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Production and Operations Management

Production & Operations Management

Course Outline: MB202
Operations Management Product Design and Development Process Selection Facility Location Facility Layout Capacity Planning PPC Work Study & Method Study Plus .

What is Operations Management?

The business function responsible for planning, coordinating, and controlling the resources needed to produce a companys products and services

Operations Management

The field of management that specializes in the physical production of goods or services and uses quantitative techniques for solving manufacturing problems

Operations Management Flow Chart

Production System
Materials Capital Labor Manag. Res.

Outputs Organization
Goods Services

Operations Management
Operations Management is the conversion of inputs into outputs, using physical resources, so as to provide the desired utility/utilities of form, place, possession or state or a combination there of to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability.

Ten Decision Areas of OM

Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance

A Process Management Perspective

We all manage processes... Process

Information structure

Management Network of Activities and Buffers

Flow units
(customers, data, material, cash, etc.)

Goods Services

Labor & Capital


Process Management

A business process is a network of activities performed by resources that transforms inputs into outputs

Process Management is a set of managerial

policies specifying how a process should be operated over time...

Typical Organization Chart

Typical Manufacturing Organization

The Organization as an Operations Management System

Feedback Operations Strategy

Inputs Raw materials Human resources Land, buildings Information Technology

Operations Management
Outputs Products Services Products & Facilities Structure Product design Reporting relationships Facilities layout Teams Capacity planning Facilities location Control Processes Inventory management Productivity Quality

The Technical Core

Business Information Flow

Differences between Manufacturers and Service Operations

Intangible product Product cannot be inventoried High customer contact Short response time Labor intensive

Tangible product Product can be inventoried Low customer contact Longer response time Capital intensive

Service and Manufacturers

All use technology Both have quality, productivity, & response issues All must forecast demand Each will have capacity, layout, and location issues All have customers and suppliers All have scheduling and staffing issues


Products are the desired set of process outputs Product Types

Goods versus Services Cost Delivery response time Variety Quality

Product Attributes


Tangible Inputs

People Raw material

Intangible Inputs

Information Time
Buildings Cars Outgoing patient (hospital) Delivered message (advertising company)

Tangible Outputs

Intangible Outputs


Locational--transportation Exchange--retailing Storage--warehousing Physiological--health care Informational--telecommunications

All Managers are Ops Managers!

All managers must transform inputs into outputs Example: Accounting Manager

Inputs: data, information, labor Transformation: application of accounting principles and knowledge Outputs: accounting reports, knowledge of performance, ...

Therefore, all managers are in some sense Operations managers All managers have an operation to run

Operations Management
Value Proposition Operations Strategy Operation Priorities Cost Quality Delivery Flexibility Innovation Service System Design Product/Service Design Process Selection Planning & Control Aggregate Planning Inventory Systems Project Management Scheduling MRP Statistical Process Control

Facility location Facility Layout JIT

Manufacturing and Service Organizations

Operational Concerns for Manufacturing and Service Organizations

Scheduling Must obtain materials and supplies Both must be concerned with quality and productivity

Functions of Operations Management

Materials Methods Machines and Equipments Estimating Loading and Scheduling Routing

Functions of Operations Management

Dispatching Expediting or Follow up Inspection Evaluation

OM Decisions

Operations Management Decisions

Product/Service Design Process Selection Capacity Planning Facility Location Facility Layout Job Design

Quality Control Demand Forecasting Supply Chain Management Production Planning Inventory Control Scheduling

Product Design and Development

Product Design
Product design deals with its form and function. Form implies the shape and appearance of the product while function is related to the working of the product.

Product Design Objectives


Producibility Cost Quality Reliability

3 4

Service Design Objectives



3 4 5



Characteristics of Goods

Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction

Characteristics of Service

Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed

Goods Contain Services / Services Contain Goods

Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Counseling 100
Percent of Product that is a Good




Percent of Product that is a Service





Competitive Priorities- The Edge

Four Important Operations Questions: Will you compete on Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?

Competing on Cost?

Typically high volume products Often limit product range & offer little customization May invest in automation to reduce unit costs

Can use lower skill labor

Probably use product focused layouts

Competing on Quality?

High performance design:

Superior features, high durability, & excellent customer service

Product & service consistency:

Meets design specifications Close tolerances Error free delivery

Competing on Time?

