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In this guide, we are going to consider what is the nature of production management and operations management in full.
Table of Contents
THE NATURE AND SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT
Session 1: The Meaning and Nature of Production and Operations Management
Session 2: The Production-Operations Process
Session 3: Production and Operations Strategy
Session 4: Designing and Operating Production System
Session 5: Forecasting
Session 6: Production and Operations Managers and Decision-Making
Hello and welcome to this module on production and operations management. Too many people production and operations management conjures only images of factories and machines and assembly lines.
In recent times, however, the scope of this field of study has broadened considerably. This is because the concepts and techniques in production and operations management can be applied to a wide range of activities and situations outside manufacturing such as banking, hotel management and education.
Besides, increasing competition among large companies has placed much emphasis on cost reduction and efficiency, which are achieved through techniques for the elimination of waste from the production or operation processes.
This broadened scope has given the field of production and operations management a term that more closely reflects the diverse nature of activities to which its concepts and techniques are applied.
In this unit, we will investigate the concept of production and operations management, explain the production and operations process and discuss production and operations strategy.
This will be followed by the design of a production system, forecasting and decision making in production and operations management.
Objectives by the end of this unit, you should be able to:
- define production and operations management;
- explain the production-operations process;
- discuss the various resource inputs used in the production and operations process;
- explain the important production and operations management;
- discuss production and operation strategy;
- examine the design of production and operations systems;
- describe forecasting; and
- state and explain the various decisions taken in production and operations management.
SESSION 1: THE MEANING AND NATURE OF PRODUCTION AND OPERATIONS MANAGEMENT
Running a business entails five major functions: Finance, Production or operations, Human Resource Management, procurement and Marketing.
Finance deals with getting the capital and equipment to start the business; production and operations deals with the process of transforming inputs into final products; procurement looks at obtaining the right raw materials components, parts and supplies at the right price and time; human resource management covers getting the right people to man the organization and marketing deals with selling and distributing an organization’s final product.
In this session, we shall focus on the production function, that is, the concept of production and operations management and the importance of studying the subject.
Objectives by the end of this session, you should be able to:
- a) explain the concept of production and operations management;
- b) give examples of activities that use the concept of production and operations management; and
- c) examine the need to study production and operations management.
Now read on…
1.1 The Concept of Production and Operations Management
I guess by now we all know that throughout the world people are involved in identifying opportunities to create goods or provide services to match the needs and wants of consumers.
The process of providing goods and services to satisfy such needs is known as production. Furthermore, the management of this activity is known as production and operations management.
Various writers have over the years defined production management differently from operations management. Some see production management as synonymous with operations management, which deals with the activities
designed to create goods and services. Others see operations management as totally different from production management. However, the basic principle running through the numerous definitions given is the management of various inputs leading eventually to the production of outputs for consumption. The two concepts are discussed below.
1.1.1 Definition of Production Management
Production management is defined as the management of the direct resources required to produce the goods and services provided by an organization.
Other definitions single out the two terms, that is, production and management. They define them separately and try to merge them. Thus, management is seen prominently as the process of getting things done through people.
It is the process of planning, organizing, directing and controlling managerial activities to ensure that desired goals are achieved.
Production on its part is the process of converting inputs (man, materials, money and plant) into desired outputs (goods and services) for consumption.
Thus, production management is the planning, organizing, directing, and controlling the materials, plants, money production technologies, and other aspects, of the work environment to ensure the availability of desired outputs for consumption.
In sum, we can say that production involves all the processes by which goods and services are created. It is the central part of the manufacturing process, and its main responsibility is to plan, resource, and control the process involved in converting raw materials and components into finished goods required to satisfy the needs and wants of the organization’s existing and potential customers.
Some examples of production are manufacturing custom-made products like boilers with a specific capacity, constructing flats, some structural fabrication works for selected customers, etc., and manufacturing standardized products like cars, buses, motorcycles, radios, television, etc.
1.1.2 Definition of Operations Management
Operations management is concerned with the design of a system to produce products and services, and the scheduling and controlling of that system for optimal performance.
Production has generally been associated with the factory, and with the design and control of large scale manufacturing processes.
Operations management has expanded this field of study to apply the principles and techniques of system design, scheduling and control to such non-factory establishments like retail stores, banks, and other financial offices, wholesale firms, educational institutions, health care organizations and government establishments.
It follows then that the principles and techniques of operations management are applicable to smaller business firms engaged in manufacturing, services or distribution.
Operations management can be summarized as the process of designing and utilizing the physical resources of the firm to maximize the operational capabilities of the company
This broadened scope of operations management has resulted in the name production and operations management. In this module, we will be using these two terms together.
Give one definition of production and operations management. Write it in your jotter for FTF discussions.
1.2 Objectives of Production Management
Just like any other functional area of business, the ultimate objective of production management is to create goods and services of the right quality and quantity at the right time and right production cost. Kumor and Suresh (2009) explain the four rights of production and operation management.
Right Quality: The quality of the product is established based upon the customers need. The right quality is not necessarily being the best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements.
Right Quantity: The manufacturing organization should produce the products in the right quantity. If they are produced in excess of demand capital will be locked up in the form of inventory.
