1. Production and Operation
Management
By: Gaurav Gupta

2. Introduction

3. Purpose of Business

4. • To attract and retain customer
• Create sustainable profit over time.
• To solve customer’s problem

5. • For better management of a company
• Operations can add significant value to the
company by improving its competitiveness
and long term profitability.
Norman Gaither Greg Fraizer,Cengage

6. Organizational Model
Finance
Sales HRM
OM
QA
Marketing
MIS Accounting
Engineering

7. Out of the many functions in business
• Three primary functions are
• Finance (without finance ,financial failure will
result)
• Marketing( without marketing no product can
be sold)
• Operation ( without operation no product can
be produced.)
• How operation r important -------------------

8. The Subject of Production & Operation Management is
studied under different Headings-such as
• Production Planning and control,
• Production and Inventory control,
• Production and operations control
• and many more.
• What ever may be the title of the subject, the
contents of the subject are more or less one
and the same.

9. Before we discuss about production &
operation management, let us first
discuss about
• Product,
• Production
• Operation
• and management.

10. The set of interrelated management activities, which are
involved in manufacturing certain products, is called as
production management.
If the same concept is extended to services
management, then the corresponding set of
management activities is called as operations
Management.

11. • Earlier the focus was only for manufacturing
organization and it was termed as production
management.
• But later the same approaches and tools were
also applied to services organization, where the
focus was on Operations.
• But most business have service activity and
production activity so study of this discipline is
referred to as POM.

12. Career opportunity in OM
• Manufacturing manager
• Operation manager
• Plant manager
• Factory manager
• Production manager
• Production control manager
• Inventory manager
• Quality control manager
• V.P. manufacturing
• President operation etc.

13. Consider the following examples of important
operations decision
• Intel needs to construct a new multi billion
dollar fabrication plant to produce its next
generation of computer chip.
• Where and How should it build the
factory?
Norman Gaither Greg Fraizer,Cengage

14. • American airlines needs to allocate the
necessary resources to meet all of its customer
demand for air travel next month.
• How should it assign different size aircraft to
flight routes,piolts to air craft ,and flight attendant
to flight.
Norman Gaither Greg Fraizer,Cengage

15. • Hewlett Packard needs to increase output for
one model of printer ink cartridges on a
production line that is already running at full
capacity.
• What is the most cost effective way to redesign
the product line that is already running at its full
capacity.
Norman Gaither Greg Fraizer,Cengage

16. • These r small example ,the types of problem faced by
operation management.
• Poor operation decision can hurt company competitive
position and increases its cost.
• Good operation decision can improve the value of the
company by increasing profitability and growth.
Norman Gaither Greg Fraizer,Cengage

17. • Thus-------------------
• In the current business environment of
intense global competition ,
• firms have to offer their customer
• quality products
• that incorporates latest innovations ,
• reduce cycle time
• and customer service i.e. outstanding.
• All this at a value proposition that is more
attractive then that of their toughest
competitor.

18. This is possible only if
• A firm is alert and influence towards the
state of the art technology.
In order to obtain and sustain a
competitiveness in market firm has to rely
on the production and operation function
to be reliable and efficient.

19. Operation system( Function)
• Is that part of an organization which produces
the organization’s products and services.
In some organization Product is a Physical
goods (T.V.,Mobile) while in others it is a
service(education, health, financial).
(Everett. E. ADAM, Ronald J. Abert,
PhI)

20. • What do such diverse organization as
manufacturing companies ,financial
companies all have in common within their
operation.
Everett. E. ADAM, Ronald J. Abert

21. The common element is
Conversion Process
OR
Transformation Process
Everett. E. ADAM, Ronald J. Abert

22. Definition
• Production/Operation Management is the
management of an organization
productive resources or its production
system which converts inputs into the
organization’s products and services.

23. Definition
• Production and Operation management involves the
transformation of inputs into outputs , using physical
resources, so as to provide desired utility to the
customer while meeting the other organizational
objective .
K.Garg TMH

24. • Production system takes inputs –raw
material ,Humans ,machines, building
technology ,cash,information,and other
resources and convert them in outputs
products and services.
• This conversion process is the heart of
what is called operation management.

25. • On a farm the operation system is the
transformation that occurs when the farmer’s
input (land, equipment ,labor) are converted
into such outputs as corn, wheat or rice.
• The exact form of the conversion process
varies from industry to industry but this
phenomena exists in every industry.
( Everett. E. ADAM, Ronald J.
Abert, PhI)

26. • For all operation systems the general goal is to
create some kind of value addition , so that
outputs are worth more to consumers than
just the sum of individual inputs.

27. Operation manager’s job
• The operation manager’s job is to manage the
process of converting inputs into desired
outputs.

28. Activity in operation Management
• Organizing work
• Selecting process
• Arranging Layouts
• Facility location
• Designing Jobs
• Measurining Performance
• Controlling quality
• Scheduling work
• Maintaining inventory
• Planning production etc.

