1 POM An Introduction

An Introduction
Prepared By: Gurpreet Singh
Introduction
The consumption of Goods and Services is an Integral part of our Society. Production & Operations Management is responsible for creating those Goods and Services. Organizations exist primarily to provide Services or to create Goods. Production & Operations organization.
is the Core function of an
Production & Operations Management

Production & Operations Management is the management of that part of an organization that is responsible for producing goods and/or services. Definition: The management of systems or processes that create goods and/or provide services. Production & Operations Management affects: Companies ability to compete Nations ability to compete internationally
Business Organization
The Three Basic Functions
Organization
Finance
Operations
Marketing
Finance:
Responsible for securing financial resources at favorable prices. Allocating those resources throughout the organization. Budgeting. Analyzing investment proposals. Providing funds for operations.
Marketing:
Responsible for assessing customer wants and needs. Selling and promoting the organization's goods or services.
Operations
Responsible for producing the goods or providing the services offered by the organization. It is the core of what organization does.
ValueValue-Added Process
The creation of goods or services involves transforming or converting I/Ps into O/Ps. I/Ps like: Capital, Labor, Information etc. are used. To get desired O/P, organization takes measurement at various points in the transformation process (Feedback). Feedback is compared with previously established standards to determine whether corrective action is needed (Control).
ValueValue-Added Process
The operations function involves the conversion of inputs into outputs
Value added
Inputs Land Labor Capital Transformation/ Conversion process
Feedback
Outputs Goods Services
Control
Feedback Feedback
Value-Added & Product Packages

Value-added is the difference between the cost of inputs and the value or price of outputs. The essence of the operations management is to add value during the transformation process.
For non-profit org = Value to Society. For profit org = Prices that customers are willing to pay for those goods or services.
Product packages are a combination of goods and services. Product packages can make a company more competitive.
GoodsGoods-service Continuum
Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Home remodeling, retail sales Automobile assembly, steel making
Product Example
Food Processor
Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment
Processing
Cleaning Making cans Cutting Cooking Packing Labeling
Outputs
Canned vegetables
Service Example
Hospital Process
Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories
Processing
Examination Surgery Monitoring Medication Therapy
Outputs
Healthy patients
Manufacturing or Service?
Tangible
Act
Production of Goods Vs. Delivery of Services

Production of goods: Tangible O/P Delivery of services: An Act Service job categories:
Government Wholesale/retail Financial services Healthcare Personal services Business services Education
Production of Goods Vs. Delivery of Services

Service job categories:
Government: Federal, State, Local. Wholesale/retail: Clothing, Stationary, Toys etc. Financial services: Banking, Stock Brokerage, Insurance etc. Healthcare: Doctors, Dentists, Hospitals etc. Personal services: Laundry, Dry Cleaning, Hair/Beauty,
Gardening etc.
Business services: Data Processing, e-business, delivery etc. Education: Schools, Colleges etc.
Similarity & Difference B/W Goods & Services

Manufacturing and service are often different in terms of what is done but similar in terms of how it is done. E.g.:
Both involve Design and Operating decisions. Manufacturing must decide what size of Factory is needed. Service organizations must decide what size of building is needed. Both must take decisions of:
Location Work Schedules Capacity Allocation of Scarce resources.
Key Differences B/W Goods & Services

1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design
Goods vs. Service

Characteristic Customer contact Uniformity of input Labor content Uniformity of output Output Measurement of productivity Opportunity to correct problems Inventory Evaluation Patentable Goods Low High Low High Tangible Easy High Much Easier Usually Service High Low High Low Intangible Difficult Low Little Difficult Not usual
Scope of POM
Production & Operations Management includes:
Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities Supply chain management And more . . .
Scope of POM
Service organization example: Airline Company
Forecasting: Weather, Landing conditions, Seat demand, growth in air
travel etc.
Capacity planning: Planes (Too many or too few, right no. of planes in
wrong places).
Scheduling: Planes (Flights, Maintenance), Pilots, Flight attendants,

Ground Crews, Counter Staff, Baggage handlers etc.
Managing inventories: Foods & Beverages, First Aid Equipment, Inflight-magazines, Pillows, Blankets etc.
Assuring quality: Safety, Customer dealings (Ticket counter, Check-in,

Telephone/Electronic reservation etc).
Scope of POM
Service organization example: Airline Company
Motivating employees: All phases of operations. Deciding where to locate facilities: Decisions on which cities to
provide service, Where to locate maintenance facilities, Where to locate major and minor hubs etc.
Scope of POM
Production organization example: Bicycle Factory
Forecasting: Manufacturing, Sales, Man power etc. Capacity planning: Buying Components (Frames, Tires, Wheels, Gears
from suppliers and then assembling bicycles), Fabrication work, Forming frames, making Gears and Chains, buying Raw Materials, Few Parts (Paint, Nut/Bolts, Tires) etc.
Scheduling: Which components to buy, Ordering Parts and Material, Style

of Bicycle to produce and how many, Purchasing new equipment etc.
Managing inventories: Raw Materials, Parts, Components etc.

