
30,000
6,000
24,000
6,000
18,000

Finance/
Accounting
Option

Operations
Option

Reduce
Finance
Costs 50%

Reduce
Production
Costs 20%

100,000
80,000
20,000
3,000
17,000
4,250
12,750

100,000
64,000
36,000
6,000
30,000
7,500
22,500

The Three Basic Functions

Organization Chart-Major Elements

Manufacturing Organization
Operations

Finance/Accounting

Facilities
Production &
Inventory ontrol
Quality Assurance
& Control
Procurement
Engineering Design
Industrial Engineering
Process Engineering

Disbursements
& Credits
Funds Management
Capital Requirements

Marketing
Sales Promotion
Advertising
Sales
Market Research

Organizational Charts
Commercial Bank

Operations
Teller Scheduling
Check Clearing
Collection

Transaction processing
Facilities design/layout
Vault operations
Maintenance
Security

Marketing
Finance

Loans

Human Resources

Commercial

Recruitment

Industrial

Job evaluation

Financial

Performance evaluation

Personal

Wage and Salary Adm.

Mortgage

Personnel records

Investments
Security
Real estate
Accounting
Auditing

Trust Department

Production/Operations
Management
POM is a part of general
management and it
performs Planning,
Organizing, Controlling
the production process by
the affecting human
Behaviour through
different mathematical and
quantitative Models in
decision making..

Production/Operations Management
It is now replaced by simply operations management.

Which is a broad term and includes manufacturing as

well as service organizations.
Operations Management affects:
The collective success or failure of companies.
Companies ability to compete.
Nations ability to compete internationally.
Every book you read, every e-mail you send or every medical
treatment you receive involves the operation function of one or
more organizations.

The output from most operations is a mixture of

goods and services
Tangible
Can be stored
Production precedes consumption
Low customer contact

PSYCHOTHERAPY CLINIC

MANAGEMENT
CONSULTANCY

COMPUTER SYSTEMS
SERVICES

Quality is evident
Can be transported
RESTAURANT

SPECIALIST MACHINE TOOL

MANUFACTURER

ALUMINIUM SMELTING

CRUDE OIL PRODUCTION

PURE GOODS

Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge

PURE SERVICES

Why Study P&OM?

1. OM is one of major functions of any organization and
2.

3.
4.
5.
6.

is concerned with organizational goal.

OM is responsible for managing and coordinating the
resources needed to produce a companys products
and services.
To study how people organize themselves for
productive enterprise.
To know how goods and services are produced.
To understand what operations managers do.
It is a costly part of an organization

Production & operation Management

Production and operation Management deal with PROCESS

that produce Goods & Service

Transformation Process

Examples
System

Inputs

Conversion

Output
(desired)

Hospital

Patients
MDs, Nurses
Medical Supplies
Equipment

Health Care

Healthy
Individuals

Restaurant

Hungry Customers
Food, Chef
Servers
Atmosphere

Prepare Food
Serve Food

Satisfied
Customers

Automobile
Plant

Sheet Steel
Engine Parts
Tools, Equipment
Workers

Fabrication
and Assembly
of Cars

High Quality
Automobiles

University

High School Grads

Teachers, Books
Classroom

Transferring
of Knowledge
and Skills

Educated
Individuals

Operations Interfaces

Business Information Flow

OM Decisions

OM Decisions

The activities of operations management

ENVIRONMENT
INPUT
TRANSFORMED
RESOURCES
MATERIALS
INFROMATION
CUSTOMERS

INPUT
FACILITIES
STAFF
INPUT
TRASNFORMED
RESOURCES

OPERATIONS
STRATEGY

IMPROVEMENT
DESIGN
PLANNING AND
CONTROL

GOODS
OUTPUT
AND
SERVICES

ENVIRONMENT

21

Example
Henry Ford of Ford Motors improved the
production system
Introduced Moving Assembly Line
Which dramatically reduced manufacturing
costs while delivering consistent low-priced
product

FORD MODEL T
First Produced:
October 1908

By 1927,
15,000,000
Produced
Any Color so long
as its Black

Managed Production system

Initially, took 14 hours to Assemble Model T.
When assembly line for Mass Production was
introduced it reduced production time to 1
Hour and 33 Minutes.
Model Ts Price also dropped from $1,000 in
1908 to $360 in 1916
Result:
Ford became dominant automobile manufacturer and Assembly
Line Method as Dominant Production Approach

FORD ASSEMBLY LINES

Assembly Line pulled by Ropes

Magneto Assembly

Example
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

How is operations relevant to my

major?
Accounting
Information

Technology
Management

As an auditor you must

understand the fundamentals of

operations management.
IT is a tool, and theres no
better place to apply it than in
operations.
We use so many things you
learn in an operations class
scheduling, lean production,
theory of constraints, and tons
of quality tools.

How is operations relevant to my

major?
Economics

Marketing

Finance

Its all about processes. I live

by flowcharts and Pareto

analysis.
How can you do a good job
marketing a product if youre
unsure of its quality or
delivery status?
Most of our capital
budgeting requests are from
operations, and most of our
cost savings, too.

Contents
Operations management
Facility Location
Product Design and development
Process selection

Facility Layout
Production Planning & Control (PPC)
Productivity

Capacity Planning
Quality Management
JIT and Lean Production System
Inventory Management