This also comes with its associated costs such as warehousing charges. On the other hand, if the quantity produced is short of demand, shortages may be created in the market.
Right Time: producing the right quality goods at the right quantity is not enough until the goods are produced at the right time.
Timeliness of delivery is one of the important parameters to measure the effectiveness of every production department.
It is, therefore, necessary that the production department make the optimal utilization of inputs to achieve its objective by meeting customer demands on time.
Right Manufacturing Cost: Production costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at the budgeted cost, so as to reduce the variation between the actual and the standard (pre-established) cost.
1.3 The Scope of production and operations management
Production and Operations Management, as we have discussed at the beginning of the session, is concerned with the conversion of inputs into outputs.
It distinguishes itself from other functions such as personnel, marketing, finance, human resource etc. by the activities it performs.
The following, which are also represented in figure 2, are the activities that come under Production and Operations Management functions:
- Location of facilities.
- Plant layouts and Material Handling.
- Product Design.
- Process Design.
- Production and Planning Control.
- Quality Control.
- Materials Management.
- Maintenance Management
Identify the four rights of production and operations management. Write it in your jotter for FTF discussions.
The Importance of Studying Production and Operations Management You may be wondering why you need to study production and operations management.
Actually, the need to learn about production/operations management has become quite significant in the light of the following developments:
a). International competition, especially from the Japanese, has compelled American Companies to “raise the level of their fame” to remain competitive in world markets.
Thus, producing high-quality products that can be sold at competitive prices is the main responsibility of the production and operations era.
b). New production and operations technologies and control systems are significantly affecting the way firms conduct their businesses. No matter what the business is the knowledge of operation is critical in making decisions.
C). Production and operations management is critical to service companies as well as manufacturing firms. Indeed, no service firm can be called excellent without superior operations management.
d). If entrepreneurs are to survive, they must have a thorough knowledge of how their organizations make their products.
This is particularly true for new service businesses, where the quality of operation is frequently the only thing that separates one firm from another.
e). The concepts and tools of production and operations management are widely used in managing other functions of the business as well. For instance, every manager is concerned with quality and productivity issues.
f). Operations management offers an interesting and rewarding career. It requires a broad set of skills that, if mastered, makes you a very attractive candidate for jobs in a wide range of organizations.
Session 1 summary,
we discussed the meaning of production and operations management. Some of the reasons why we study production and operations management are increases in international competition, the emergence of new production processes, its importance in the service area, its use in management functions and finally it also offers a rewarding career.
SESSION 2: THE PRODUCTION-OPERATIONS PROCESS
Hi and welcome to the second session of this unit. We all know that any activity associated with production and operations is wealth-creation. A simple example of wealth creation would be the production of this book.
The difference between the costs of production and the price of the finished book represents the wealth that has been created. That is, the contributions of all those involved in its development have ‘added value to this process and have helped to create this wealth.
In this session, we shall examine the production and operations process. Specifically, we will look at the various resource inputs used in the process, the transformation process, the output and feedback.
Objectives by the end of this session, you should be able to:
(a) identify and explain the production-operations process;
(b) discuss the various resource inputs used in the production-operations process;
(c) explain and cite examples of the transformation process;
(c) state two similarities between goods and services; and
(d) distinguish between goods and services
Now read on …
2.1 The Production-Operations Process
Based on the definitions of production and operations management in session 1, a production – operations process can be considered as a method for converting resources into goods and services, as illustrated in fig. 1.2 The main objective is the outputs; the goods and services.
2.2 Resource Inputs
The resource inputs are converted into goods and services by process technology, which is the particular technology used to transform inputs into outputs or products.
Changing the technology changes how each input is used in relation to each other and may change the outputs.
Feedback is used to monitor the process technology or inputs to ensure that the system produces the desired results.
2.2.1 Human resources
Human resources are both physical and mental. Managerial talent, engineering skills, employee cooperation and similar qualities are crucial to an organization’s success.
The human values that people bring into an organization become traditions, standards and ethical guidelines for both internal operations and relations with the public.
Materials and equipment include the physical plant, manufacturing equipment, tools, raw materials, computers, and other physical resources required in the production process. In an accounting sense, materials and equipment constitute the major assets of a firm.
Energy refers to the physical energy, electrical and mechanical that provides power for production activities.
Capital means the funds that could be spent on human resources, materials and equipment, and energy. Capital is acquired through the sale of stock (equity) or through borrowing (debt). In not-for-profit organizations, taxes or contributions provide a source of funds.
Information is generated internally and externally and is used to maintain control over the production processes.
2.2.6 Environmental Forces
Inputs such as raw materials, components, parts and supplies are obtained from the environment. Businesses cannot isolate themselves from certain forces so far as they continue to interact with their environment.
Environmental forces are factors in the environment that can impact both positively and negatively on the price and quality of inputs as well as the production process. Examples include competitors, supplies, legal, social, economic, political and technological environments.
Technology refers to the art and science employed to produce and distribute goods and services. Firms that are able to respond to changes in technology are often able to remain competitive.
The objective of combining resource inputs is to transform them into goods or services with a higher value than that of the original inputs. The market prices they command normally measure the value of outputs.
Some outputs such as those that are social or environmental are however virtually impossible to value. The benefit, for instance, of transforming a polluted river into a habitat for fish cannot be accurately measured. In the past, intangibles and by-products were ignored.