Scope of POM
Production organization example: Bicycle Factory
Assuring quality: To meet the quality standards. Motivating employees: Motivating Workers. Deciding where to locate facilities: Factory, Worker Houses etc.
Types of Operations
Operations
Goods Producing Storage/Transportation
Examples
Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites
Exchange Entertainment Communication
Design and Operation of System

System Design:
Involves decisions that relate to: (Strategic Decisions)
System Capacity Geographical Location of Facilities Arrangement of Departments Placement of equipment within Physical Structures Product and Service Planning Acquisition of Equipment.
Design and Operation of System

System Operation: (Tactical and Operational Decisions)
Involves decisions that relate to:
Management of Personnel Inventory Planning and Control Scheduling Project Management Quality Assurance
Feedback on these decisions involves Measurement and Control.

Other Areas of POM

Purchasing Industrial Engineering Distribution Maintenance
Other Areas of POM

Purchasing:
Procurement of Materials, Supplies and Equipment. Close contact with operation is necessary to ensure correct quantities and timing of purchases. Acts as an evaluator to vendors for Quality, Reliability, Service, Price, etc.
Industrial Engineering:
Concerned with:
Scheduling Performance Standards Work Methods Quality Control Materials Handling
Other Areas of POM

Distribution:
Involves:
Shipping of Goods to Warehouses, Retail Outlets or Final Customers.
Maintenance:
It is responsible for:
General Upkeep and Repair of Equipment Buildings and Grounds Heating and Air-Conditioning Removing Toxic Wastes Parking Security.
Decline in Manufacturing Jobs

The Service sector now accounts for more than 70% of jobs in US, and is growing in other countries as well. The number of people in services are increasing while the number of people working in manufacturing is not. Reasons: Productivity:
Increasing productivity allows companies to maintain or increase their output using fewer workers.
Outsourcing:
Some manufacturing work has been outsourced to more productive companies.
A Scenario
U.S. Manufacturing vs. Service Employment
Year Mfg. Service 45 79 21 90 Mfg. 50 72 28 80 Service 55 72 28 70 60 68 32 60 65 64 36 50 70 64 36 40 75 58 42 30 80 44 46 20 85 43 57 10 90 35 65 0 95 25 75 45 50 55 60 65 70 75 80 85 90 95 00 02 05 00 30 70 Year 25 75
02
Percent
Why Manufacturing Matters?

Over 18 million workers in manufacturing jobs. Accounts for over 70% of value of U.S. exports. Average full-time compensation about 20% higher than average of all workers. Manufacturing workers more likely to have benefits. Productivity growth in manufacturing in the last 5 years is more than double U.S. economy. More than half of the total R&D performed is in the manufacturing industries. Manufacturing workers in California earn an average of about $25,000 more a year than service workers. In California manufacturing job is lost, an average of 2.5 service jobs are lost.
Challenges of Managing Services

Service jobs are often less structured than manufacturing jobs. Customer contact is higher. Worker skill levels are lower. Services hire many low-skill, entry-level workers. Employee turnover is higher. Input variability is higher. Service performance can be affected by workers personal factors.
Operations Management Decision Making

It is important to make informed decisions. Key Decisions of Operations Managers
What
What resources/what amounts
When
Resources needed/scheduled/ordered
Where
Work to be done
How
Product or Service designed
Who
To do the work
General Approaches to Decisions Making

Models Quantitative approaches Analysis of trade-offs Systems approach Establishing priorities Ethics

Models:
An abstraction of reality. A simplified representation of something.
E.g. A childs toy car is a model of a real automobile, it has many of the same visual features (shape, wheels etc.) that make it suitable for childs learning and playing. Other examples include automobile test tracks and crash tests, formulas, graphs & charts, balance sheets & income statements and financial ratios etc. Common statistical models include descriptive statistics such as mean, median, mode, range and standard deviation, random sampling, normal distribution, regression equations etc.