29. Skills
• Operation managers deal with people,
technology and deadlines.
• So these managers need good technical,
conceptual and behavioral skills.

30. Manufacturing Vs Service
operation
• Outputs are tangible • Services are generally
products or goods , manpower oriented
• Produced through with less use of
manufacturing machinery.
operations with the
help of certain
machinery and
equipments along with
the manpower .

31. Production Vs operation
Management
• Production management • Operation management
• According to nature of
• According to nature of output ,finished
output ,finished products products are tangible
are tangible ex car, bikes or intangible ex,
• According to restaurant,
Consumption of output transportation services
the products are • According to
consumed over a period Consumption of output
of time the services are
availed immediately.

32. • According to nature of • Operation management
work, production in case of services the
function requires less requirement of labor is
labor and more more and less
equipment. equipments.
• According to degree of • The customer
customer participation , frequently participates
• PM requires no in the conversion
participation of process in the case of
customer in service at least.
transformation process

33. Factors affecting OM today
• Global competition
• Quality, customer service and cost
challenges
• Rapid expansion of advance technology
• Scarcity of operation resources(capital)
• Social responsibility issue.

34. The Transformation Process
Quality of inputs Quality of outputs
monitored monitored
Random disturbances
INPUTS Transformation OUTPUTS
Process
Feedback Mechanisms

35. Inputs of an Operations System
• External Input: Legal/Political, technology,
Social/economic
• Market
– Competition, Customer Desires, Product
Information
• Primary Resources
– Materials, Personal , Capital and Capital goods,
Utilities

36. Outputs of an Operations System
• Direct
– Products
– Services
• Indirect
– Waste
– Pollution

37. The Transformation Process
For a Service Organization (An MBA
Institute) Random disturbances
• Strikes of students, Quality of
Quality of teachers or staff outputs
inputs • Undue interference of
Raw minds monitored
monitored the government in the
(students) working of institutions
Teachers
Class rooms Enlightened students with:
Transformation • Good communication skills
Computer lab Process • Pleasant personalities
Library • Leadership qualities
Projectors • Good analytical ability
(OHP, • Team spirit
LCD etc) • Decision making abilities
Administrative • Computer skills
Feedback Mechanisms
staff
• Success at placement interviews
• Grades obtained in examinations OUTPUTS
INPUTS
• Rising career graph of alumni in the industry
• Number of applications for admission
in the institute
• Ratings of surveys

38. The Transformation Process For a
Hybrid Service & Manufacturing
Organization
(A Restaurant)
Random disturbances
• High turnover of chefs, Quality of
Customers Quality of waiters, etc. outputs
Building inputs • Inflation monitored
Chef monitored • Government’s taxation
Vegetables policy
Furniture
Customers satisfied with:
Mutton, Transformation • Good preparation of the
chicken, Process food
pork, • Pleasant behavior and
Cooking oil,
etc. personality of the waiter
Spices, etc. • Genuine prices charged
Waiters
Manager
Feedback Mechanisms
• Rising Revenues
INPUTS OUTPUTS
• Repeat Customers
• Appreciation of customers

39. The Transformation Process For a
Purely Manufacturing Organization
(A
Refrigerator Manufacturer)
Random disturbances
• High turnover of workers Quality of
Machines & Quality of and managers outputs
Equipments inputs • Recession monitored
Building monitored • Government’s taxation
Components, policy
parts, sub- • Strikes instigated by trade
unions Customers satisfied with:
assemblies, etc.
Transformation • Good cooling performance
Workers • Less consumption with
Process
Office electricity
infrastructure • Good after-sales service
(computers, • New advanced features
furniture, etc.)
Packaging
material Feedback Mechanisms
Capital • Rising sales volume
Managers • Lesser customer complaints
• Positive response of customers in
INPUTS the feedback forms OUTPUTS

40. OBJECTIVE OF PRODUCTION MANAGEMENT
• The objective of Production Management is to
produce the desired product or specified
product by specified methods so that the
optimal utilization of available resources is
met with.
• Hence the production management is
responsible to produce the desired product,
which has marketability at the cheapest price
by proper planning, the manpower, material
and processes.

41. OBJECTIVE OF PRODUCTION
MANAGEMENT
• Production management must see that it will
deliver right goods of right quantity at right
place and at right price.
• When the above objective is achieved, we say
that we have effective Production
Management system.

42. Production Cycle
• The production cycle starts from Market
Research. Market research reveals consumer
preferences and needs.
• The marketing department will transfer this
information to the design department.
• The design department based on the
information received from marketing
department designs the product to fulfill
consumer needs and supplies design
specifications and drawings to production
department.

43. Production Cycle
• The production department verifies whether
the product can be manufactured with the
technology and skill available in the firm. If yes
it will give the acceptance. Otherwise the
Production Manager, Design engineer and
Marketing Manager, discuss together and
make alterations in the product,

44. Production & Operations Management (POM) Defined
Production & Operations Management is defined
as the design, operation, and improvement of the
transformation process, which converts the
various inputs into desired outputs of products
and services.