Today, we recognize these outputs, and managers are forced to deal with them in terms of different individual and group value systems.
Transformations can take various forms. Converting raw materials into finished goods by means of various manufacturing processes involves physical transformation.
A locational transformation occurs when goods are transported from one geographic region to another. An exchange transformation takes place when one owner sells goods to another. A storage transformation can occur when goods are put in a warehouse.
Curing an illness illustrates a physiological transformation. The gratification that comes from doing well in an examination illustrates attitudinal transformation.
The output of a production process can be broken down into two separate categories, that is, volume and standards. The volume of output refers to the physical quantity of output; standards refer to the quality of the output.
A transformation process may produce the desired quantity of output, but the quality of that output may be unacceptable, or the standard of the output may be satisfactory but the volume may be inadequate. That is why it is important to use different criteria when measuring output.
Pure examples of outputs; goods and services are rare since most of the characteristics of goods and services overlap. The following are some of the commonalities and differences between goods and services.
2.4.1 Similarities between Goods and Services.
1) Entail customer satisfaction as the key measure of their effectiveness.
2) Include common measures of satisfaction (e.g. quality and speed).
3) Require demand forecasting.
4) Can involve routing the product through more than one process.
5) Are subject to Automation.
6) Are shaped by the production and operations strategy.
7) Depend on location and arrangement of resources for success.
2.4.2 Differences between Goods and Services
1) Goods may be stored; services are consumed during delivery.
2) Goods are transformed from other goods; in services, sometimes the clients themselves are transformed.
3) Goods are separable and non-perishable while services are inseparable. The provider is the same person selling the service.
4) Goods are homogeneous while services are heterogeneous. That is quality, quantity and delivery of services may vary among customers.
The final element in the production process is feedback. To ensure that the output of the system conforms to predetermined plans, the manager compares the actual output with the desired output. Variances signal the need for corrective action.
The system should be seen as a continual process in which needed adjustments change the mix of resource inputs.
Session: 2 summary,
we noticed that the production-operations process involves the acquisition of inputs, their conversion into semi-finished goods or finished goods and their onward transfer to consumers.
The different resources inputs used in the process are materials, energy, capital, information and human resources, technology and market and environmental forces. In addition, we looked at the characteristics of goods and services.
Did you understand the input-transformation-output process?
SESSION 3: PRODUCTION AND OPERATIONS STRATEGY
Hello, and how are you today. Have you ever heard of the word strategy? Well in times past it was mostly used in a war where armies try to outwit their enemies.
The word is, however, used in business to denote how companies try to outsmart their competitors. Although the production and operations strategy is only one part of a firm’s overall business strategy, there is no question that these decisions are vital to a firm’s success.
This session will have as its focal point the meaning of production and operations strategy, elements of a firm’s production and operations strategy, and the measurement of a firm’s productivity.
By the end of this session, you should be able to:
- a) define production and operations strategy;
- b) list the elements or characteristics of a competitive operations system;
- c) explain the process of developing a production and operations strategy; and
- d) mention the principles of production and operations strategy.
Now read on…
3.1 Nature and definition of Production and Operations Strategy
A production and operations strategy is concerned with setting broad policies and plans for using the resources of a firm to best support its long-term competitive strategy.
An operations strategy is typically driven by the overall corporate and business strategy of the organization and is designed to maximize the effectiveness of production and support elements while minimizing costs.
The strategy involves a long-term process that must foster inevitable change. It can be viewed as part of the planning process that coordinates operational goals with those of the larger organization. Productions and operations strategy addresses how the distinctive resources should be configured to achieve the desired corporate objectives.
A production and operations strategy involves decisions specifying how a business organization will allocate resources in order to support the firm’s infrastructure, the design of operation process and production.
The infrastructure decisions involve the logic associated with the planning and control systems, quality assurance and control approaches, work payment structures, and the organization of the production and operations function
3.2 Competitive Priorities
Krajewski and Ritzman (1993) define competitive priorities as the characteristics or the elements that a firm’s production and operation system must possess to support the business strategy in order to meet the demands of the markets in which the firm wishes to compete.
The key to developing an effective operations strategy lies in understanding how to create or add value for customers. Specifically, value is added through competitive priority or priorities that are selected to support a given strategy. Skinner and others initially identified four basic competitive priorities.
These were cost, quality, delivery, and flexibility. There is now a fifth and sixth competitive priority: customer focus and know-how.
Phusavat and Kanchana (2007) explain below:
1) Quality: Providing high-quality products. There should be a low defect rate, high product performance and reliability.
2) Cost: The ability to manage effectively production cost, including its related aspects such as overhead and inventory, and value-added.
The production and operation process can ensure efficiency through the elimination of nonvalue adding activities
3)Delivery: how quickly a product or a service is delivered to customers. It also incorporates the time-to-market for a new product.
4) Flexibility: This refers to the ability to deploy and/or re-deploy resources in response to changes in customer preferences. It includes several features, such as adjustment to design/planning, volume changes and product variety.
5) Customer focus: This concentrates on how to fulfil customers’ needs. It includes after-sale services, product customization, product support, customer information and dependable promise.