Types of models:
Physical Schematic Mathematical

Types of models:
Physical:
Look like real-life counterparts. Visual correspondence to reality. E.g. Miniature cars, trucks, airplanes, toy animals, trains, scale-model buildings etc.
Schematic:
Less resemblance to physical reality. Simple to construct and change. E.g. Graphs & Charts, Blueprints, Pictures, Drawings etc.
Mathematical:
Abstract i.e. dont look like real-life counterparts. Easiest to manipulate E.g. Numbers, Formulas, Symbols etc.

Models Are Beneficial:
Easy to use, less expensive. Require users to organize and quantify information. Increase understanding of the problem. Enable what if questions. Consistent tool for evaluation and standardized format. Power of mathematics.

Limitations of Models:
Quantitative qualitative. Models may be incorrectly applied and results information may be emphasized over
misinterpreted. Nonqualified users may not comprehend the rules on how to use the model. Use of models does not guarantee good decisions.

Quantitative Approaches: Approaches:
An attempt to obtain mathematically optimal solutions to
managerial problems. problems.

Linear programming: Allocation of scarce resources. Queuing Techniques: To analyze waiting lines form. Inventory models: To control inventories. Project models: PERT & CPM (planning, coordinating and controlling
large-scale projects).
Statistical models: For decision making.

Analysis of Trade-Offs:
Trade-off decisions. E.g.
Decision on the amount of inventory to stock:
Level of customer service Vs. Increased cost of holding inventory In selecting equipment: Merits of extra features Vs Cost of extra features.
Tradeoffs

Systems Approach:
System:
A system can be defined as a set of interrelated parts that must work together. E.g. Business organization composed of subsystems (Marketing subsystem, Finance subsystem, Operations subsystem etc) which in turn composed of lower subsystems.

Systems Approach: Approach: The whole is greater than the sum of the parts.
i.e. the O/P and objectives of the organization as a whole take priority over those of any one subsystem.
Suboptimization

Systems Approach: Approach:
E.g.
If the upcoming model of an automobile will add antilock brakes, a designer must take into account how customers will view the change, instructions for using the brakes, chance for misuse, the cost of producing the new brakes, installation procedures, recycling worn-out brakes and repair procedures. In addition, workers will need training to make and/or assemble the brakes, production scheduling may change, inventory procedures may have to change, quality standards will have to be established, advertising must be informed of the new features and parts suppliers must be selected.

Establishing Priorities: Priorities:
Certain factors are more important than others. others. E.g. Owning and operating an automobile. automobile.
Certain parts are given more priority than others. E.g. Engine, others. Brakes, Ties over Seat covers, Paint, Dents etc. etc.
Between these two extremes lies a range of Intermediate priority which should be given attention corresponding to their importance to the overall goal. E.g. Wheel Alignment, goal. Headlights out of adjustment, Weak Battery etc. etc.

Establishing Priorities:
Pareto Phenomenon: A few factors account for a high percentage of the occurrence of some event(s). 80/20 Rule - 80% of problems are caused by 20% of the activities.
How do we identify the vital few?

Ethical Issues: (Managers)
Financial statements Worker safety Product safety Quality Environment Community Hiring/firing workers Closing facilities Workers rights

Financial statements:
condition. Accurately representing the organizations financial
Worker safety: Product safety:
Providing adequate training, maintaining equipment in good
working condition, maintaining a safe working environment. Providing products that minimizes the risk of injury to users
or damage to property or the environment.
Quality: Honoring warranties, avoiding hidden defects. Environment: Not doing things that will harm environment. Community: Being a good neighbor.

Hiring/firing workers: False pretenses (E.g. Promising a long-term job
when that is not what is intended etc).
Closing facilities: Taking into account the impact on a community and

honoring commitments that have been made.
Workers rights: Respecting workers rights, dealing with workers problems

or members conduct.
Many organization have developed codes of ethics to guide employees or members conduct.
Why Study POM?

50% or more of all jobs are in operations management or related fields. Business Operations Overlap: Overlap:
Finance Operations Marketing Although 3 primary functions in business organizations perform different activities, many of their decisions impact the other areas of the organization. organization.
Why Study POM?...

Business Operations Overlap:
Operations
Marketing
Finance
Why Study POM?...

Business Operations Overlap: Overlap:
Finance: (Finance & Operations management personnel cooperate by
exchanging information and expertise)
Budgeting:
Budgeting must be periodically prepared to plan financial
requirements. Budgets must sometimes be adjusted and performance relative to a budget must be evaluated.
Economic analysis of investment proposals:

operations and finance people.
Evaluation of
alternative investments in plant and equipment requires I/Ps from both
Provision of funds:
The necessary funding of operations and the amount

and timing of funding is important, critical when funds are tight.
Why Study POM?...