Fast delivery:

Focused on shorter time between order placement and delivery

On-time delivery:

Deliver product exactly when needed every time

Rapid development speed

Using concurrent processes to shorten product development time

Competing on Flexibility?

Product flexibility:

Easily switch production from one item to another Easily customize product/service to meet specific requirements of a customer

Volume flexibility:

Ability to ramp production up and down to match market demands

Characteristics of a Good Design

Repairability Modular Design Redesigning Capability Miniaturization Wires and Tubing

Characteristics of a Good Design

Design by Computers Drawings and specifications Warranties Reliability Maintainability

Strategy and Issues during a Products Life

Best period to increase market share
R&D engineering critical

Practical to change price or quality image Strengthen niche

Poor time to change image, price or quality Competitive costs become critical Defend market position

Cost control critical

Sales Time

Frequent product and process changes Short production runs High production costs Limited models Attention to quality

Forecasting critical Products and process reliability Increase capacity Shift towards product focus Enhance distribution

Standardization minor product changes Optimum capacity Process stability Long production runs

Little product differentiation Overcapacity in the industry Reduce capacity and eventually prune line to eliminate items not returning good margin

Product Development
The aim of Product development is to (i) provide the goods the market demands with time,(ii) adjust with the variation in quantity required and (iii) charge the prices which the customer is willing to pay as well as under conditions that it may have net profit also.

Strategy and Issues During a Products Life

Introduction Growth Maturity Decline
Best period to increase market share Company Strategy/Issues R&D product engineering critical Practical to change price or quality image Strengthen niche Poor time to change image, price, or quality Competitive costs become critical Defend market position Drive-thru restaurants Fax machines 3 1/2 Floppy disks Station wagons Cost control critical

Color copiers

CD-ROM Internet

Product design and development critical OM Strategy/Issues Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution Standardization Less rapid product changes - more minor changes Optimum capacity Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity

Increasing stability of process

Long production runs Product improvement and cost cutting

Product Development Process (Technical)

Needs Identification

Advance product planning

Advance design

Detailed engineering design

Production process design and development

Product evaluation and implementation

Product use and support

Needs Identification
Once a product idea surfaces, it must be demonstrated that the product fulfils some consumer need, and that existing products do not already fulfill that need.

Advance product planning

It includes preliminary market analyses; creating alternative concepts for the product; clarifying operational requirements; establishing design criteria and their priorities; and estimating logistics requirements for producing, distributing, and maintaining the product in the market.

Advance design
Promising design alternatives are evaluated according to critical parameters to determine whether design support such as analytical testing, experimentation, physical modeling, and prototype testing will be required.

Detailed engineering design

This stage is a series of engineering activities to develop a detailed definition of the product, including its subsystems and components, materials, sizes, shapes, and so on.

Production process design and development

Working with the detailed product design, engineers and manufacturing specialists prepare plans for materials acquisitions, production, warehousing, transportation, and distribution.

Product evaluation and implementation

Field performance and failure data, technical breakthroughs in materials and equipment, and formal research all are used to monitor, analyze, and redesign the product.

Product use and support


2. 3. 4.

Support systems might Educate users on specific applications of the product Provide warranty and repair service Distribute replacement parts; or Upgrade the product with design improvements.

Product Developments Techniques

Standardization Simplification Specialization Diversification

Standardization means fixation of some appropriate size, shape, quality, manufacturing process, weight and other characteristics as standards to manufacture a product of desired variety and utility.

Simplification in an enterprise connotes the elimination of excessive and undesirable or marginal lines of product to hammer out waste and to attain economy coupled with the main object of improving quality and reducing costs and prices leading to increased sales.

Specialization implies expertise in some particular area or field. Specialization implies reduction in the variety of products manufactured by the organisation.

It implies policy of producing different types of products by an enterprise. Diversification can be adopted for the purpose of Utilisation of idle/surplus resources Stabilisation of sales To cope with demand fluctuations and For survival of the organisation.

Process Selection

Project Job Shop Batch Mass Process

Project technology deals with one-of-a kind products that are tailored to the unique requirements of each customer.Since the products cannot be standardized, the conversion process must be flexible in its equipment capabilities, human skills, and procedures.

