PRODUCTION SYSTEM

BAMBANG HERRY PURNOMO

PROGRAM STUDI TEKNOLOGI INDUSTRI PERTANIAN
FAKULTAS TEKNOLOGI PERTANIAN
UNIVERSITAS JEMBER

The Production System

2

Production :
the step-by-step conversion of one form of material into another form through
chemical or mechanical process to create or enhance the utility of the product to
the user.
A process by which goods and services are created
Thus production is a value addition process. At each stage of processing, there
will be value addition

Production System Definition:

The set of resources and procedures involved in converting
raw material into products and delivering them to customers
Framework consisting of various activities arranged in such a
manner that input is on one hand and output is on other hand
Input and output are linked by various activities or operation

System Production Diagram

System Production Diagram

The production system has the following

characteristics:
1. Production is an organized activity, so every production
system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization
system.
4. There exists a feedback about the activities, which is
essential to control and improve system performance

Manufacture and Production

Manufacture:
First used in 1622
Derived from the Latin word meaning Manufactum made by hand.

Production:
First used in 1483.
Derived from the Latin word meaning producere lead forward,
ie create something new (tangible / intangible).

Manufacturing Definition
A series of interrelated activities and operations
involving the design, materials selection,
planning, manufacturing production, quality
assurance, management and marketing of
products of the manufacturing industries
(International Conference on Production
Engineering, 1983).

Manufacturing Definition
Manufacturing interpreted more broadly
Manufacturing is the process of converting a design into final
products.
Production is physical activity to convert a material form into
another form that is more valuable.

Manufacturing system: classification

Manufacturing systems have four levels:

1. Enterprise
2. Shop floor
3. Cell or line
4. Machine

Enterprise: a system that has its own

independent management.
Shop floor: a sub-system of an enterprise
where manufacturing activities are carried
out.
Cell or line: a group of machines that
produce a part.
Machine: a single entity that changes the
input material
handout 1: ME 460

10

11

OMs Transformation Role

To add value
Increase product value at each stage
Value added is the net increase between output product value
and input material value

Provide an efficient transformation

Efficiency means performing activities well for least possible
cost

12

Operations Management is:

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

Operations Management

Operations management: The management of the efficient

transformation of inputs into outputs to effectively satisfy
customers.
The active role of operations:
Inputs become Outputs after some Transformation (Process or Operation)
Food processing example:
Inputs

Transformation

Outputs

Energy, Raw vegetables

Cleaning

Clean vegetables

Energy, Metal sheets

Cutting/Rolling/Welding

Cans

Energy, Vegetables

Cutting/Chopping

Cut vegetables

Energy, Water, Vegetables

Cooking

Boiled vegetables

Energy, Cans, Boiled vegetables

Placing

Can food
13

Operations in services:
Health care
Inputs

Processes

Doctors, nurses

Examination

Hospital

Surgery

Medical Supplies

Monitoring

Equipment

Medication

Laboratories

Therapy

Outputs

Healthy
patients

SOM offers medical management MBA and Master of Science

See http://som.utdallas.edu/amme/index.html.
Question: What are Inputs, Processes and Outputs in education?
14

Operations are everywhere !

Operations

Examples

Goods producing
Storage/transportatio
n
Exchange

Farming, mining, construction

Warehousing, trucking, mail, taxis, buses, hotels

Entertainment

Radio, movies, TV, concerts, recording

Communication

Newspapers, journals, radio, TV, telephones, satellite

Trade, retailing, wholesaling, renting, leasing, loans

15

OM at the core of Businesses

Organization

Finance

Operations

Marketing

Three basic functions

Operations/Production
Goods oriented (manufacturing and assembly)
Service oriented (health care, transportation and retailing)
Value-added (the essence of the operations functions)

Finance-Accounting
Budgets (plan financial requirements)
Provision of funds (the necessary funding of the operations)

Marketing
Selling, Promoting
Assessing customer wants and needs

Scope of Management Operation

Role of the Operations Manager

The Operations Function consists of all activities directly related to
producing goods or providing services.
A primary function of the operations manager is to guide the system
by decision making.
System Design Decisions
System Operation Decisions

System Design Decisions

System Design
Capacity
Facility location
Facility layout
Product and service planning
Acquisition and placement of equipment
These are typically strategic decisions that
usually require long-term commitment of resources
determine parameters of system operation
Instructor Slides

1-19

System Operation Decisions

System Operation
These are generally tactical and operational decisions
Management of personnel
Inventory management and control
Scheduling
Project management
Quality assurance
Operations managers spend more time on system
operation decision than any other decision area

Good or Service?
Goods are physical items that include raw materials, parts,
subassemblies, and final products.
Automobile
Computer
Oven
Shampoo

Services are activities that provide some combination of time,

location, form or psychological value.
Air travel
Education
Haircut
Legal counsel

Goods-service Continuum
Products are typically neither purely service- or purely goodsbased.
Goods
Goods

Services
Services

Surgery, Teaching
Surgery, Teaching
Songwriting, Software Development
Songwriting, Software Development
Computer Repair, Restaurant Meal
Computer Repair, Restaurant Meal
Home Remodeling, Retail Sales
Home Remodeling, Retail Sales
Automobile Assembly, Steelmaking
Automobile Assembly, Steelmaking

Manufacturing vs. Service?