Marketing:
Focus on selling and/or promoting the goods or services of an organization. Responsible for assessing customer wants and needs and communicating those to operations people and to design people. Operations needs information about demand so it can plan accordingly (e.g. purchase material, schedule work etc.), while design people need information that relates to improving current products and services and designing new ones.
Why Study POM?...

Marketing:
Marketing, design and production must work closely together to successfully implement design changes and to develop and produce new products. Finance people should be included in these exchanges in order to provide information on what funds might be available and what might be needed for new products or services. Marketing also needs one important information from operations is the manufacturing or service Lead Time: Time between ordering a good or service and receiving it.
Why Study POM?...

Operations also interacts with other functional areas of the organization: Legal Management Information Systems (MIS) Accounting Personnel/Human Resources Public Relations Etc.
Operations Interfaces
Industrial Engineering Maintenance Distribution
Purchasing
Operations
Public Relations
Legal Personnel Accounting MIS

Why Study POM?...

Other functional areas:
Legal: This department is consultant on contracts with employees,
customers, suppliers and transporters and also liability on environment issues.
Accounting: Supplies information to management on costs of labor,

materials and overhead, may provide reports on items such as scarp, downtime and inventories.
MIS: Concerned with providing management with the information it

needs to effectively manage.
Why Study POM?...

Other functional areas:
Personnel/Human Resources: This department is concerned with
recruitment and training of personnel, labor relations, contract negotiations, wage and salary administration, assisting in manpower projections and ensuring the health and safety of employees.
Public Relations: Responsible for building and maintaining a

positive public image of the organization for customers and employees.
Career Opportunities
Operations Manager Production Analyst Production Manager Industrial Engineer Time Study Analyst Inventory Manager Purchasing Manager Schedule Coordinator Distribution Manager
Supply Chain Manager Quality Analyst Quality Manager
Career Opportunities
People who work in operations field should have a skill set that include both People Skills and Knowledge Skills.
People skills include :
Political Awareness Mentoring Ability Collaboration Negotiation Communication Skills Etc.
Knowledge skills include:

Good Decision Making Product knowledge Process knowledge Industry & Global knowledge Financial & Accounting skills Etc.
and/or
Service
Historical Evolution of Operations Management

Industrial revolution Scientific management
Mass production Interchangeable parts Division of labor
Human relations movement Decision models Influence of Japanese manufacturers


Industrial evolution: (1770s)
Began in 1770s in England and spread to the rest of Europe and to the United States during 19th Century. Prior to this time, goods were produced in small shops by Craftsmen an their apprentices. In 18th Century face of production was changed by substituting machine power for human power (e.g. Steam Engine, etc.), New machines made of Iron were much stronger than wooden machines.
Craft Production:
System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods. (Slow & Costly, No Economies of Scale.)

Scientific Management: (1911)
Frederick Winslow Taylor = Father of Scientific Management
believed that management should be responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperation between management and workers, and separating management activities from work activities.
Frank Gilbreth (Industrial Engg.)= Father of Motion Study Henry Gantt: Developed Gantt Charts Henry Ford: Developed concept of Moving Assembly Lines.

Scientific management: (1911)
Mass Production: (Fords Contribution)
System in which low-skilled workers use specialized machinery to produce high volumes of standardized goods.
Interchangeable Parts: (Eli Whitney = American Inventor)

Parts of a product made to such a precision that they do not have to be custom fitted i.e. standardized parts.
Division of Labor: (Fords Contribution)

Breaking up of a production process into small tasks, so that each worker performs a small portion of the overall job.
Historical Evolution of Operations Management..

Human relations movement (1920-60)
Emphasis on importance of the human element in job design. Emphasis on Motivation:
Maslow Theory: (Abraham Maslow in 1940s,) Theory X : (Douglas McGregor in 1960s, Adversarial Environment i.e. Reward and Punishment) and Theory Y: (Douglas McGregor in 1960s, Empowered Workers) Theory Z: (William Ouchi in 1970s, Lifetime Employment, Employee Problem Solving, Consensus building etc.)
Historical Evolution of Operations Management..

Decision models: (1915, 1960-70s)
Factory movement accompanied by the development of several quantitative techniques. Inventory Management: By F.W. Harris in 1915 Statistical Procedure for Sampling & Quality Control: By H.F. Dodge, H.G. Romig and W. Shewhart in 1930s (3 workers at Bell Telephone Labs). Statistical-Sampling Theory: By L.H.C. Tippett in 1935.