Intermittent System

Job Shop Batch

Intermittent System

In this system, the goods are manufactured specially to fulfill orders made by customers rather than for stock. Here the flow of material is intermittent. Intermittent production system are those where the production facilities are flexible to handle a wide variety of products and sizes.

Job Shop
Job shop technology is appropriate for manufacturers of small batches of many different products, each of which is custom designed and, consequently, requires its own unique set of processing steps, or routing, through the production process. For example, printing shop, restaurant, etc.

This process is adopted when batches or lots of items are to be produced using the same set of machines in the same sequence.For example, Bakery, Chemical industry, Printing press, etc.

Continuous Production System

Mass Process

Continuous Production System

Continuous production system is the specialized manufacture of identical products on which the machinery and equipment is fully engaged. The continuous production is normally associated with large quantities and with high rate of demand.

Mass (Assembly line)

Standardization is the fundamental characteristic of this system. Standardization is there w.r.t. materials and machines. Uniform and uninterrupted flow of material is maintained through predetermined sequence of operations required to produce the product.

Process (Continuous Flow)

The product is highly standardized, as are all of the manufacturing procedures, the sequence of product buildup, materials, and equipment. Continuous flow technology affords high-volume, around-the-clock operation with capitalintensive, specialized automation.For example, Oil refineries, Cement factory, Sugar factory, etc.

Process Design


Job Shops
(Print shop, emergency room , machine shop, fine dining Variety of Products

Mass Customization
(Dell Computers PC) Repetitive (modular) focus

Customization at high Volume

Assembly line
(Cars, appliances, TVs, fast-food restaurants) Product-focused

(steel, beer, paper, bread)
Low Low Moderate



Discrete vs. Continuous Flow and Repetitive Manufacturing Systems

Operation Process Chart for discrete part manufacturing

A typical Organization of the Production Activity in Repetitive Manufacturing

Assembly Line 1: Product Family 1
S1,1 S1,2 S1,i S1,n

Raw Material & Comp. Inventory

Fabrication (or Backend Operations)

Dept. 1 Dept. 2 Dept. j Dept. k

Finished Item Inventory





Assembly Line 2: Product Family 2

Product-Process Mix
Typical combinations of product-process structures are illustrated in Figure.As the product shifts to a different stage, the manufacturing process structure also shifts, and new manufacturing priorities emerge. Whereas manufacturing flexibility and quality are competitive priorities in earlier stages, priorities shift toward dependable delivery and competitive cost in later stages.

Process structure process life-cycle stages Jumbled flow (job shop) Disconnected line flow (batch) Connected line flow (assembly line) Continuous flow

Low volume, low standardization, one of a kind

Multiple products, low volume

Few major products, higher volume

High volume, high standardization, commodity products

Commercial printer


Heavy equipment

Auto assembly


Sugar refinery Product structure Product life-cycle stages

Facility Location
A facility (plant) is a place where men, materials, money, machinery and equipment, etc., are brought together for manufacturing product.

Facility Location

Cost-benefit analysis most common approach to selecting a site for a new location

New location scouting software is helping managers turn facilities location into a science

Importance of Facility Location

Competition Cost Hidden Effects

Location Factors

Primary factors Secondary factors

Primary factors

Availability of raw material Nearness to market Transport facilities Availability of labour Availability of fuel and power Availability of water

Secondary factors

Soil and climate Industrial atmosphere Financial and other aids Availability of facilities like housing, schools, hospitals and recreation clubs Momentum of an early start

Secondary factors

Special advantage of the place Personal factors Historical factors Political stability

Comparison between Urban and Rural area



Availability of local market: Due to large population the local The market place is far away from demand for the product is fairly the industries, therefore cost of high. distribution of finished products is more. Labour: Ample availability of It is rather difficult to get skilled diversified labour. labour in rural areas.

Transport facilities: Good transport facilities are available. Allied Industries: Proximity to allied industries are available.

Adequate transport facilities are not available. Absence of allied industries.

Comparison between Urban and Rural area

Availability of educational facilities: Availability of educational, recreational and social facilities. Cost of land: The cost of land is high. Even at high cost sufficient land is not available which puts constraints on the arrangement of plants and machines. Restrictions on constructions: There are greater restrictions on the construction of factory buildings. Municipal and public utility services: Certain specific municipal facilities and public utility services such as water supply, drainage, fire fighting, police protection etc. are available.