Manufacturing and Service Organizations differ chiefly because
Manufacturing and Service Organizations differ chiefly because
manufacturing is goods-oriented and service is act-oriented.
manufacturing is goods-oriented and service is act-oriented.

Goods
Goods

Tangible
Instructor Slides

Services
Services

Act-Oriented
1-23

Manufacturing vs Service
1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Amount of inventory
8. Ability to patent design

Operations Strategy and

Competitiveness
25

Wiley 2010

The Role of Operations Strategy

26

Provide a plan that makes best use of resources which;

Specifies the policies and plans for using
organizational resources
Supports Business Strategy as shown on next slide

27

Importance of Operations
Strategy
Companies often do not understand the differences
between Operational Efficiency and Operation
Strategy
Operational efficiency is performing tasks well,
even better than competitors
Operational effeciency means performing similar
activities better than rivals. It is necessary, but not
sufficient, for competitive advantage
Operational effeciency is not strategy
Strategy is a plan for competing in the marketplace
Operations strategy is to ensure all tasks
performed are the right tasks

28

Developing a Business Strategy

A business strategy is developed after taking into many
factors and following some strategic decisions such as;
What business is the company in (mission)

(what business are we in; who are our customer)

Analyzing and understanding the market (environmental
scanning)
Identifying the companies strengths (core competencies)
Global Strategies (collaborative, join venture, licensing
technology)

29

Three Inputs to a Business

Strategy

30

Examples from Strategies

Mission: Dell Computer- to be the most
successful computer company in the world
Environmental Scanning: political trends,
social trends, economic trends, market place
trends, global trends
Core Competencies: strength of workers,
modern facilities, market understanding, best
technologies, financial know-how, logistics

Types of Competitive Advantage

and Sustainability in Business
Strategy

Three generic strategies to achieve competitive

advantage
Overall cost leadership
Low-cost-position relative to a firms peers
Manage relationships throughout the entire value chain

Differentiation
Create products and/or services that are unique and valued
Non-price attributes for which customers will pay a premium

Focus strategy
Narrow product lines, buyer segments, or targeted geographic
markets
Attain advantages either through differentiation or cost leadership

Three Generic Strategies

Competitive Advantage

Strategic Target

Uniqueness Perceived
by the Customer

Low Cost Position

Industrywide

Particular
Segment Only

Source: Competitive Strategy: Techniques for Analyzing Industries and Competitors by

Michael E. Porter. Copyright 1980, 1998 by The Free Press.

33

Developing an Operations
Strategy
Operations Strategy is a plan for the design and
management of operations functions
Operation Strategy developed after the business
strategy
Operations Strategy focuses on specific capabilities
which give it a competitive edge competitive
priorities

34

Operations Strategy Designing

the Operations Function

35

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

36

Competing on Cost?
Offering product at a low price relative to competition
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
Low cost does not mean low quality

37

Competing on Quality?
Quality is often subjective
Quality is defined differently depending on who is
defining it
Two major quality dimensions include
High performance design:
Superior features, high durability, & excellent customer
service
Product & service consistency:
Meets design specifications
Close tolerances
Error free delivery
Quality needs to address
Product design quality product/service meets requirements
Process quality error free products

38

Competing on Time?
Time/speed one of most important competition
priorities
First that can deliver often wins the race
Time related issues involve
Rapid delivery:
Focused on shorter time between order placement and delivery

On-time delivery:
Deliver product exactly when needed every time

39

Competing on Flexibility?
Company environment changes rapidly
Company must accommodate change by being
flexible
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

40

The Need for Trade-offs

Decisions must emphasis priorities that support business
strategy
Decisions often required trade offs
Decisions must focus on order qualifiers and order winners
Which priorities are Order Qualifiers?
e.g. Must have excellent quality since everyone expects it
Which priorities are Order Winners?
e.g. Southwest Airlines competes on cost
McDonalds competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility

41

Translating to Production
Requirements
Specific Operation requirements include two
general categories
Structure decisions related to the production
process, such as characteristics of facilities used,
selection of appropriate technology, and the flow of
goods and services
Infrastructure decisions related to planning and
control systems of operations

42

Translating to Production Requirements

Dell Computer example structure & infrastructure

They focus on customer service, cost, and speed
ERP (Enterprise Resources Planning) system developed
to allow customers to order directly from Dell
Product design and assembly line allow a make to
order strategy lowers costs, increases turns
Suppliers ship components to a warehouse within 15
minutes of the assembly plant
Dell set up a shipping arrangement with UPS

43

Strategic Role of Technology

Technology should support competitive
priorities
Three Applications: product technology, process
technology, and information technology
Products - Teflon, fiber optic cable
Processes flexible automation, CAD, CAM
Information Technology EDI, ERP, MIS, EDP