6) Know-how: This deals with the trend of decreasing product lifecycles. Because of the fast pace of technology and globalization, a conceived product idea that is not quickly developed could be quickly replicated by competitors.
Therefore, it is necessary that the time to market for new products are shortened as much as possible.
3.3 Developing productions and Operations Strategy
In recent times, many large companies consist of several stand-alone businesses that focus on separate product offerings or industries.
The standalone businesses within these conglomerates (group) often are referred to as strategic business units (SBUs).
For example, Enterprise group has the following main Focus strategies refer to where a firm concentrates its cost strategies or differentiation strategies on a narrow segment of customers in the market.
Functional strategies (for example, operations, marketing, and human resources) are developed to support the implementation of an established business strategy.
How can the productions and operations function contribute to a business strategy? At the beginning of our reading, we saw that operations strategy refers to how the production and operations management function contributes to a firm’s ability to achieve a competitive advantage in that marketplace.
The operations management function must be defined and organized around the competitive priorities discussed earlier.
For example, if a business is competing mainly on cost, then the productions and operations management function must ensure that:
- All machines and equipment are working perfectly, there is no wear and tear because faulty machines increase the cost of production;
- The plant layout is organized around the main activities that add value to the final product;
- Activities that do not add value to the final product is eliminated;
- Materials are not wasted by incompetent factory workers;
- Too much stock is avoided. Keeping too much stock increases storage cost which eventually adds to production cost;
- Avoiding unnecessary movements in factories; Likewise, a business competing on differentiation strategy may be supported by the production and operations management function through the following:
- Quality control measures: quality of inputs leads to quality of output;
- Reducing waste;
- The highly efficient and flexible production process that is able to meet late customization and changing customer preferences;
- Well trained and skilful staff with technical know-how
- Facility design that produces products with innovative and outstanding features; SBUs: enterprise life, enterprise insurance, enterprise trustees and enterprise properties in their portfolio.
The individual strategy adopted by each SBU, which is referred to as its business strategy, defines the scope and boundaries of the SBU, in terms of how it addresses the specific markets that it serves and the products that it provides.
In order to remain competitive in today’s fiercely competitive marketplace, an SBU needs to develop a successful business strategy.
In this type of situation, Michael Porter, a professor at the Harvard Business School and perhaps today’s leading authority on competitive strategy, believes that business organizations, in order to sustain their market share, can compete on three generic strategies: cost leadership, differentiation, and focus strategies.
Cost leadership strategy involves firms competing mainly on price. Differentiation refers to ways in which a business organization can distinguish its products and services from its competition.
For example, a company could offer higher quality products or services than its competitors.
3.4 Principles of Production and Operations Strategy
- Know and team up with the next and final customer.
- Become dedicated to continual, rapid improvement in quality, cost, response time, flexibility, variability, and service.
- Achieve a unified purpose through shared information and team involved in the planning and implementation of change.
- Know the competition and the world-class leaders.
Design and Organization
- Cut the number of product or service components or operations and the number of suppliers to a few good ones.
Organize resources into multiple “chains of customers,” each focused on a product, service, or customer family; create work-flow teams, cells, and “plants-in-a-plant.”
- Continually invest in human resources through cross-training for mastery of multiple skills; education; job and career-path rotation; and improved health, safety, and security.
- Maintain and improve present equipment and human work before thinking about new equipment; automate incrementally when process variability cannot otherwise be reduced.
- Look for simple, flexible, movable, low-cost equipment that can be acquired in multiple copies, each assignable to work-flow teams, focused cells, and plants-in-a-plant.
- Make it easier to make/provide goods or services without error or process variation.
- Cut flow time (wait time), distance, and inventory all along the chains of customers.
- Cut setup, changeover, get-ready, and startup times.
- Operate at the customer’s rate of use (or a smoothed representation of it), decrease cycle interval and lot size.
Problem-Solving and Control
- Record quality, process, and problem data at the workplace. Ensure that frontline improvement teams get the first chance at problem-solving before staff experts.
- Cut transactions and reporting; cut control causes, not symptoms. Before we try our hands at the self-assessment questions, let us quickly recap what we have learnt so far.
A production and operations strategy is the sum total of all decisions related to the production and storage and distribution of goods and services.
We saw that large firms usually have different businesses in their portfolio, which is called strategic business units.
Business strategies are developed at the SBU level and this may be successfully achieved with the help of the production and operations function.
Production and operations strategy is characterized by competitive priorities which include: cost, quality, delivery, flexibility, customer focus and know-how.
In addition, the principles that govern a firm’s production and operations strategy can be discussed under seven main headings.
They are customers, company competitors, design and organization, capacity, processing and problem-solving and control. Finally, we also looked at productivity and its measurement.
SESSION 4: DESIGNING AND OPERATING A PRODUCTION SYSTEM
We have already noted that the production and operations manager is responsible for the creation of goods and services.
This encompasses the acquisition of resources and the conversion of those inputs into outputs using one or more transformation processes.
Production and operations management includes planning, coordinating, and controlling the elements that make up the process, including workers, equipment, facilities, allocation of resources, and work methods.
It also includes product and service design, a vital, ongoing process that most organizations must follow. In this session, we will look at the components of designing and operating production systems, the differentiating features of production systems and the differences between goods and services.
