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Chapter 1

Production and Operations

Management (POM):
An Introduction

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● Introduction
● Historical Milestones in POM
● Factors Affecting POM Today
● Different Ways of Studying POM
● Wrap-Up: What World-Class Producers Do

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● Production and operations management (POM) is the

management of an organization’s production system.
● A production system takes inputs and converts them
into outputs.
● The conversion process is the predominant activity of
a production system.
● The primary concern of an operations manager is the
activities of the conversion process.

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Organizational Model

Sales HRM


Engineering Accounting

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Organization Chart-Major Elements

M a n u f a c t u r i n g O r g a n iz a t io n

O p e r a tio n s F in a n c e /A c c o u n t in g M a r k e tin g

F a c i li ti e s D is b u r s e m e n ts S a le s P r o m o t io n
P r o d u c tio n & & C r e d its A d v e r t is in g
In v e n to r y o n tr o l F unds M anagem ent S a le s
Q u a li t y A s s u r a n c e C a p i t a l R e q u ir e m e n ts M a rk e t R e s e a rc h
& C o n tro l
P ro c u re m e n t
E n g in e e r in g D e s ig n
I n d u s t r ia l E n g i n e e r in g
P r o c e s s E n g in e e r in g
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Entry-Level Jobs in POM

● Purchasing planner/buyer
● Production (or operations) supervisor
● Production (or operations) scheduler/controller
● Production (or operations) analyst
● Inventory analyst
● Quality specialist

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Historical Milestones in POM

● The Industrial Revolution

● Post-Civil War Period
● Scientific Management
● Human Relations and Behaviorism
● Operations Research
● The Service Revolution

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The Industrial Revolution

● The industrial revolution developed in England in the

● The steam engine, invented by James Watt in 1764,
largely replaced human and water power for factories.
● Adam Smith’s The Wealth of Nations in 1776 touted
the economic benefits of the specialization of labor.
● Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.

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The Industrial Revolution

● The industrial revolution spread from England to

other European countries and to the United Sates.
● In 1790 an American, Eli Whitney, developed the
concept of interchangeable parts.
● The first great industry in the U.S. was the textile
● In the 1800s the development of the gasoline engine
and electricity further advanced the revolution.
● By the mid-1800s, the old cottage system of
production had been replaced by the factory system.
● . . . more
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Post-Civil War Period

● During the post-Civil War period great expansion of

production capacity occurred.
● By post-Civil War the following developments set the
stage for the great production explosion of the 20th

increased capital and production capacity

the expanded urban workforce

new Western U.S. markets

an effective national transportation system

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Scientific Management

● Frederick Taylor is known as the father of scientific

management. His shop system employed these steps:

Each worker’s skill, strength, and learning ability
were determined.

Stopwatch studies were conducted to precisely set
standard output per worker on each task.

Material specifications, work methods, and routing
sequences were used to organize the shop.

Supervisors were carefully selected and trained.

Incentive pay systems were initiated.
● . . . more

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Scientific Management

● In the 1920s, Ford Motor Company’s operation

embodied the key elements of scientific management:

standardized product designs

mass production

low manufacturing costs

mechanized assembly lines

specialization of labor

interchangeable parts

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Human Relations
and Behavioralism
● In the 1927-1932 period, researchers in the
Hawthorne Studies realized that human factors were
affecting production.
● Researchers and managers alike were recognizing
that psychological and sociological factors affected
● From the work of behavioralists came a gradual
change in the way managers thought about and
treated workers.

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Operations Research

● During World War II, enormous quantities of

resources (personnel, supplies, equipment, …) had to
be deployed.
● Military operations research (OR) teams were formed
to deal with the complexity of the deployment.
● After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.
● OR helps operations managers make decisions when
problems are complex and wrong decisions are
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The Service Revolution

● The creation of services organizations accelerated

sharply after World War II.
● Today, more than two-thirds of the U.S. workforce is
employed in services.
● About two-thirds of U.S. GDP is from services.
● There is a huge trade surplus in services.
● Investment per office worker now exceeds the
investment per factory worker.
● Thus there is a growing need for service operations

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Today's Factors Affecting POM

● Global Competition
● U.S. Quality, Customer Service, and Cost Challenges
● Computers and Advanced Production Technology
● Growth of U.S. Service Sector
● Scarcity of Production Resources
● Issues of Social Responsibility

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Different Ways to Study POM

● Production as a System
● Production as an Organization Function
● Decision Making in POM

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Production as a System

Production System

Inputs Outputs


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Inputs of a Production System

● External

Legal, Economic, Social, Technological
● Market

Competition, Customer Desires, Product Info.
● Primary Resources

Materials, Personnel, Capital, Utilities

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Conversion Subsystem

● Physical (Manufacturing)
● Locational Services (Transportation)
● Exchange Services (Retailing)
● Storage Services (Warehousing)
● Other Private Services (Insurance)
● Government Services (Federal, State, Local)

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Outputs of a Production System

● Direct


● Indirect



Technological Advances

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Production as an Organization Function

● U.S. companies cannot compete using marketing,

finance, accounting, and engineering alone.
● We focus on POM as we think of global
competitiveness, because that is where the vast
majority of a firm’s workers, capital assets, and
expenses reside.
● To succeed, a firm must have a strong operations
function teaming with the other organization

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Decision Making in POM

● Strategic Decisions
● Operating Decisions
● Control Decisions

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Strategic Decisions

● These decisions are of strategic importance and have

long-term significance for the organization.
● Examples include deciding:

the design for a new product’s production process

where to locate a new factory

whether to launch a new-product development plan

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Operating Decisions

● These decisions are necessary if the ongoing

production of goods and services is to satisfy market
demands and provide profits.
● Examples include deciding:

how much finished-goods inventory to carry

the amount of overtime to use next week

the details for purchasing raw material next month

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Control Decisions

● These decisions concern the day-to-day activities of

workers, quality of products and services, production
and overhead costs, and machine maintenance.
● Examples include deciding:

labor cost standards for a new product

frequency of preventive maintenance

new quality control acceptance criteria

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What Controls the Operations System?

● Information about the outputs, the conversions, and

the inputs is fed back to management.
● This information is matched with management’s
● When there is a difference, management must take
corrective action to maintain control of the system

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Wrap-Up: World Class Practice

● POM important in any organization

● Global competition forces rapid evolution of POM
● Decision based framework focus of course

Strategic, Operating, and Control

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