44

Technology for Competitive

Advantage
Technology has positive and negative potentials
Positive
Improve processes
Maintain up-to-date standards
Obtain competitive advantage
Negative
Costly
Promotes dependency
Risks such as overstating benefits

45

Technology for Competitive

Advantage
Technology should
Support competitive priorities
Can require change to strategic plans
Can require change to operations strategy
Technology is an important strategic decision

46

Measuring Productivity
Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input

Total Productivity Measure:

Total Productivity = (total output)/(total of all inputs)

Partial Productivity Measure:

Partial Productivity = (total output)/(single input)

Multifactor Productivity Measure:

Multi-factor Productivity = (total output)/(several inputs)

47

Total Productivity: Example

Bluegill Furniture makes kitchen chairs. The
weekly dollar value of its output, including
finished goods and work-in-progress, is
$14,280. The value of inputs (labor, materials,
capital) is approximately $16,528. What is the
total productivity measure for Bluegill?
Total productivity = output/input
= $14,280/$16,528 = .864 or 86.4%

48

Partial Productivity:
Example
Bluegill Furniture has hired 2 new workers to
paint chairs. Together they have painted 10
chairs in 4 hours. What is labor productivity for
the pair?
Labor productivity = output/labor
= (10 chairs)/(2 x 4 hr)
= (10 chairs)/(8 hr) or 1.25 chairs/hr

49

Multifactor Productivity:
Example
Bluegill Furniture averages 35 chairs/day. Labor
costs average $480, material costs are
typically $200, and overhead cost is $250.
Bluegill sells the chairs to a retailer for
$70/unit. Find multifactor productivity.
Multifactor productivity =
(value of output)/(labor + material + overhead
costs)
= ($70/chair x 35 chairs)/(480+200+250)
= ($2450)/($930) or 2.63
Wiley 2010

50

Interpreting Productivity Measures

Productivity measures must be compared
to something, i.e. another year, a
different company
Raw productivity calculations do not tell
the complete story unless there are no
major structure differences.

Wiley 2010

51

Interpreting Productivity Measures

Other productivity measure
questions;
Is this partial productivity measurement
enough to make an investment
decision?
Should you also look at productivity
measures for the two major competitors
for comparison?

Productivity measure provides

information on how the firm is doing
relative to what is critical to the firm

52

Highlights
Business Strategy is a long range plan and vision.
Each individual business function develop needs to
support the business strategy
An organization develops its business strategy by
doing environmental scanning and considering its
mission and its core competencies.
The role of operations strategy is to provide a longrange plan for the use of the companys resources
in producing the companys primary goods and
services.
The role of business strategy is to serve as an
overall guide for the development of the
organizations operations strategy.

53

Highlights
The operations strategy focuses on developing
specific capabilities called competitive priorities.
There are four categories of competitive priorities:
cost, quality, time, and flexibility
Technology can be sued by companies to gain a
competitive advantage and should be acquired to
support the companys chosen competitive priorities
Productivity is a measure that indicates how
efficiently an organization is using its resources
Productivity is computed as the ratio or
organizational outputs divided by inputs

Comparison of Processes
Process
Focus
(Low volume,
high variety)

Repetitive
Focus
(Modular)

Product Focus
(High-volume,
low-variety)

Mass
Customization
(High-volume,
high-variety)

Small
quantity, large
variety of
products

Long runs,
standardized
product made
from modules

Large
quantity, small
variety of
products

Large
quantity, large
variety of
products

General
purpose
equipment

Special
equipment
aids in use of
assembly line

Special
purpose
equipment

Rapid
changeover
on flexible
equipment

Comparison of Processes
Process
Focus
(Low volume,
high variety)

Repetitive
Focus
(Modular)

Product Focus
(High-volume,
low-variety)

Mass
Customization
(High-volume,
high-variety)

Operators are
broadly
skilled

Employees
are modestly
trained

Operators are
less broadly
skilled

Flexible
operators are
trained for the
necessary
customization

Many job
instructions
as each job
changes

Repetition
reduces
training and
changes in job
instructions

Few work
orders and job
instructions
because jobs
standardized

Custom
orders require
many job
instructions

Comparison of Processes
Process
Focus
(Low volume,
high variety)

Repetitive
Focus
(Modular)

Product Focus
(High-volume,
low-variety)

Mass
Customization
(High-volume,
high-variety)

Raw material
inventories
high

JIT
procurement
techniques
used

Raw material
inventories
are low

Raw material
inventories
are low

Work-inprocess is
high

JIT inventory
techniques
used

Work-inprocess
inventory is
low

Work-inprocess
inventory
driven down
by JIT, lean
production

Comparison of Processes
Process
Focus
(Low volume,
high variety)

Repetitive
Focus
(Modular)

Product Focus
(High-volume,
low-variety)

Mass
Customization
(High-volume,
high-variety)

Units move
slowly
through the
plant

Movement is
measured in
hours and
days

Swift
movement of
unit through
the facility is
typical

Goods move
swiftly
through the
facility

Finished
goods made
to order

Finished
goods made
to frequent
forecast

Finished
goods made
to forecast
and stored

Finished
goods often
made to order