By the end of this session, you should be able to:
- a) explain the term production system;
- b) state the two basic types of production systems;
- c) compare the two basic types of production systems;
- d) list the components of a production and operations design;
- e) briefly explain the differentiating features of a production system; and
- f) distinguish between manufacturing and service organizations.
Now read on…
4.1 Definition of a Production System
The production of any product or service can be viewed in terms of a production system. A production system is a framework or skeleton of activities within which the creation of value can occur. At one end of the system are the inputs, and at the other are the outputs.
Connecting the inputs and outputs are a series of operations or processes, storage and inspections. Figure 3.1 represents a simplified production system.
In producing goods, we may for example perform the following activities. If it is the manufacture of furniture, production may involve such inputs as wood, glue, nails, screws, paint, varnish, sandpaper, saws, pressers, templates and workers as well as other factors of production. After the inputs have been acquired, they must be stored until the time for use.
Then several operations such as screwing, nailing, sanding and painting occur; and then inputs are converted into such outputs, as chairs, tables, cabinets and so forth. After finishing the operations, a final inspection occurs.
The outputs are then held in finished goods storage until they are shipped to the customer. The production of furniture is familiar to most people. Most people also consider the production of goods as the only activity, which is of interest to the production manager.
Production and the production system concept, however, can be applied to the production of services also.
For example, we are aware of the services of the barber, whose operations involve cutting hair, trimming it, occasionally inspecting its beauty and eventually dismissing the client.
Most production systems are also made up of several sub-systems which may include parallel systems. In fig. 3.1 for example, an information system is depicted as parallel to the production system.
If the Production system of inputs, storage, operations, inspections and outputs is viewed as the skeleton of the production operation, then the information system can be viewed as its nervous system. It includes the procedures, paperwork, and devices used to transmit information. Examples of information include; inventory figures, receiving reports, production reports, inspection reports and shipping reports.
Basically, every production system has the following characteristics:
- Production is an organized activity, so every production system has an objective.
- The system converts the various inputs to useful outputs.
- It does not operate in isolation from the other organization system.
- There exists feedback about the activities, which is essential to control and improve system performance.
4.2 Basic Types of Production Systems
There are two basic types of production systems:
- Continuous production and
- Intermittent production.
4.2.1 Continuous Production
Continuous means something that operates constantly or non-stop without any halt or interference. Production based on this process is called continuous production.
In the continuous production system, goods are produced constantly as per demand forecast. Examples of continuous production will be petroleum refineries where usually only one main product; petrol, is manufactured in very large quantities. Two types of continuous production systems include mass and flow production.
Refer to session 4 of unit 5
The characteristics of a continuous production system are listed as follows:
- The flow of production is continuous. It is not intermittent.
- The products are standardized because the operation setup is not changed.
- The products are produced on predetermined quality standards.
- The products are produced in anticipation of demand. 5. Standardized routing sheets and schedules are prepared.
4.2.2 Intermittent Production
Another type of production system is based on intermittent processes. Intermittent means something that starts and stops at irregular intervals. An example of an intermittent production system would be what happens at the carpenter’s shop.
Various demands and orders for a variety of products come to the shop from assorted customers; while one customer makes a demand for tables, another customer asks for cabinets, and another customer demand handles to his cutlass. Two types of intermittent production systems include job and batch production.
Refer to sessions 2 and 3 of unit 5
The characteristics of an intermittent production system are as follows:
- The flow of production is not continuous. It is intermittent.
- Wide varieties of products are produced.
- The volume of production is usually small.
- General-purpose machines are used.
These machines can be used to produce different types of products. They are usually flexible and have the capabilities of being re-deployed for a different range of orders.
- The sequence of operation changes as per the design of the product.
- The quantity, size, shape, design, etc. of the product depends on the customer’s orders.
4.2.3 Comparison of the Continuous and Intermittent Production Systems
1) The continuous system usually yields a lower unit cost than the intermittent system.
2) The storage costs per unit are usually lower in the continuous production system than in intermittent systems.
- The time required for production is usually shorter in continuous production systems than in the intermittent production system.
4.3 Components of Production and Operations Design
Production and operations perform this activity in conjunction with marketing. Marketing people could be a source of ideas concerning new products and services and improvements to existing ones.
Production and operations staff can also be a source of new ideas for improvements in the processes that provide the goods or services.
From a practical standpoint, product and service design and the processes that provide them are the lifeblood of a competitive organisation.
4.3.1 System Design
System design involves decisions that relate to system capacity, the geographic location of facilities, arrangement of departments and placement of equipment within physical structures, product and service planning, and acquisition of equipment. These decisions usually, but not always, require long-term commitments.
4.3.2 System Operation
System operation involves the management of personnel, inventory planning and control, scheduling, project management, and quality assurance.
In many instances, the production and operations manager is more involved in day-to-day operating decisions than with decisions relating to system design.
However, the operations manager has a vital stake in system design because system design essentially determines many of the parameters of system operation.
For example, costs, space, capacities, and quality are directly affected by design decisions. Even though the production and operations managers are not responsible for making all design decisions they can provide decision-makers with a wide range of information that will have a bearing on their decisions.
