Lecture on Production and Operations Management

Economics of Production and Operations Management


Introduction to Production and Operations Management

Concept of Production and Operations Management

Scope and Objectives of POM


Organizations are designed mainly to produce products or services. If these organizations must survive and grow, the operations function must be undertaken in the most economical manner possible. As most companies are expected to make profits,, any activity, including those for operations must be managed to contribute to the accomplishment of such objectives.

Production – concern itself with creation of all goods and services, be they diverse item as cars, piece of furniture and laundry facilitie

Operations – refers to any process that accepts inputs and uses resources to change those inputs in useful ways.

What is the difference between Operations Management and 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, operations management is more concerned with input/output and churning out products in the shape of desired finished product.

Production Management deals with planning, control, and decision making necessary for carrying out the production process. Defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and  services

Operations Management process of planning, organizing, and controlling operations to reach objectives efficiently and effectively

Main Component of POM

Effectiveness - Refers to goal achievement. Example: When one is able to reach his objectives, say produce 10,000 units in one month, then, he is effective

Efficiency - Is related to cost of doing something, or the resource utilization involved.

System - Provides an efficient and effective framework of activities necessary to attain an objective.  It is dynamic arrangement of elements, each designed to interact with the other, and thus it is more than just a static combinations

Element - Consist of men, materials, machines, process and information network designed and located to interact harmoniously.

Objectives of  Production Management

Right quality- The quality of product is established based upon the customer’s needs. The right quality is not necessarily best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements.

Right quantity- The manufacturing organization should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products.

Right time - Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective.

Right manufacturing cost - Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost.

The customer service objective -  to provide agreed/adequate levels of customer service (and hence customer satisfaction) by providing goods or services with the right specification, at the right cost and at the right time.

The resource utilization objective -  to achieve adequate levels of resource utilization (or productivity) e.g., to achieve agreed levels of utilization of materials, machines and labour.


Location of facilities

Location of facilities for operations is a long-term capacity decision which involves a long term commitment about the geographically static factors that affect a business organization.

It is an important strategic level decision-making for an organization. It deals with the questions such as ‘where our main operations should be based?’

The purpose of the location study is to find the optimal location that will results in the greatest advantage to the organization.

Plant Layout and Materials Handling

Importance of layout decision:

They require substantial investment of money and effort

They involve long term commitments, which makes mistakes difficult to overcome

They have a significant impact on the cost and efficiency of short term operations

Why is there a Need for Layout Decision ?

1.Inefficient operations

2.Accidents or safety hazards

3.Changes in the design of products/services

4.Introduction of new products/services

5.Changes in the volume of output

6.Changes in methods or equipment

7.Changes in environmental or other legal requirements

8.Morale problems

Product Design

Product design deals with conversion of ideas into reality.

Every business organization have to design, develop and introduce new products as a survival and growth strategy.

Developing the new products and launching them in the market is the biggest challenge faced by the organizations.

OBJECTIVE: To develop and implement a product strategy  that meets the demand of marketplace with a competitive advantage.

STRATEGY: May focus on developing a competitive advantage  via differentiation, low cost, rapid response, or combination.

Process Design

Process design is a macroscopic decision-making of an overall process route for converting the raw material into finished goods.

These decisions encompass the selection of a process, choice of technology, process flow analysis and layout of the facilities.

Hence, the important decisions in process design are to analyse the workflow for converting raw material into finished product and to select the workstation for each included in the workflow.

Production Planning and Control (PPC)

Production planning and control can be defined as the process of planning the production in advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to give production orders to shops and to follow up the progress of products according to orders.

The principle of production planning and control lies in the statement ‘First Plan Your Work and then Work on Your Plan’.

Quality Control

May be defined as ‘a system that is used to maintain a desired level of quality in a product or service’

Quality control aims at prevention of defects at the source, relies on effective feedback system and corrective action procedure.

The main objectives of quality control are:

1.To improve the companies income by making the production more acceptable to the customers i.e., by providing long life, greater usefulness, maintainability, etc.

2.To reduce companies cost through reduction of losses due to defects.

3.To achieve interchangeability of manufacture in large scale production.

4.To produce optimal quality at reduced price.

5.To ensure satisfaction of customers with productions or services or high quality level, to build customer goodwill, confidence and reputation of manufacturer.

6.To make inspection prompt to ensure quality control.

7.To check the variation during manufacturing..

Materials Management

Materials management is that aspect of management function which is primarily concerned with the acquisition, control and use of materials needed and flow of goods and services connected with the production process having some predetermined objectives in view.

The main objectives of materials management are:

1.To minimize material cost.

2.To purchase, receive, transport and store materials efficiently and to reduce the related cost.

3.To cut down costs through simplification, standardisation, value analysis, import substitution, etc.

4.To trace new sources of supply and to develop cordial relations with them in order to ensure continuous supply at reasonable rates.

 5.To reduce investment tied in the inventories for use in other productive purposes and to  develop high inventory turnover ratios.

Maintenance Management

The main objectives of maintenance management are:

1.To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost.

2.To keep the machines and other facilities in such a condition that permits them to be used at their optimal capacity without interruption.

3.To ensure the availability of the machines, buildings and services required by other sections of the factory for the performance of their functions at optimal return on investment.   

Concluding Remarks:

"You do not seem to have included much of staff training methods and assessment of effectiveness, conflict resolution, motivational theory, human resource. People are the most important thing in production. How to manage them is vital."

About the author:

Rebecca Mauhay Nunesca is a Professional Industrial Engineer and an ASEAN Engineer currently connected at Batangas State University in the IE department. Presently, she is enrolled in Masters of Science in Engineering Education, major in Industrial Engineering at Rizal Technological University. 


Stevenson, William J. Production and Operations Management 6th Edition, Copyright 1999 The Mc Graw - Hill Company Inc. 


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