There are fewer educational, social and recreational facilities. Sufficient land is available at cheaper rates.

There are few restrictions on construction of factory buildings. Municipal facilities and public utility services are not available.

Comparison between Urban and Rural area

Postal and Communication Services: Good and prompt postal and communication services are available. Rates of taxes: The rates of taxes are relatively high. Cost of labour: Due to high standard of living the cost of labour is relatively high. Availability of facilities: Banking facilities, credit facilities and insurance facilities are available. Labour turnover: High labour turnover because of large number of industries.

Prompt postal and communication services are not available. The rates of taxes are quite low. Labour is available at cheaper rate. Absence of banking facilities, credit facilities and insurance facilities. Labour force is more stable.

Comparison between Urban and Rural area

Trade union movement: The trade union movement is very strong which often result in strikes, lockouts etc. Training facilities: Development of the training facilities for workers and management institutes for executives put the city area into privileged position. Storage facilities: Sufficient storage facilities including cold-storage are available. Problems of pollution: Concentration of many industries in urban areas creates problems of air pollution, water pollution, sanitation etc.

Trade union movement is not very strong. Absence of training facilities and management institutes. Storing and warehouse facilities are not available. Problems of air pollution, water pollution, etc. are less and the rural environment is conducive to good health of workers.

Comparison between Urban and Rural area

Danger of bombardment in war time: Industrial city areas become the target of air attacks in war time. Government Policy: To avoid concentration of industries, government imposes restrictions for starting new industries in urban areas.

Less danger of bombardment in war time. Government provides financial assistance and land at cheaper rates to attract the entrepreneurs to start industries in rural areas.

General Procedure for Facility Location Planning

The Preliminary Screening Detailed Analysis Factor Ratings

The Preliminary Screening

Resources Labor skills and productivity Land availability and cost Raw materials Subcontractors Transportation facilities Utility availability and rates

Local Conditions Community receptivity to business Construction cost Organized industrial complexes Quality of life: climate, housing, recreation, schools Taxes

Sources of Information

After identifying key location requirements, management undertakes a search to find alternative locations that are consistent with these requirements.

Detailed Analysis

Once the preliminary screening narrows alternative sites to just a few, more detailed analysis begins.

Factor Ratings
Steps in using Factor Rating

List the most relevant factors in the location decision (column 1) Each factor is rated , say from 1 (very low) to 5 (very high),according to its importance (column 2) Each location is rated, say from 1 (very low) to 10 (very high), according to its merits on each characteristic (column 3) The factor rating is multiplied by the location rating for each factor The sum of the product yields the total rating score for that location

Factor ratings for each location alternative

Tax advantages Suitability of labor skills Proximity to customers Proximity to suppliers Adequacy of water Receptivity of community Quality of educational system Access to rail and air transp. Suitability of climate Availability of power

Factor Location Product of Rating Rating Ratings

4 3 3 5 1 5 4 3 2 2 8 2 6 2 3 4 1 10 7 6
Total Score

32 6 18 10 3 20 4 30 14 12 149

Total Cost Analysis

Total Cost = Fixed Cost + Operational Cost

Fixed cost include expenditure on land, building, machines and other equipments etc. Operational costs are the expenditure incurred on inputs, transformation process and the distribution of output.

Comparative Cost Chart

5 5 4 4 5 3 4 3 2 1 2

Total costs

5 4 3 2 1

2 1

B Locations

Break-even Chart
Labor Transportation


Costs of Facts

Total Fixed Costs

Volume of Units

Break-even Chart


Total Costs

Volume of Output

Dimensional Analysis
MA = [CA1] [CB1]
W 1

[CA2] [CB2]



[CA n] [CB n]



Is more than one then location A will be better than B.

Facility Layout

Layout are concerned with arrangement of production, support, customer service and other facilities used in operation.

Facilities Layout

Process Layout Product Layout Cellular Layout Fixed-position Layout

Factors affecting the Plant Layout

Product and material specification Location and site of the Plant Manufacturing process Material Handling Storage of in-process inventory Plant personnel and employee facilities

Factors affecting the Plant Layout

Service facilities Design of building Flexibility Work areas and equipment Working conditions Disposal of waste and dangerous gases

Types of Plant Layout

Process Layout Product Layout Group Layout

Capacity Planning

Capacity is the rate of productive capability of a facility. Capacity is usually expressed as volume of output per time period.