4.4 Differentiating Features of Production Systems
There are a number of features that differentiate production systems. A brief discussion of some of these features will help you to develop a better understanding of the nature and scope of production and operations management.
4.4.1 Degree of Standardization
The output of production systems can range from highly standardized to highly customized. Standardized output means that there is a high degree of uniformity in goods or services.
Standardized goods include radios, televisions, computers, newspapers, canned foods, automobile tyres, pens, and pencils. Standardized services include automatic car washes, televised newscasts, taped lectures, and commercial airline service.
Customized output means that the product or service is designed for a specific case or individual. Customized goods include eyeglasses, custom-fitted clothing and window glass (cut to order). Customized services include tailoring, taxi rides, and surgery.
Systems with standardised output can generally take advantage of standardised methods, materials, and mechanisation, all of which contribute to higher volumes and lower unit costs.
In custom systems, on the other hand, each job is sufficiently different so that workers must be more skilled, the work moves slower, and the work is less susceptible to mechanisation.
4.4.2 Type of Operation
The degree of the standardised output of a product or service influences the way a firm organises its production. On one end of the scale is a single, large-scale product or service such as the launching of a space shuttle (service) or the construction of a skyscraper (product). On the other end is a continuous process, such as oil refining.
In between these extremes are customised individual units of output, such as custom-made furniture, special-purpose machines, and auto repair; batches, such as paint and food products; and mass production, such as automobiles, personal computers, and appliances.
4.4.3 Production of Goods versus Service Operations
Production of good results intangible output, such as a car, a book, a table anything that we can see or touch. It may take place in a factory but can occur elsewhere.
Service on the other hand generally implies an act; e.g. a doctor’s examination or TV repair. The majority of service jobs fall into these categories: government, wholesale and retailing, financial services, healthcare, personal services, business services and education.
Manufacturing and services are often similar in terms of what is done but different in terms of how it is done. For example, both involve design and operating decisions.
Further, both must make decisions on location, schedule and control operations, and allocate scarce resources.
Manufacturing and service organisations differ chiefly because manufacturing is goods–oriented and service is act-oriented. These are discussed below.
220.127.116.11 Customer Contact
By nature, service involves a much higher degree of customer contact than manufacturing. The performance of service often occurs at the point of consumption.
For example, repairing a leaky roof must take place where the roof is, and surgery requires the presence of the surgeon and the patient.
On the other hand, manufacturing allows a separation between production and consumption, so that manufacturing may occur away from the consumer.
This permits a fair degree of latitude in selecting work methods, assigning jobs, scheduling work, and exercising control over operations. Service operations, because of their contact with customers, can be much more limited in their range of operations.
Moreover, customers are sometimes a part of the system (e.g., self-service operations such as gas stations, shopping), so tight control is impossible. In addition, product-oriented operations can build up inventories of finished goods (e.g., cars, refrigerators), enabling them to absorb some of the shocks caused by varying demand.
Service operations, however, cannot build up inventories and are much more sensitive to demand variability. For instance, banks and supermarkets alternate between lines of customers waiting for service and idle tellers or cashiers waiting for customers.
18.104.22.168 Uniformity of Input
Service operations are subject to greater variability of inputs than typical manufacturing operations. Each patient, each lawn, and each auto repair presents a specific problem that often must be diagnosed before it can be remedied.
Manufacturing operations often have the ability to carefully control the amount of variability of inputs and thus achieve low variability in outputs. Consequently, job requirements for manufacturing are generally more uniform than those for services.
22.214.171.124 Labour Content of Jobs
Because of the on-site consumption of services and the high degree of variation of inputs, services require a higher labour content whereas manufacturing, with exceptions, can be more capital-intensive (i.e., mechanised).
126.96.36.199 Uniformity of Output Because high mechanization generates products with low variability, manufacturing tends to be smooth and efficient; service activities sometimes appear to be slow and awkward, and output is more variable.
188.8.131.52 Measurement of Productivity
Measurement of productivity is more straightforward in manufacturing due to the high degree of uniformity of most manufactured items. In service operations, variations in demand intensity and in requirements from job to job make productivity measurement considerably difficult.
For example, consider the productivity of two dentists. One may have a number of routine cases while the other does not, so their productivity appears to differ unless a very careful analysis is made.
184.108.40.206 Quality Assurance
Quality assurance is more challenging in services when production and consumption occur at the same time.
Moreover, the higher variability of input creates an additional opportunity for the quality of output to suffer unless quality assurance is actively managed.
Quality at the point of creation is typically more important for services than for manufacturing, where errors can be corrected before the customer receives the output.
By way of summary, we explained production systems as a framework within which the creation of value occurs. We also looked at the basic types of production systems.
This was followed by an explanation of the components of a production and operations design, differentiation features of production systems and differentiating features between manufacturing and service organizations.
SESSION 5: FORECASTING
Have you ever heard of the word “forecasting”? What about the meteorological services department? They give us daily forecasts of how the weather will be like in the next hour, day, week or even years.
Well, we will also be talking about forecasting in this session but in this instance in production and operations management.
This session will be devoted to forecasting because forecasts are the basic inputs for many kinds of decisions production and operations managers make.
It provides insight into forecasting, elements of a good forecast, steps in the forecasting process and the types of the forecast.
