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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
 Work Study & Method Study
 Plus …….
What is Operations Management?

The business function responsible for

planning, coordinating, and controlling
the resources needed to produce a company’s
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
Operations Management Flow Chart
Production System

Inputs Outputs
•Materials •Goods
•Capital Organization •Services
•Manag. Res.
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
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
 We all manageProcess
Information Management

Network of
Activities and Buffers
Inputs Outputs
Flow units Goods
(customers, data,
material, cash, etc.) 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

Operations Strategy

Operations Management
Raw materials Outputs
Human Products
resources Services
Land, buildings Products & Facilities Structure Control Processes
Information Product design Reporting relationships Inventory management
Technology Facilities layout Teams Productivity
Capacity planning Quality
Facilities location

The Technical Core

Business Information Flow
Differences between Manufacturers
and Service Operations
 Services:  Manufacturers:
 Intangible product  Tangible product
 Product cannot be  Product can be
inventoried inventoried
 High customer contact  Low customer contact
 Short response time  Longer response time
 Labor intensive  Capital intensive
Service and Manufacturers
 All use technology
 Both have quality, productivity, & response
 All must forecast demand
 Each will have capacity, layout, and location
 All have customers and suppliers
 All have scheduling and staffing issues
 Products are the desired set of process
 Product Types
 Goods versus Services
 Product Attributes
 Cost
 Delivery response time
 Variety
 Quality
 Tangible Inputs
 People
 Raw material
 Intangible Inputs
 Information
 Time
 Tangible Outputs
 Buildings
 Cars
 Intangible Outputs
 Outgoing patient (hospital)
 Delivered message (advertising company)
 Physical--manufacturing

 Locational--transportation

 Exchange--retailing

 Storage--warehousing

 Physiological--health care

 Informational--telecommunications
All Managers are Ops
 All managers must transform inputs into outputs
 Example: Accounting Manager
 Inputs: data, information, labor
 Transformation: application of accounting principles and
 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 System Design Planning & Control

Operations Strategy Product/Service Aggregate Planning

Operation Priorities  Design Inventory Systems
Cost Process Selection Project Management
Quality TQM Scheduling
Delivery Facility location MRP
Flexibility Facility Layout  Statistical Process
Innovation Control
Manufacturing and Service
Operational Concerns for Manufacturing
and Service Organizations

 Scheduling
 Must obtain materials and supplies
 Both must be concerned with
quality and productivity
Functions of Operations
 Materials
 Methods
 Machines and Equipments
 Estimating
 Loading and Scheduling
 Routing
Functions of Operations
 Dispatching
 Expediting or Follow up
 Inspection
 Evaluation
OM Decisions
Operations Management
 Strategic:  Tactical:
 Product/Service  Quality Control
Design  Demand Forecasting
 Process Selection  Supply Chain
 Capacity Planning Management
 Facility Location  Production Planning
 Facility Layout  Inventory Control
 Job Design  Scheduling
Product Design and
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
1 Producibility

2 Cost

3 Quality

4 Reliability
Service Design Objectives
1 Producibility
2 Cost

3 Quality

4 Reliability

5 Timing
Characteristics of Goods
 Tangible product
 Consistent product
 Production usually
separate from
 Can be inventoried
 Low customer
Characteristics of Service
 Intangible product
 Produced & consumed at
same time
 Often unique
 High customer
 Inconsistent product
 Often knowledge-based
 Frequently dispersed
Goods Contain Services / Services
Contain Goods
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service

100 75 50 25 0 25 50 75 100
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 –
 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

 Product & service consistency:

 Meets design specifications
 Close tolerances
 Error free delivery
Competing on Time?
 Fast delivery:
 Focused on shorter time between order placement and

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

 Rapid development speed

 Using concurrent processes to shorten product development
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
Characteristics of a Good
 Repairability
 Modular Design
 Redesigning Capability
 Miniaturization
 Wires and Tubing
Characteristics of a Good
 Design by Computers
 Drawings and specifications
 Warranties
 Reliability
 Maintainability
Strategy and Issues during a Product’s Life

Introduction Growth Maturity Decline

• Best period to •Practical to •Poor time to change •Cost control
increase market change price or image, price or critical
share quality
quality image
•R&D engineering •Strengthen •Competitive costs
critical niche become critical
•Defend market Sales

