Monday, October 20, 2008

Production Management

Production is the creation of goods and services. Operations Management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs. Activities creating goods and services take place in all organizations. In manufacturing firms, the production activities that create goods are usually quite obvious.

In organizations that do not create physical products, the production function may be less obvious. It may be hidden from the public and even from the customer. Examples are the transformations that take place at a bank, hospital, airline office, or college.

Often when services are performed, no tangible goods are produced. Instead, the product may take suck forms as the transfer of funds from a savings account t a checking account, the transplant of a liver, the filling of an empty seat on an airline, or the education of a student. Regardless of whether the end product is a good or service, the production activities that go on in the organization are often referred to as operations or operations management.


All good managers perform the basic functions of the management process. The management process consists of planning, organizing, staffing, leading and controlling. Operations managers apply this management process to the decisions they make in the OM function. The 10 major decision of OM are shown below. Successfully addressing each of these decisions requires planning, organizing, staffing, leading and controlling.


1. Service and product design
* What good or service should we offer?

* How should we design these products?

2. Quality management
* Who is responsible for quality?
* How do we define the quality?
3. Process and capacity
* What process and what capacity will these products require?
* What equipment and technology is necessary for these processes?
4. Location
* Where should we put the facility?
* On what criteria should we base the location decision?
5. Layout design
* 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?
7. Supply-chain management
* Should we make or buy this component?
* Who are our suppliers and who can integrate into our e-commerce program?
8. Inventory, material requirements planning, and JIT (just-in-time)
*How much inventory of each item should we have?
*When do we reorder?
9. Intermediate and short-term scheduling
* Are we better off keeping people on the payroll during slowdowns?
* Which job do we perform next?
10. Maintenance
* Who is responsible for maintenance?
* When do we maintenance?


Manufacturers produce a tangible product, and service products are often intangible. But many products are a combination of a good and a service, which complicates the definition of a service. Services are those economic activities that typically produce an intangible product such as education, entertainment, lodging, government, financial and health services.


· Services are usually intangible (for example, your purchase of a ride in an empty airline seat two cities) as opposed to a tangible good.

· Services are often produced and consumed simultaneously; there is no stored inventory. For instance, the beauty salon produces a haircut that is “consumed” simultaneously, or the doctor produces and operation that is “consumed” as it is produced. We have not yet figured out how to inventory haircuts or appendectomies.

· Services are often unique. Your mix of financial coverage, such as investments and insurance policies, may be the same as anyone else’s, just as the medical procedure or a haircut produced for you is not exactly like anyone else’s.

· Services have high customer interaction. Services are often difficult to standardize, automate, and make as efficient as we would like because customer interaction demands uniqueness. In fact, in many cases this uniqueness is what the customer is paying for, therefore, the operations manager must ensure that the product is designed so that it can be delivered in the required unique manner.

· Services have inconsistent product definition. Product definition may be rigorous, as in the case of an auto insurance policy, but inconsistent because policyholders change cars and mature.

· Services are often knowledge-based, as in the case of educational, medical, and legal services, and therefore hard to automate.

· Services are frequently dispersed. Dispersion occurs because services are frequently brought to the client/customer via a local office, a retail outlet, or even a house call.

When a tangible product is not included in the service, we may call it a pure service. Although there are not very many pure services, on example is counseling.

Service sector is that segment of the economy that includes trade, financial, lodging, education, legal, medical and other professional occupations.


One of the reasons OM is such an exciting discipline is that the operations manager is confronted with an ever-changing world. Both the approach to the results of the 10 OM decisions in the table below are subject to change. These dynamics are the result of a variety of forces, from globalization of world trade to the transfer of ideas, products, and money at electronic speeds.

· Global focus. The rapid decline in communication and transportation costs has make markets global. But at the same time, resources in the form of materials, talent, and labor have also become global. Contributing to this rapid globalization are countries throughout the world that are vying for economic growth and industrialization. Operations managers are responding with innovations that generate and move ideas, parts and finished goods rapidly wherever, and whenever needed.

· Just-in-time performance. Vast financial resources are committed to inventory, making it costly. Inventory also impedes response to rapid changes in the marketplace. Operations managers are viciously cutting inventories at every level, from raw materials to finished goods.

· Supply-chain partnering. Shorter product life cycles, as well as rapid changes in material and process technology, require more participation by suppliers. Suppliers usually supply over half of the value of products. Consequently, operations managers are building long-term partnerships with critical players in the supply chain.

· Rapid product developments. Rapid international communication of news, entertainment, and lifestyles in dramatically chopping away at the life span of products. Operations managers are responding with technology and alliances (partners) that are faster and management that is more effective.

· Mass customization. Once we begin to consider the world as the marketplace, then the individual differences become quite obvious. Cultural differences compounded by individual differences, in a world where consumers are increasingly aware of options, places substantial pressure on firms to respond. Operations managers are responding with production processes that are flexible enough to cater to individual whims of consumers. The goal is to produce individual products, whenever and wherever needed.

· Empowered employee. The knowledge explosion and more technical workplace have combined to require more competence at the workplace. Operations managers are responding by moving more decision making to the individual worker.

· Environmentally sensitive production. The operation manager’s continuing battle to improve productivity increasingly concerned with designing products and process that are environmentally friendly. That means designing products that are biodegradable, or automobile components that can be reused or recycled, or more efficient packaging.

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