45. Product Design and development
Manufacturability Reverse Engineering
Research &
Standardization Development
Concepts
Product Life in Product Robust Design
Cycle Design
Concurrent
Engineering Modular Design
Computer Aided
Design (CAD)
Concepts in Product Design

46. Process Design
Types of Processes
Continuous Semi-continuous broken Project
Process (Repetitive/Assembly) Process
Process
Batch Process Job Shop
Types of Processes

47. • Transformed resources :
• Material -----------------Plastic ---Toy
• Data--------------Information
• Customer--------------- female
beauty parlor,
man,

48. Transforming resources
• Facilities: Machinery ,plant ,
• In case of barber-------
• Personal---what u produce will depend upon
kind of people more important in service
sector

49. Critical success factor
• In any operation the objective is to gain
competitive advantage over your rivals.
• It can be secured through several factors
these r called critical success factor.

50. • These factor determine whether
The operation of one organization is better
than other.

51. Seven critical success factor
• Price
• Quality
• Delivery
• Service
• Flexibility
• Innovations
• Cycle time

52. Price
• Offer the product Same or at a lesser price
than the competitor to compete in the
market
• For that we need cost down production
cost
• Variable cost consist of
• Material cost ,labor cost, utility cost
• Fixed cost---- economy of scale

53. Quality of product
• Quality of design
• Quality of conformance
• Quality of performance
• Customer first see the design
• Arbind hospital -1500 Rs

54. Services
• Pre sales service: Brochure, catalog,
publicity material
• During sales service: economy class
,business class, first class
• Waiting time, priority service time,
ambience,
• After sales service: Equally important as
before sales and during sales. Spark, beat

55. Flexibility
• Is the ability of operation to cope with the
demand from the customer .
• 5000
• 6000
• But p.u. cost should remain same or reduces.

56. Innovation
• Come out with new innovative product
• Innovative feature in existing feature
• Introduce innovative process
• Use innovative technology
• Motorola loose business because this and
recover with a new product called
Motorazer
• New waganor, I 10 ,

57. Cycle time
• Is the time taken for any operational Process.
• Time taken to pass through a check out
counter in retail store, metro station, airport.
• Airline turn around.

58. Experience curve
• The concept says that the cost per unit decreases
with the cumulative experience
gain by the firm.
Concept is based on----that
Market leader must have produced large number of
units over the period of time and as such required
vast experience.

59. And this experience comes handy in reducing the cost
per unit.
Such firm has lowest cost and highest profit
in industry.
Ex: British airways observe that with every doubling of
cumulative output cost per unit decrease by 20%.

60. 10
Cost 8
Per
unit
6.4
5.12
1 2 4 8
Cumulative production

61. Formula
• Cn = C1 n^ (-b)
• Cn = Cost of nth unit
• C1= Cost of 1st unit
• n = cumulative production
• b = a parameter that depends upon the
percentage of the experience curve.
• (C2/c1) = percentage of experience curve

62. Given
• 80 % experience curve
• C1 = Rs 10
• C2 = rs 8
• Then b = ?

63. Solution
• 8 = 10 (2)^ -b
• b = .322

64. Question
• If we r producing a million items then what
will be the cost of nth item.
• Given c1= Rs 10
• b = .322

65. Solution
• Cn = 10(1000000)^ (-.322)
• =.1169

66. Assignment
• A comp. is producing industrial boils for a particular
model. cost of producing the first boiler is rs 25 lakh.
The cost of producing the 500th boiler is rs 20 lakh .
Determine the parameter b of the experience curve .
• Determine how many boiler should produce so that
cost of boiler come down to rs 15 lakh.

67. Theory of learning
• It is recognized that repetition of the same operation
results in less time or effort expended on that
operation.
• Consistency in improvement has been found to exist in
the form of a constant percentage reduction in time
required over successively doubled quantities of units
produced
• The constant percentage by which the costs of doubled
quantities decrease is called the rate of learning.

68. Learning Curve Ratio
Learning Curve Ratio = Avg. Labour Cost Of First 2N Units
Avg. Labour Cost Of First N Units
Management Accounting
By Paresh Shah
Oxford University Press

69. • If the av. Labor Cost for the first 500 units of
the product is Rs 25 and the average labor
cost of first 1000 units is Rs. 20 the learning
ratio will be ?
•

70. • (20/25) * 100 = 80 %
• This means that every time output doubles,
the average cost declines to 80% of previous
amount.

71. Costs Reduction Using Learning
Curve
• Learning curve is used in managing Cost Reduction
Program that is the setting of realistic goals and the
monitoring of progress towards these goals.
• The cause of reduction in costs is learning on the part of
individuals and the entire organization in the process of
repetition.
• Learning impacts only recurring costs. Non-recurring costs,
such as the cost of acquiring tooling, are not affected
by learning
Management Accounting
By Paresh Shah
Oxford University Press