• Frequent product •Forecasting •Standardization - •Little product
and process critical minor product differentiation
changes •Products and changes •Overcapacity in
•Short production process reliability •Optimum capacity the industry
runs •Increase capacity •Process stability •Reduce capacity
•High production •Shift towards •Long production and eventually
costs product focus runs prune line to
•Limited models •Enhance eliminate items not
•Attention to distribution returning good
quality 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
Strategy and Issues During a
Product’s Life
Best period to
Practical to change
Maturity Decline
Poor time to change image, Cost control
increase market price or quality image price, or quality critical
Strengthen niche Competitive costs become
R&D product critical
Company Strategy/Issues

engineering critical
Defend market position
Drive-thru restaurants Fax machines
3 1/2”
CD-ROM Floppy
Internet wagons
Color copiers


Product design and Forecasting critical Standardization Little product

development critical Product and process differentiation
Less rapid product
Frequent product and process reliability changes - more minor Cost minimization
OM Strategy/Issues

design changes Competitive product changes

improvements and options Overcapacity in the
Short production runs Optimum capacity
Increase capacity Increasing stability of
High production costs
Shift toward product process Prune line to eliminate
Limited models focused items not returning good
Long production runs
Attention to quality Enhance distribution margin
Product improvement and
cost cutting Reduce capacity
Product Development Process (Technical)

Needs Advance product Advance design

Identification planning

Detailed engineering

Production process Product Product use and

design and evaluation and support
development implementation
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
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
Working with the detailed product
design, engineers and manufacturing
specialists prepare plans for materials
acquisitions, production, warehousing,
transportation, and distribution.
Product evaluation and
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
Support systems might
1. Educate users on specific applications
of the product
2. Provide warranty and repair service
3. Distribute replacement parts; or
4. Upgrade the product with design
Product Developments
 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
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
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 capital-
intensive, specialized automation.For
example, Oil refineries, Cement factory,
Sugar factory, etc.
Process Design
Customization at high
High Process-focused Volume
Job Shops Mass Customization
(Print shop, emergency
(Dell Computer’s PC)
room , machine shop,
Repetitive (modular)
fine dining
Variety of Products

Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants)
(steel, beer, paper, bread)

Low Moderate High
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 Fabrication (or Backend Operations)

Material Dept. 1 Dept. 2 Dept. j Dept. k Item
& Comp.

S2,1 S2,2 S2,i S2,m

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.
Low volume, Multiple Few major High volume, high
Process structure low products, products, standardization,
process standardization, low higher commodity
life-cycle stages one of a kind volume volume products

Jumbled flow
Commercial Void
(job shop)

line flow Heavy

line flow Auto
(assembly assembly

Continuous Sugar
flow Void 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
 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
Urban Rural
 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
 Labour: Ample availability of It is rather difficult to get skilled
diversified labour. labour in rural areas.

 Transport facilities: Good Adequate transport facilities are

transport facilities are available. not available.
 Allied Industries: Proximity to Absence of allied industries.
allied industries are available.
Comparison between Urban
and Rural area
Urban Rural
 Availability of educational
facilities: Availability of educational, There are fewer educational, social
recreational and social facilities. and recreational facilities.
 Cost of land: The cost of land is Sufficient land is available at
high. Even at high cost sufficient land cheaper rates.
is not available which puts constraints
on the arrangement of plants and
 Restrictions on constructions: There are few restrictions on
There are greater restrictions on the construction of factory buildings.
construction of factory buildings.
 Municipal and public utility Municipal facilities and public utility
services: Certain specific municipal services are not available.
facilities and public utility services such
as water supply, drainage, fire fighting,
police protection etc. are available.
Comparison between Urban
and Rural area
Urban Rural
 Postal and Communication
Services: Good and prompt postal Prompt postal and communication
and communication services are services are not available.
available. The rates of taxes are quite low.
 Rates of taxes: The rates of
taxes are relatively high.
Labour is available at cheaper
 Cost of labour: Due to high rate.
standard of living the cost of labour is
relatively high.
Absence of banking facilities,
 Availability of facilities:
credit facilities and insurance
Banking facilities, credit facilities and
insurance facilities are available.
 Labour turnover: High labour
turnover because of large number of Labour force is more stable.
Comparison between Urban
and Rural area
Urban Rural
 Trade union movement: The trade Trade union movement is not very
union movement is very strong which strong.
often result in strikes, lockouts etc.
 Training facilities: Development of Absence of training facilities and
the training facilities for workers and management institutes.
management institutes for executives put
the city area into privileged position.
Storing and warehouse facilities are
 Storage facilities: Sufficient storage not available.
facilities including cold-storage are
 Problems of pollution: Problems of air pollution, water
Concentration of many industries in pollution, etc. are less and the rural
urban areas creates problems of air environment is conducive to good
pollution, water pollution, sanitation etc. health of workers.
Comparison between Urban
and Rural area
Urban Rural
 Danger of bombardment in war Less danger of bombardment in war
time: Industrial city areas become the time.
target of air attacks in war time.
 Government Policy: To avoid Government provides financial
concentration of industries, government assistance and land at cheaper rates
imposes restrictions for starting new to attract the entrepreneurs to start
industries in urban areas. industries in rural areas.
General Procedure for Facility
Location Planning
 The Preliminary Screening
 Detailed Analysis
 Factor Ratings
The Preliminary Screening
Resources Local Conditions
 Labor skills and  Community receptivity
productivity to business
 Land availability and  Construction cost

