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Course:MBASubject: Production & Operation Management
Unit:1.1
Introduction to Production & Operation Management
Production Management
Production is a Broader Term that Spans both Manufacturing and Services Functions
Production is the Application of Resources, People and Machinery, to Convert Inputs into Finished Goods and Services
Mass Production
Mass Production: Makes Outputs available in Large Quantities at Lower Unit Costs than Individually- Crafted Items
Characteristics of Mass ProductionLabor SpecializationMechanizationStandardization
Assembly Lines
Assembly Line first Introduced by Eli Whitney (Cotton Gin Inventor) to build Muskets for the US Government In 1799
Used Ideas of Specialized Labor and Engineering Standards (Tolerances) to produce Assemblies from Parts in Repeatable Manner
HENRY FORDIntroduced Moving Assembly Line: Dramatically
Reduced Manufacturing Costs While Delivering Consistent, Low-Priced Product
Factory based on Chicago Meat Cutting Plants
FORD MODEL “T” First Produced:
October 1908
By 1927, 15,000,000
ProducedAny Color so
long as it’s Black…
ASSEMBLY LINE BENEFITS Initially, took 14 hours to Assemble Model
T - Mass Production reduced Time to 1 Hour and 33 Minutes
Model T’s Price dropped from $1,000 in 1908 to $360 in 1916
Result was Ford becoming Dominant Automobile Manufacturer and Assembly Line Method as Dominant Production Approach
FORD ASSEMBLY LINES
Assembly Line pulled by Ropes Magneto Assembly
MASS PRODUCTIONMODEL “T” – Machine that
Changed the World 1914: Ford produced 308,162 cars, more than all
299 other auto manufacturers combined 1927: Automobile Produced every 24 seconds Higher volumes → Lower cost → Lower Prices
→Increased Sales → Higher Volumes
MASS PRODUCTION“PUSH” Strategy – Driven by Inputs and ObjectivesControl of Raw Materials and Labor plus Profit Goals
= Production Rate separate from Customer Demands and Preferences
Performance measured by Budget Variances and Quantitative Results (Defects or Unit Costs per Day, Week or Month), not Quality Standards
MASS PRODUCTION Low Product Variety; Small Orders Not Feasible Specialized Machinery and Centralized Manufacturing “Economies of Scale” – High-Speed Sequential
Production Development Costs Spread Over Large Volume:
Low Cost per Unit Produced Low-Skill/Low-Wage Work Force Large Advertising and Marketing Budgets
FORD WORKING CONDITIONS
Monotony of Assembly Line Work: 300% Turnover $2 per Day and a 9-Hour ShiftFord’s Response to Working Conditions Dilemma Increase Pay to $5 per Day and Reduce
Shifts from 9 Hours to 8 Hours
“The Chain System you have is a Slave Driver. My God, Mr. Ford! My Husband has come Home and Thrown Himself Down and won’t Eat his Supper, He’s so done out. Can’t it be Remedied? That $5-a-day is a Blessing; a Bigger One than you Know. But, Oh, They Earn It!”- Wife of Ford Assembly Line Worker
MASS PRODUCTIONFlaws of Mass Production
Approach Production Levels cannot Stop or Slow:
Defects resolved outside Production (Added Costs of Rework)
Long Changeover Times limits Product Variety Erratic Finished Products Inventory Levels
Incentives and 0% Financing
MASS PRODUCTION Market Orientation Flaw
TOYOTA’S ORIGINS
• Toyoda Automated Loom Works
1902 Modification: Loom Stopped Automatically if
Thread Broke or Spool Empty - Signal for Attention
Result: No Waste from Defective Work and Lower
Production Costs
TOYOTA’S ORIGINS
During WWII, Toyoda became Toyota and manufactured Motorcycles and Delivery Trucks
After WWII, Japanese Industry needed to re-build
TOYOTA’S ORIGINS1956 – Taiichi Ohno went to US to study Ford’s
Manufacturing Facilities
Found Mass Production Principles not Applicable:
Scale of Japanese Markets Desire for Product Variety Unable to Afford Resources and Inventories
TOYOTA’S ORIGINSBefore returning to Japan, Ohno went to an
American Grocery Store
Discovered Production and Operation Methods thatWere Linked to Customer
Actions: Inventories Replenished by Sales (“PULL” Strategy)
Delivered Product Variety and Scale
Minimized Waste
TOYOTA’S ORIGINS
Toyota Exports its First Car: The
Forgettable “Crown”
Under-powered and Unstable at
Freeway speeds, Production is
stopped in 1959
TOYOTA PRODUCTION SYSTEM
In 1961, Toyota adopts “Systems Perspective”KAIZEN – Continuous Improvement Attitude that
Minimizes Waste and Emphasizes High QualityProcesses are analyzed to eliminate flaws rather than fixing defective products
WASTE – Comprehensive View that includes Time, Resources and Materials
Over-ProductionTime Spent WaitingUnnecessary Movements of Items
TOYOTA PRODUCTION SYSTEM
–Waste is anything other than the minimum amount of equipment, materials, parts, space, and workers’ time which are absolutely essential to add value to the product.
– - Shoichiro Toyoda President, Toyota Motor Co.