Influence of Japanese manufacturers: (Quality Revolution)
Emphasis on Quality and Continual Improvement. Worker Teams Empowerment Customer Satisfaction Time based management (JIT e.g. Southwest Airlines less ground time etc.).
Trends in Business
Major trends
The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior
Trends in Business
E-Business:
Use of internet to transact business.
E-Commerce:
Consumer-business transactions like: Buying online, requesting information.
Trends in Business
Management Technology: Technology:
The application of scientific discoveries to the development and improvement of goods and services.
Product and Service technology: Process technology:
Refers to the discovery and
development of new products and services (R&D). Refers to methods, procedures and equipment
used to produce goods and provide service (Supply Chain Process).
Information technology: Refers to science and use of computers and

other electronic equipment to store, process and send information.
Trends in Business
Supply Chain:
Suppliers Suppliers Direct Suppliers Final Consumer
Producer
Distributor
Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service.
A Supply Chain for Bread
A Supply Chain for Bread

Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added
Value Added
$0.25 $0.08 $0.15 $0.08 $0.04 $0.08 $0.21 $1.29
Value of Product
$0.25 $0.33 $0.48 $0.56 $1.00 $1.08 $1.29
Trends in Business
Outsourcing:
Buying goods or services rather than producing goods or performing services within the organization.
Agility:
The ability of an organization to respond quickly to demands or opportunities. It is a strategy that involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings.
Ethical Behavior
Other Important Trends

Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production

Operations Strategy:
The approach consistent with the organization strategy that is used to guide the operations function.
Working with fewer resources:

Due to lay offs, corporate downsizing, cost cutting etc. is forcing managers to make trade-off decisions on resource allocation and to place increased emphasis on cost control and productivity improvement.
Revenue management:
Method used by some companies to maximize the revenue they receive from fixed operating capacity by influencing demand through price manipulation, also known as yield management.

Process analysis and improvement:
Includes cost and time reduction, productivity improvement, process yield improvement, quality improvement and customer satisfaction (6 Sigma). E.g. Kodak was able to cut in half the time needed to bring a new camera to market etc.
Increased regulation and product liability Lean Production:

System that uses minimal amounts of resources to produce a high volume of highquality goods with some variety. Highly skilled workforce and flexible equipment. An emphasis on quality, flexibility, time reduction and teamwork. Flattening of organizational structure with fewer management levels.

1 POM An Introduction

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1 POM An Introduction

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An Introduction

Prepared By: Gurpreet Singh

is the Core function of an

Production & Operations Management

Prepared By: Gurpreet Singh

Prepared By: Gurpreet Singh

Outputs Goods Services

Value-Added & Product Packages

Prepared By: Gurpreet Singh

Prepared By: Gurpreet Singh

Prepared By: Gurpreet Singh

Prepared By: Gurpreet Singh

Production of Goods Vs. Delivery of Services

Production of Goods Vs. Delivery of Services

Similarity & Difference B/W Goods & Services

Prepared By: Gurpreet Singh

Key Differences B/W Goods & Services

Goods vs. Service

Scheduling: Planes (Flights, Maintenance), Pilots, Flight attendants,

Assuring quality: Safety, Customer dealings (Ticket counter, Check-in,

Prepared By: Gurpreet Singh

Scheduling: Which components to buy, Ordering Parts and Material, Style

Managing inventories: Raw Materials, Parts, Components etc.

Prepared By: Gurpreet Singh

Exchange Entertainment Communication

Design and Operation of System

Prepared By: Gurpreet Singh

Design and Operation of System

Feedback on these decisions involves Measurement and Control.

Other Areas of POM

Prepared By: Gurpreet Singh

Other Areas of POM

Other Areas of POM

Decline in Manufacturing Jobs

Why Manufacturing Matters?

Prepared By: Gurpreet Singh

Challenges of Managing Services

Operations Management Decision Making

General Approaches to Decisions Making

Prepared By: Gurpreet Singh

General Approaches to Decisions Making

General Approaches to Decisions Making

Prepared By: Gurpreet Singh

General Approaches to Decisions Making

General Approaches to Decisions Making

Prepared By: Gurpreet Singh

General Approaches to Decisions Making

General Approaches to Decisions Making

managerial problems. problems.

General Approaches to Decisions Making

General Approaches to Decisions Making

Prepared By: Gurpreet Singh

General Approaches to Decisions Making

General Approaches to Decisions Making

Prepared By: Gurpreet Singh

General Approaches to Decisions Making

General Approaches to Decisions Making

How do we identify the vital few?

Prepared By: Gurpreet Singh

General Approaches to Decisions Making

General Approaches to Decisions Making

Worker safety: Product safety: