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Production and Materials Management Unit 1

Contents
What is production?................................................................................................................................ 2 What is a production Management? ...................................................................................................... 2 Why should one study production Management? /What is importance of learning production Management? /What is the objective of learning Production Management? ...................................... 4 What is a difference between Production and Operations Management? ........................................... 5 Production System .................................................................................................................................. 6 What is Operations Management? ......................................................................................................... 7 Production function ................................................................................................................................ 8 What is Productivity? .............................................................................................................................. 8 Product Classification/types ................................................................................................................... 9 Levels of products ................................................................................................................................. 10 Relationship of Production function with other functions ................................................................... 11 Product selection .................................................................................................................................. 12 Steps for identifying the products for manufacturing .......................................................................... 12 What is Product Planning & development? .......................................................................................... 14 Categories/Types of new products ....................................................................................................... 14 Objectives of product planning & development................................................................................... 15 Characteristics of good product development ..................................................................................... 15 Reasons for new product failures ......................................................................................................... 16 New production development process ................................................................................................ 16 Challenges of product development..................................................................................................... 17 Product Life Cycle.................................................................................................................................. 17 Product design ...................................................................................................................................... 18 Process design ....................................................................................................................................... 18

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Production and Materials Management Unit 1

What is production?
Creation of good and services to satisfy consumer needs Transformation process o An input is converted in to an output Its a process that adds value to the inputs which becomes consumable The Value addition can happen through o alteration (change of the form, shape of the product/service e.g. o transportation e.g. imports from states, countries...apples from north, olives from Switzerland o storage e.g. Mangoes during winter o quality assurance activities, ISI marks, audits, trainings

What is a production Management?


Meaning: The operations inside a firm that deals with the prediction, planning, developing and marketing of product at all stages of the life cycle of that product is called as Production management All those activities that go in to turning raw material in to finished product/service Goal/Focus: Production of goods & services, concerned with churning output from input. Scope: Its a broad area that comprises production planning & control, inventory management & overall control. Includes all management activities like selection, designing, operating, controlling & re-designing the production systems. Earlier, production management was used to refer to the management of an organisations production system which converts inputs in to tangible outputs (physical products) for which there is a demand by the customer.

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Production and Materials Management Unit 1

However, there are many organisations that create both goods and services through transformation of inputs in to outputs. Either along with tangible goods e.g. consumer durables like A/Cs, microwaves & the after sales services Pure services such as Hospitals, educational institutes , CA firms, BPO/KPO companies etc Therefore the term production management has been changed to production and operations management as many companies produce both goods and services as their outputs. Regardless of whether the end product is a good or a service, the production activities that go on in the organisations are often referred to as operations and function of planning, directing and controlling the processes that transform inputs in to finished goods/services is termed as operations management. Its important to note that all these three terms Production Management, Production and Operations Management and Operations Management are used interchangeably. Productions/operations management can be defined as the management of all activities directly related to the creation of goods and/or services through the transformation of inputs into output.

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Production and Materials Management Unit 1

Why should one study production Management? /What is importance of learning production Management? /What is the objective of learning Production Management?
Production Management is one of the important function of an organisation others being Marketing, Finance, Human resources, IT Understand how a production system works How goods are produced How the transformation happens What activities are involved Understand how a production systems are managed effectively Understand the different production functions like, planning, directing, controlling Understand the role of the production managers, so as have an overall skills required & develop accordingly Production cost is a direct cost of any organisation having a direct impact on the profit & loss account of the company. Understanding the production Management would help where the costs can be saved & productivity can be optimised. Production management offers a great opportunity for an organisation to improve its profitability QCDS (Quality, cost, Delivery & Service) is the modern mantra of any organisation. Understanding production management would help in understanding how to produce a quality product at the competitive/reasonable cost with a timely delivery & an effective service This is possible only of the production systems are managed effectively. Whether profit or non profit, the role of an OPERATIONS MANAGER is to sustain, protect, and project the companys operations side. The complexities & challenges of modern production systems have increased. the supplying organizations have been engaging deep & across value chain of the customers.

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Production and Materials Management Unit 1

What is a difference between Production and Operations Management?


Earlier manufacturing was used synonymously with the word production Now manufacturing is referred to as production of tangible goods e.g. consumer durables Production/Operations is both production of goods (tangibles) & services (intangibles e.g. medical, educational services) Production management and operations management are management jargon that needs to be simplified for those who are sitting on the fence or those inside an organization unable to comprehend them clearly. Sometimes it becomes confusing to be talking about production management inside operations management but they are separate and distinct entities in the study of management as ultimately, production is a part of the whole cycle of operations. Read on to clarify the doubts. We tend to use the term "Production management" when the result is a physical product, and "operations management" when the output is a ''service". Operations Management The study of set of activities comprising supervision, planning and designing of business operations in the field of manufacturing of goods and services is termed as operations management. The purpose of operations management is to make certain that the operations of a business are efficient and effective and result in minimum of wastage. Operations management tries to cut down resources involved in operations while at the same time making operations more effective and productive. In fact operations management is more concerned on processes than people or products. Operations management in a nutshell is using physical resources in an optimum manner, converting input into output, so as to supply to the market the desired and finished product. Production Management Production management on the other hand focuses specifically on the production of goods and services and is concentrated upon churning output from input. It is a broad sum of activities that go into turning raw material into final, finished product. One may feel that production management is a subset of operations management, but production management in itself is a broad subject that comprises production planning and control, inventory management, and operations control. Production management includes all management activities spanning selection. Designing, operating, controlling and updating production system.

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Production and Materials Management Unit 1

In brief: Operations vs Production Management Both production management and operations management play an important role in an organization in increasing the efficiency and productivity. While operations management is focused upon administration, planning and execution of operations involved in production of goods and services and trying to minimize the resources at the same time increasing output, production management is more concerned with input/output and churning out products in the shape of desired finished product.

Production System
What is a system? Set of policies, processes & procedures required for planning, execution & control. Formalized system that states the structure, responsibilities & procedures required to achieve effective results Collection of interrelated activities/enti ties Arrangement of interrelated parts whose interactions can be specified and to some extent predicted

What is a Production system then? A system that converts a set of inputs in to a set of desired outputs (goods/services) Consists of elements like a) inputs b) transformation process c) outputs d) delivery systems e) communication systems f) Production control/ decision making systems.

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Production and Materials Management Unit 1

What is Operations Management?

Meaning: Set of activities comprising planning, supervision, planning and designing of business operations in the manufacturing of goods and services is called as operations management. Goal: Ensure that the operations of a business are efficient and effective and result in minimum of wastage. Focus Optimisation of processes: Cut down resources involved in operations while at the same time making operations more effective and productive. More concerned on processes than products. Scope: All the activities/operations right from the customer gives an order to collecting the cash

Operations management in nutshell:


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Use physical resources in an optimum manner, converting input into output, so as to supply to the market the desired and finished product in time & quality. Production management or operations management play a key role in improving the efficiency and productivity. Regardless of whether the end product is a good or a service, the production activities that go on in the organisations are often referred to as operations The function of planning, directing and controlling the processes that transform inputs in to finished goods/services is termed as operations management. Today, this discipline is generally referred to as operations management, although it includes both management of activities producing goods or services.

Production function
What is a function? Relationship between inputs and outputs What is a Production function? Creating products(outputs) using inputs such as materials, machines, labour, land capital & management. Its a relationship between inputs & outputs. Q quantity of output
Q = f (a, b, c, d)

a, b, c, d quantities of various inputs (materials, labour hours etc) Production function specifies amount of outputs that would flow from the amount of inputs used during a specified period.

What is Productivity?
Productive use of resources The level at which a process is running Productivity = Output Input Efficiency of the production Productivity index What do a productive index tells us? How well a process is carried out to convert a set of inputs in to a set of outputs Benefits Value to customer Profitability to the organization

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Production and Materials Management Unit 1

Product Classification/types
From marketing perspective products are classified in to three categories: Durability & tangibility Consumer goods Industrial goods

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Levels of products

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Relationship of Production function with other functions

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Product selection
Meaning : Choosing the goods or services for production Focus : develop & execute a product strategy that meets the demands of the market differently than the competition does. Product selection is a key to an organization's success & sustenance Most products have limited or predictable life cycle Firms must keep looking for new products, improve existing products, build competencies around existing market products (Dell) Product selection enablers Internal sources Employees at all levels Strong communications within processes/functions External sources Customers Competitors Distributors Suppliers