Capacity Planning

Determination and adjustment of

the organizations ability to

produce products and services to

match customer demand

Capacity Planning Decisions

Assessing existing capacity Forecasting capacity needs Identifying alternative ways to modify capacity Evaluating financial, economical, and technological capacity alternatives Selecting a capacity alternative most suited to achieving strategic mission

Strategies for Modifying Capacity

Short-term Responses Long-term Responses

Production Planning and Control

Production planning and control is the organisation and planning of the manufacturing process. It co-ordinates supply and movement of materials and labor, ensures economic and balanced utilization of machines and equipment as well as other activities related with production to achieve the desired manufacturing results in terms of quantity, quality, time and place.

Functions of Production Planning and Control

Routing Scheduling Loading Programming Ordering Dispatching Progressing or Follow-up Inventory Control

Work Study

Work study is simply the study of work. It is the analysis of work into smaller parts followed by rearrangement of these parts to give the same effectiveness at lesser cost. It examines both the method and duration of the work involved in a process.

Components of Work Study

Method Study Work Measurement

Method Study

Selection of the job Recording Examining Developing Implementing Maintaining

Work Measurement

Select the task be studied Record the facts Analyze the facts Measure the tasks Define the methods and related time Maintain the work


Productivity is the ratio between the amount produced and the amount of resources used in the course of production. The resources may be any combination of materials, machines, men and space.


Measure of process improvement Represents output relative to input


Units produced = Input used

Only through productivity increases can our standard of living improve

Measuring Productivity

Productivity = organizations output of products and services divided by its inputs Total factor Productivity =
Output Labor + Capital + Materials + Energy

Labor = Productivity

Output Labor dollars

Improving Productivity


Technological productivity Employee productivity Managerial productivity

Major Productivity Variables and their contribution to productivity increase


Better Better Better Better

basic education diet social infrastructure like transportation and sanitation labor utilization and motivation


Steady and well-planned investments on equipment and its timely maintenance Research & Development Controlling of the cost of capital Exploitation of new (information) technologies Utilization of accumulated knowledge Education



Outputs P Inputs

Measuring Productivity

Productivity is a measure of how efficiently inputs are converted to outputs

Productivity = output/input

Total Productivity Measure

Productivity relative to all inputs

Partial Productivity Measure

Productivity relative to a single input (e.g., labor hours)

Multifactor Productivity Measure

Productivity relative to a subgroup of inputs (e.g., labor and materials)

Labor Productivity

Assume two workers paint twenty-four tables in eight hours: Inputs: 16 hours of labor (2 workers x 8 hours) Outputs: 24 painted tables

Outputs 24 tables 1.5 tables / hour Inputs 16 hours

Interpreting Productivity Measures

Is the productivity measure of 1.41 in the previous example good or bad? Cant tell without a reference point Compare to previous measures (e.g.: last week) or to another benchmark

Productivity Growth Rate

Can be used to compare a processs productivity at a given time (P2) to the same process productivity at an earlier time (P1)

P2 P 1 Growth Rate P 1

Productivity Growth Rate


Last week a company produced 150 units using 200 hours of labor This week, the same company produced 180 units using 250 hours of labor

150 units P 0.75 units / hour 1 200 hours P2 180 units 0.72 units / hour 250 hours

P2 P 0.72 0.75 1 Growth Rate 0.04 P 0.75 1 or a negative 4% growth rate

Productivity Example - An automobile manufacturer has presented the following data for the past three years in its annual report. As a potential investor, you are interested in calculating yearly productivity and year to year productivity gains as one of several factors in your investment analysis.
2007 Unit car sales Employees 2,700,000 2006 2,400,000 2005 2,100,000 Labor Productivity Unit Car Sales/Employee 112,000 113,000 115,000 24.1 21.2 18.3 2004 2006 2005

Year-to-year Improvement 13.7% Total Productivity Total Cost Productivity


Rs Sales (billions Rs) Cost of Sales (billions)




1.26 1.24 1.6%

1.19 4.2%




Year-to-year Improvement