TOYOTA PRODUCTION SYSTEM
KANBAN - Downstream Demand drives Upstream Activity (“Pull Strategy”)
Orders flow “Up” System, not from Top-down
Only what is Needed is Ordered and Produced
TOYOTA PRODUCTION SYSTEM
ANDON – Work Stops when Problem EncounteredCounter-measures taken to Cure Cause, Not re-work Defective Result. Authority delegated to Production TeamProduction and Problem-solving
Functions combined. No Special Trouble-shooting Teams
TOYOTA PRODUCTION SYSTEM
Result of TPS is “Just-in-Time” Inventory System Comes from System’s Operation, Not a
Requirement of It: Element of “Waste” Management Philosophy
JIT relies on Supplier Relationships that Integrate Inventory Arrivals and Production Needs
JIT depends on Mutual Commitment of Toyota Loyalty and Supplier Performance
TOYOTA PRODUCTION SYSTEM
Why Hasn’t TPS Been Universally Adopted? Equipment Transition Costs: Short
Turnover Times (High Variety) combined with High Quality
Different Management Paradigm: Empower Assembly Line Workers to Stop Production and Order Process-correcting Counter-measures
World’s Second Largest Manufacturer of AutomobilesAbout 240,000 Employees Produces a Vehicle about
every Six SecondsConsistently Profitable GM:
$1.1 Billion Quarter Loss
What Is Operations Management?
• Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs
Organizing to Produce Goods and Services
• Essential functions:1. Marketing – generates demand2. Production/operations – creates the product3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the money
4. Human Resources – provides labor, wage and salary administration and job evaluation
Organizational Charts
Organizational Charts
Why Study OM?
• OM is one of four major functions of any organization, we want to study how people organize themselves for productive enterprise
• To know how goods and services are produced• We want to understand what operations
managers do• OM is such a costly part of an organization
What Operations Managers Do
• Basic Management Functions Planning Organizing Staffing Leading Controlling
Ten Critical Decisions1. Design of goods and services2. Managing quality3. Process and capacity
design 4. Location strategy5. Layout strategy6. Human resources and
job design 7. Supply-chain
management8. Inventory, MRP, JIT9. Scheduling10. Maintenance
The Critical Decisions
1. Design of goods and services– What good or service should we offer?– How should we design these products and
services? 2. Managing quality
– How do we define quality?– Who is responsible for quality?
The Critical Decisions3. Process and capacity design
– What process and what capacity will these products require?
– What equipment and technology is necessary for these processes?
4. Location strategy– Where should we put the facility?– On what criteria should we base the location
decision?
The Critical Decisions5. Layout strategy
– How should we arrange the facility?– How large must the facility be to meet our
plan?6. Human resources and job design
– How do we provide a reasonable work environment?
– How much can we expect our employees to produce?
The Critical Decisions7. Supply-chain management
– Should we make or buy this component?– Who should be our suppliers and how can we
integrate them into our strategy?8. Inventory, material requirements planning,
and JIT– How much inventory of each item should we
have?– When do we re-order?
The Critical Decisions9. Intermediate and short–term scheduling
– Are we better off keeping people on the payroll during slowdowns?
– Which jobs do we perform next?10. Maintenance
– How do we build reliability into our processes?– Who is responsible for maintenance?
Significant Events in OM
Productivity Challenge
• Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)
• The objective is to improve productivity!
Important Note!Production is a measure of output only and not a
measure of efficiency
Efficiency Versus Effectiveness
• The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is.
• “Efficiency is doing things right; effectiveness is doing the right things.”
• Doing the Right Things is More Important than Doing Things Right
Efficiency Versus Effectivenes
• For example, if a company is not doing well and they decide to train their workforce on a new technology. The training goes really well - they train all their employees in avery short time and tests show they have absorbed the training well. But overall productivity doesn't improve. In this case the company's strategy was efficient but not effective.
Productivity
Productivity =Units produced
Input used
Measure of process improvement Represents output relative to input Only through productivity increases can our
standard of living improve
Productivity Calculations
• Labor Productivity
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000250
One resource input single-factor productivity
Multi-Factor Productivity
OutputLabor + Material + Energy +
Capital + Miscellaneous
Productivity =
Also known as total factor productivity Output and inputs are often expressed in
dollars
Multiple resource inputs multi-factor productivity
Measurement Problems
• Quality may change while the quantity of inputs and outputs remains constant (HDTV, iphones)
• External elements may cause an increase or decrease in productivity (using more reliable electric power system)
• Precise units of measure may be lacking
Key Variables for Improved Labor Productivity
1. Basic education appropriate for the labor force
2. Diet of the labor force
3. Social overhead that makes labor available such as transportation and sanitation Challenge is in maintaining and enhancing
skills in the midst of rapidly changing technology and knowledge
Service Productivity
1. Typically labor intensive (teaching, counseling)
2. Frequently focused on unique individual desires (customer representatives in banks)
3. Often an intellectual task performed by professionals4. Often difficult to mechanize5. Often difficult to evaluate for quality
Ethics andSocial Responsibility
Challenges facing operations managers:
Developing and producing safe, quality products
Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments
Entry-Level Jobs in PMOM– Purchasing planner/buyer– Production (or operations) supervisor– Production (or operations) scheduler/controller– Production (or operations) analyst– Inventory analyst– Quality specialist– Others …
Reference
• www.academia.edu• www.poms.ucl.ac.• www.wright.edu