By the end of this session, you should be able to: a) explain the term “forecast”;
- b) list the elements of a good forecast;
- c) outline the steps in the forecasting process; and
- d) describe four main types of forecasts.
Now read on…
5.1 Meaning of Forecasting
Forecasts are essential for the smooth operations of business organizations. It is therefore important for product managers to be able to use and understand forecasting.
They provide information that can assist managers in guiding future activities toward organizational goals.
Operations managers are primarily concerned with forecasts of demand—which are often made by (or in conjunction with) marketing.
However, managers of other functional areas also rely on forecasts to estimate raw material prices, plan for appropriate levels of personnel, help decide how much inventory to carry, and a host of other activities. This results in better use of capacity, more responsive service to customers, and improved profitability.
Forecasting is the process by which managers make predictions and assumptions about the future when they plan or make decisions today. Farmers in Ghana also rely on weather forecasts to determine when to plant and harvest their crops.
In business and production and operations functions, forecasts are the basis for budgeting and planning for capacity, sales, production, inventory, manpower, purchasing and many more.
5.2 Elements of a Good Forecast
A properly prepared forecast should fulfil certain conditions:
The forecast should be timely. Usually, a certain amount of time is needed to respond to the information contained in a forecast. For example, capacity cannot be expanded overnight, nor can inventory levels be changed immediately. Hence, the forecasting horizon must cover the necessary time to implement possible changes.
The forecast should be accurate and the degree of accuracy should be stated. This will enable users to plan for possible errors and will provide a basis for comparing alternative forecasts.
The forecast should be reliable; that is, it should work consistently. A technique that sometimes provides a good forecast and sometimes a poor one will leave users with the uneasy feeling that they may get burned anytime a new forecast is issued.
The forecast should be expressed in meaningful units. Financial Planners need to know how many cedis will be needed, production planners need to know how many units will be needed, and schedulers need to know what machines and skills will be required. The choice of units depends on user needs.
Although writing the forecast will not guarantee that all concerned are using the same information, it will at least increase the likelihood of it. In addition, a written forecast will permit an objective basis for evaluating the forecast once actual results are in.
The forecasting technique should be simple to understand and use. Users often lack confidence in forecasting based on sophisticated techniques; they do not either understand the circumstances in which the techniques are appropriate or the limitations of the techniques. Misuse of the techniques is an obvious consequence.
5.3 Steps in the Forecasting Process
There are five basic steps in the forecasting process. These are:
Determine the purpose of the forecast.
What is the purpose of the forecast and when will it be needed? This will provide an indication of the level of detail required in the forecast, the number of resources that can be justified, and the level of accuracy necessary.
Establish a time horizon.
The forecast must indicate a time limit; keeping in mind that accuracy decreases as the time horizon increases.
Select a forecasting technique.
There are various techniques used for forecasting, they must be evaluated and the best one selected.
Gather and analyses appropriate data.
Before a forecast can be prepared, data must be gathered and analyzed. Identify any assumptions that are made in conjunction with preparing and using the forecast.
Prepare the forecast.
Once the first four steps have been considered, one is ready to prepare a forecast.
Monitor the forecast.
A forecast has to be monitored to determine whether it is performing in a satisfactory manner. If it is not, reexamine the method, assumption, validity of data, etc.; modify as needed, and prepare a revised forecast.
5.4 Types of Forecasts
Forecasting can be divided into four basic types: qualitative, time series analysis, causal relationships and simulation forecast.
5.4.1 Qualitative Forecasts
These consist of the opinions of salespeople or top management personnel or a combination of both. Some judgmental forecasts are totally intuitive, whilst others incorporate the opinions in a mathematical or statistical framework.
These forecasts have the advantage of incorporating intangible factors and subjective experience; but they may have the disadvantage of including personal bias, overly optimistic feelings and other human shortcomings.
5.4.2 Time Series Forecasts
These forecasts use past happenings to predict future events. For instance, a firm may use the sales figures for the past five years to predict sales for the sixth year. The more commonly used time series models are moving averages, exponential smoothing and regression analysis.
5.4.3 Causal Forecasts
These try to identify whatever will have a cause-effect relationship on the matter being forecasted. For instance, advertising expenditures may directly affect sales of a particular product.
The simulation uses computer-based mathematical models to predict the future. Such models allow the forecaster to determine the effect of various changes without having to institute them.
For example, a manager may use simulation to increase a product’s selling price by 5% and then by 10%. The effect of these changes can be determined quickly.
It has been discovered that a simulation is an invaluable tool where the risks and costs of making a particular decision are high.
In sum, we have realized that forecasting entails looking into the future to determine a particular course of action. For forecasts to be good they must be timely, simple, accurate, reliable, meaningful and must be put in writing.
We also discussed the steps in the forecasting process; they are the determination of the purpose of the forecast, establishing a time horizon, selection of a forecasting technique, gathering and analyzing appropriate data, preparing the forecast and monitoring of the forecast.
Finally, we noticed that there are four main types of forecasts; qualitative, simulation, time series, and causal forecasts.
SESSION 6: PRODUCTION AND OPERATIONS MANAGERS AND DECISION-MAKING
The chief role of the production and operations manager is that of a decision-maker. In this capacity, the production and operations manager has considerable influence over the degree to which the goals and objectives of the organisation are achieved.