Steps for identifying the products for manufacturing


Focus : Understand the customers & their needs See how competition delivers Differentiate the way you deliver Step 1 : Market Analysis -Understanding Customers & their Needs) Market segmentation: Groups of consumers enough in common, which can be a basis for a design of a product/service Demographics: age, occupation, income, education Psychological factors: pleasure, fear Industry factors: needs of a particular industry like banking, Medicare, automobile. Needs assessment: Identify the needs of each segment & check how the competition is meeting them. Needs assessment includes both attributes & features of the product/service Product/service expectations: Price, quality, level of customization Delivery expectations: availability, convenience, service, safety Volume expectations: high/low, variability in volume

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Step 3 : Selection of competitive priorities Its important to improve on all the 8 priorities However, improving on all is difficult due to trade off decision between the priorities Higher customization could lead to higher cost Efficient design could lead to higher cost Volume flexibility could lead to inventory & carrying costs Low cost operation could at times affect the quality Greater quality could lead to higher cost if not managed well Important, sometimes its difficult to have a trade off as a competitive priority has become a qualifier, Must Be requirement in the industry

Step 4 : Developing the operations strategy Deciding on a flow strategy/approach based on the competitive priority selected Goal :
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decide on how the operations systems should be organized so that the volume, variety of products & services are handled effectively Set the stage/approach for all operational decisions at every level

Flexible flow strategy Meaning: Organizing operations around the processes Emphasis: Efficient Design, Customization, Volume Flexibility Low cost & quick delivery is less Examples: High end cars

Line-flow strategy Meaning: Organizing operations around the product or service Appropriate when products are standard Emphasis: Cost effectiveness, Quality Consistencies, Quick Deliveries Examples: Routine Consumer products

Intermediate Flow strategy Between Flexible & line flow

What is Product Planning & development?


Searching ideas, screening them systematically & converting the ideas in to products/services. Includes all the activities right from idea generation to ending up with launching the product to the market Its a process New product idea Filtering the ideas Convert the idea in to tangible/intangible product/service Launch the product to the market Includes improving the existing products or Dropping the unprofitable products

Categories/Types of new products


Unique products: from the R&D efforts.truly new/unique e.g. computers, cell phones
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Improvements in the existing products: different in terms of functions, size, features e.g. TV, electric cars. Imitative: new to company but not new to the market e.g. chocolates, cars, new cereals. The key to success is product differentiation If market considers the product to be significantly different from the competition, then its a success Buyers perception is a reality in the imitative products

Objectives of product planning & development


Develop products systematically - Do away with firefighting Avoid waste, avoid overproduction Better utilization of available resources Good utilization of surplus capacity Maximize return on investment Meet ever-changing customer demands Create a good product image Promote customer loyalty Increase customer satisfaction Increase market share Replace obsolete products Diversify risks & stand firm in the competition Achieve business continuity Innovate proactively not followers/order takers

Characteristics of good product development


Successful product development gives products that can be produced & sold profitably. Product characteristic Product quality Does it satisfy customer needs? Quality Indicators Market share Price that customer is willing to pay

Development process characteristic Development time


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Lead time of the development Development cost Money spent on development Development capability Will it be able to churn out future products? Are learning captured & used?

Reasons for new product failures


Overestimating the market size Design issues Incorrect positioning, incorrect pricing Poor research Uncontrolled development cost Strong competition reaction

New production development process

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Challenges of product development


Trade offs Give good customization at the same time keep costs minimal Ever-changing technology Ever-changing customer demands Time pressures The urgency of thoughtful decisions Team dynamics Requirement of different skills Requirement of motivation throughout the process Requirement of support from other functions throughout

Product Life Cycle

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Product design
Product is designed for market & market is known better by Marketing people The general specifications of the product are drawn by design persons along with marketing persons Product design is about Product form & Product Functions Product Form Deals with the shape , appearance Adds nothing to performance but packaging is very imp. Many customers cant tell if one product is better than other in terms of functions, so they buy the one which is eye-catching Product Function Deals with how it works Importance of the functional design is that it has to work else it wont sell Industrial products: The machine makers pay attention to form design although function is imp, as factories buying machines want their shop floor to look neat & clean!

Process design
Concerned with overall sequence of the operations required to meet the design specification of the product. Types of workstations required Types of machineries What technology (Manual, automated) What bandwidth? How should be the quality control?

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