cost  Organized industrial

 Raw materials complexes
 Subcontractors  Quality of life: climate,

 Transportation facilities housing, recreation,

 Utility availability and schools
rates  Taxes
Sources of Information
 After identifying key location
requirements, management undertakes
a search to find alternative locations
that are consistent with these
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

Factor Factor Location Product of

Rating Rating Ratings
Tax advantages 4 8 32
Suitability of labor skills 3 2 6
Proximity to customers 3 6 18
Proximity to suppliers 5 2 10
Adequacy of water 1 3 3
Receptivity of community 5 4 20
Quality of educational system 4 1 4
Access to rail and air transp. 3 10 30
Suitability of climate 2 7 14
Availability of power 2 6 12
Total Score 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
4 5
Total 3 3
costs 4
4 2
3 2
2 3
1 2 1
1 1

Break-even Chart

Labor Transportation


Costs of
Total Fixed Costs

Volume of Units
Break-even Chart
Total A

Volume of Output
Dimensional Analysis

MA [CA1] W
1 [CA2] W [CA n] W
= ……….2 n

MB [CB1] [CB2] [CB n]

If MA 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
Facilities Layout

 Process Layout
 Product Layout
 Cellular Layout
 Fixed-position
Factors affecting the Plant
 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
 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 organization’s ability to
produce products and services to
match customer demand
Capacity Planning Decisions
 Assessing existing capacity
 Forecasting capacity needs
 Identifying alternative ways to modify
 Evaluating financial, economical, and
technological capacity alternatives
 Selecting a capacity alternative most
suited to achieving strategic mission
Strategies for Modifying
 Short-term Responses
 Long-term Responses
Production Planning and
 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
Productivity Units produced
= Input used

 Only through productivity increases can our

standard of living improve
Measuring Productivity
 Productivity = organization’s output of products
and services divided by its inputs

 Total factor Output

 Productivity = Labor + Capital + Materials + Energy

 Labor = Output
Labor dollars
 Productivity
Improving Productivity

1. Technological productivity
2. Employee productivity
3. Managerial productivity
Major Productivity Variables and their
contribution to productivity increase

 Labor
 Better basic education
 Better diet
 Better social infrastructure like transportation and sanitation
 Better labor utilization and motivation
 Capital
 Steady and well-planned investments on equipment and its
timely maintenance
 Research & Development
 Controlling of the cost of capital
 Management
 Exploitation of new (information) technologies
 Utilization of accumulated knowledge
 Education

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
 Is the productivity measure of 1.41 in
the previous example good or bad?
 Can’t 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 process’s
productivity at a given time (P2) to the
same process’ productivity at an earlier
time (P1)

P2  P1
Growth Rate 
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
150 units
P1   0.75 units / hour
200 hours
180 units
P2   0.72 units / hour
250 hours
P2  P1 0.72  0.75
Growth Rate    0.04
P1 0.75
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

2007 2006 2005

2004 2006 2005
Unit car 2,700,000 2,400,000 2,100,000 Labor Productivity
Unit Car Sales/Employee 24.1 21.2 18.3
Employees 112,000 113,000 115,000
Year-to-year Improvement 13.7% 15.8%

Total Productivity
Rs Sales Rs49,000 Rs41,000 Rs38,000
(billions Rs)
Total Cost Productivity 1.26 1.24 1.19

Cost of Rs39,000 Rs33,000 Rs32,000

Year-to-year Improvement 1.6% 4.2%