In this session, we will examine the nature of decision-making, the decision-making process, the environment within which decisions are taken and product and process decisions made by production and operations managers.
By the end of this session, you should be able to:
- a) describe the nature of decision-making;
- b) list the steps in the decision-making process;
- c) state the three main decision-making environments;
- d) mention the five broad areas where production and operations managers make decisions
- e) explain the general approaches to decision-making; and
- f) summaries the ethical issues in decision-making.
Now read on…
6.1 The Nature of Decision-Making
Decisions are an essential part of life, in and out of the work environment. A decision is a choice between a variety of alternatives and arises in an infinite number of situations from the resolution of a problem to the implementation of a course of action.
The decision-maker is whoever makes such a choice. Decision-making is, therefore, the process of making such choices.
A decision can be made instantly, or it can take quite some time. However, more often it involves the decision-maker in the identification, analysis, assessment, choice, and planning.
6.2 The Decision Process
Decision-making is the fundamental process of management. Unfortunately, decisions do not always turn out as planned.
Most successful decision-making follows a process that consists of steps. Thus, the success or failure in decision-making often depends on how well each of these steps is handled.
1) The first step in the decision-making process is the specification of objectives and the criteria for making the decision. The decision-maker must identify the criteria by which proposed solutions will be judged.
Examples of such criteria include cost, profits and return on investment.
2) The second is the development of alternatives. The ability to make satisfactory decisions depends on the degree of success one has in developing alternatives.
- The third step is the analysis and comparison of the alternatives. This is often enhanced by the use of mathematical and statistical techniques.
- The selection of alternatives is the next step. This will however depend on the objectives of the decision-maker and the criteria that are being used to evaluate alternatives.
- Implementing the chosen decision is the next step. This simply means carrying out the actions indicated by the chosen alternatives. Examples include buying a new machine or developing a new product.
- Monitoring the results is the final step in the process. Effective decision-making requires that the results of the decision be monitored to make sure that the decision has achieved the desired consequences. If it has not, the decision-maker may have to repeat the entire process.
6.3 Decision Environment
Production and operations management decisions are classified according to the degree of certainty present. There are three basic categories: certainty, risk and uncertainty.
Certainty means that the relevant parameters such as costs, capacity and demand have known values.
Risk means that certain parameters have realistic outcomes.
This means that it is impossible to assess the likelihood of various possible future events.
6.4 Production and Operations Decisions
Organizations depend upon the management abilities of their production and operations teams to carry out the production function. Many would argue that this function is the most difficult to understand and perform.
Production and operations usually employ the largest amount of capital, assets, labour and other factors, and it is important that a company has a proven strategy for dealing with production problems as and when they arise.
A convenient way to group production/operations decisions is by the manager’s areas of responsibility – process and product design, capacity, materials, workforce and quality.
We can therefore say that an operations manager must be concerned with the following issues: Costs of production
- The condition of the means of production (machinery, etc.)
- Keeping production going Health and safety
- Keeping employees motivated
- Keeping up to date with technology
- Satisfying the requirements of customers
- Maximizing the use of plant
- Minimizing the waste of materials.
Clearly, supervising production involves the use of a diversity of skills to control a range of resources in a variety of areas, which may all be interdependent.
We can try to break down the function into five broad areas (product, plant, process, programme and people) shown in Fig. 1.4 although in practice there will be considerable overlap. These areas will be discussed through this module.
6.5 General Approaches to Decision-Making
6.5.1 Quantitative Methods
Quantitative approaches to decision-making often embody an attempt to obtain a mathematical solution to production and operations problems. Quantitative techniques often used for problem-solving include linear programming, queuing techniques, inventory models and critical path methods.
6.5.2 Analysis of Trade-Offs
Production and operations managers encounter decisions that can be described as trade-off decisions. For example, in deciding on the amount of inventory to stock, the manager must take into account the trade-off between the increased level of customer service, the additional inventory and the increased costs required to stock that inventory.
6.5.3 Systems Approach
A systems view is always helpful in decision-making. A system can be defined as a set of interrelated parts that must work together. The systems approach emphasizes the interrelationships among subsystems but its main theme is that the whole is greater than the sum of its individual parts.
A systems approach is essential whenever something is being designed, redesigned, implemented, improved, or otherwise changed since it is important to take into account the impact on all parts of the system.
6.6 Ethical Issues in Production and Operations Decisions
Production and Operations managers, like all other managers, have the responsibility to make ethical decisions. Ethical issues arise in many aspects of production and operations management including:
1) worker safety; providing adequate training, maintaining equipment in good working condition, maintaining a safe working environment.
2) product safety; providing products that minimize the risk of injury to the user or damage to property or the environment.
3) quality; honouring warranties, avoiding hidden defects.
4) the environment; obeying government regulations.
5) hiring and firing of workers; production and operation managers should not hire under false pretences.
6) closing facilities; taking into account the impact on the community and honouring commitments that have been made.
7) workers’ rights; respecting workers’ rights, dealing with worker problems quickly and fairly.
To sum up, this session considered the nature of decision-making in production and operations management, the various steps in the decision-making process and the decision environment.
It then went on to discuss decisions production and operation managers make, the approaches to decision-making and ethical issues.