2. 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
3. Mass Production
Mass Production: Makes Outputs available in
Large Quantities at Lower Unit Costs than
Individually- Crafted Items
Characteristics of Mass Production
Labor Specialization
Mechanization
Standardization
4. 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
5. HENRY FORD
Introduced Moving Assembly Line: Dramatically
Reduced Manufacturing Costs While Delivering
Consistent, Low-Priced Product
Factory based on Chicago Meat Cutting Plants
6. FORD MODEL “T”
First Produced:
October 1908
By 1927,
15,000,000
Produced
Any Color so
long as it’s
Black…
7. 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
9. MASS PRODUCTION
MODEL “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
10. MASS PRODUCTION
“PUSH” Strategy – Driven by Inputs and Objectives
Control 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
11. 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
12. FORD WORKING CONDITIONS
Monotony of Assembly Line Work: 300% Turnover
$2 per Day and a 9-Hour Shift
Ford’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
13. MASS PRODUCTION
Flaws 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
15. 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
16. TOYOTA’S ORIGINS
During WWII, Toyoda became Toyota and
manufactured Motorcycles and Delivery Trucks
After WWII, Japanese Industry needed to re-build
17. TOYOTA’S ORIGINS
1956 – 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
18. TOYOTA’S ORIGINS
Before returning to Japan, Ohno went to an
American Grocery Store
Discovered Production and
Operation Methods that
Were Linked to Customer
Actions: Inventories
Replenished by Sales
(“PULL” Strategy)
Delivered Product Variety
and Scale
Minimized Waste
19. TOYOTA’S ORIGINS
Toyota Exports its
First Car: The
Forgettable
“Crown”
Under-powered
and Unstable at
Freeway speeds,
Production is
stopped in 1959
20. TOYOTA PRODUCTION SYSTEM
In 1961, Toyota adopts “Systems Perspective”
KAIZEN – Continuous Improvement Attitude that
Minimizes Waste and Emphasizes High Quality
Processes are analyzed to eliminate flaws rather
than fixing defective products
WASTE – Comprehensive View that includes
Time, Resources and Materials
Over-Production
Time Spent Waiting
Unnecessary Movements of Items
21. 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.
22. 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
23. TOYOTA PRODUCTION SYSTEM
ANDON– Work Stops when
Problem Encountered
Counter-measures taken to
Cure Cause, Not re-work
Defective Result. Authority
delegated to Production
Team
Production and Problem-
solving Functions
combined. No Special
Trouble-shooting Teams
24. 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
25. 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
26. World’s Second Largest
Manufacturer of Automobiles
About 240,000 Employees
Produces a Vehicle about
every Six Seconds
Consistently Profitable GM:
$1.1 Billion Quarter Loss
27. 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
28. Organizing to Produce Goods and
Services
• Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the product
3. 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
29. Organizational Charts
Commercial Bank
Operations
Teller Scheduling
Check Clearing
Collection
Transaction processing
Facilities design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Human Resources
Recruitment
Job evaluation
Performance evaluation
Wage and Salary Adm.
Personnel records
30. Organizational Charts
Manufacturing
Operations
Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply-chain management
Manufacturing
Tooling; fabrication; assembly
Design
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space,
and personnel
Process analysis
Development and installation of
production tools and equipment
Finance/ accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Marketing
Sales
promotion
Advertising
Sales
Market research
Human Resources
Recruitment
Job evaluation
Performance evaluation
Wage and Salary Adm.
Personnel records
31. 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
33. Ten Critical Decisions
1. Design of goods and services
2. Managing quality
3. Process and capacity
design
4. Location strategy
5. Layout strategy
6. Human resources and
job design
7. Supply-chain
management
8. Inventory, MRP, JIT
9. Scheduling
10. Maintenance
34. 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?
35. The Critical Decisions
3. 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?
36. The Critical Decisions
5. 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?
37. The Critical Decisions
7. 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?
38. The Critical Decisions
9. 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?
40. 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
41. 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
42. 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.
43. 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
44. Productivity Calculations
• Labor Productivity
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
One resource input single-factor productivity
45. Multi-Factor Productivity
Output
Labor + 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
46. 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
47. 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
48. 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 professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
49. Ethics and
Social Responsibility
Challenges facing
operations managers:
Developing and producing safe, quality
products
Maintaining a clean environment
Providing a safe workplace
Honoring stakeholder commitments
50. 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 …