Production and Operations Management
Production and operations management is at the heart of how an organization delivers value. It includes the work required to create goods or provide services, maintain quality, manage inventory, schedule production, coordinate suppliers, and make effective use of facilities and other resources.
Production is the creation of goods using the factors of production: land, labor, capital, entrepreneurship, and knowledge. Production management includes the activities managers perform to help firms create goods. Operations management is broader: it is the management specialization that converts or transforms resources into goods and services.
Manufacturing and Services
Operations management is not limited to factories. Service organizations also must plan capacity, schedule work, control quality, manage resources, and satisfy customers.
- Services are intangible. Customers often cannot inspect a service before purchasing it.
- Services are perishable. Unused service capacity, such as an empty airline seat or an unused appointment time, cannot simply be stored for later.
- Customer service is crucial. The customer's experience is often part of the service itself.
Wait time is therefore an important service-operations issue. Organizations may make waits seem shorter or more useful through entertainment, information, comfortable surroundings, or other improvements to the customer experience.
Remaining Competitive
The Chapter 9 presentation emphasizes several ways manufacturers and service organizations can remain competitive: focus on customers, maintain close supplier relationships, practice continuous improvement, emphasize quality, control costs through good site selection, use technology to connect organizations, and adopt improved production techniques.
These are all operations decisions. Good operations management seeks to deliver the right product or service, at the right quality and cost, when the customer needs it.
The Production Process
A production system begins with inputs, transforms them through a controlled process, and produces outputs. The transformation may involve physical materials, information, labor, equipment, knowledge, or some combination of these resources.
Process manufacturing physically or chemically changes materials. Assembly processes combine components to create a finished product.
Form utility is the value producers add to materials when creating finished goods and services. Each useful transformation can add value as the product moves through the production process.
Continuous and Intermittent Processes
Production processes may be continuous or intermittent:
- Continuous process — long production runs that turn out finished goods over time and rarely shut down.
- Intermittent process — shorter production runs in which equipment or processes may be adjusted to produce different products.
The appropriate process depends on the product, expected volume, variety, technology, and customer requirements.
Technology and Modern Manufacturing
Computer-Aided Design and Manufacturing
Computer-aided design (CAD) uses computers in product design. Computer-aided manufacturing (CAM) uses computers in manufacturing. These technologies can improve accuracy, speed changes, and connect design decisions more closely to production.
Flexible Manufacturing
Flexible manufacturing designs machines to perform multiple tasks so a company can produce a variety of products. Flexibility helps firms respond to changing customer needs without relying on equipment that can perform only one narrow task.
Lean Manufacturing
Lean manufacturing uses less of everything than traditional mass production in an effort to become more efficient. The presentation emphasizes reducing human effort, defects, engineering effort, floor space, and inventory.
Mass Customization
Mass customization tailors products to the needs of a large number of individual customers. It combines some of the efficiency of large-scale production with greater responsiveness to individual preferences. The concept can apply to services as well as manufactured goods.
Operations Management Planning
Operations managers make decisions about where and how work will be performed and how resources will arrive when needed. Major planning issues include facility location, facility layout, materials requirements, purchasing, inventory control, and quality control.
Facility Location
Facility location is the process of selecting a geographic location for a company's operations. A good location can reduce costs and improve access to employees, suppliers, transportation, and customers.
Important location considerations in the presentation include:
- Labor costs and the availability of workers.
- Availability of resources.
- Access to transportation.
- Proximity to suppliers and customers.
- Crime rates.
- Quality of life and cost of living for employees.
- The need to train or retrain the local workforce.
Information technology also gives some organizations greater flexibility in where work is performed, including the ability for some employees to work remotely.
Facility Layout
Facility layout is the physical arrangement of resources, including people, to produce goods or provide services efficiently. The best layout depends on the work being performed.
- Assembly-line layout — workers perform a limited number of tasks as the product moves through a sequence.
- Modular layout — teams of workers produce more complex units of the final product.
- Process layout — similar equipment and functions are grouped together.
- Fixed-position layout — the product remains in one location while workers and resources come to it; this can be appropriate for very large products such as aircraft or ships.
Inventory Control and Just-in-Time Systems
Inventory control seeks to ensure that an organization has enough inputs to create its products without carrying unnecessary amounts of materials or finished goods.
Just-in-time (JIT) inventory control keeps inventory at a minimum and schedules parts, supplies, and other needs to arrive just in time for production. The goal is to have the right materials at the right place and time while controlling inventory costs.
JIT can reduce storage requirements and money tied up in inventory, but it also leaves less room for disruptions. If an important delivery is late, production may be affected quickly.
Quality Control
Quality means consistently producing what the customer wants while reducing errors before and after delivery. Quality is not simply an inspection at the end of production; effective quality management seeks to prevent errors throughout the process.
Six Sigma quality is a quality-control approach associated with a target of only 3.4 defects per million opportunities. The concept emphasizes careful measurement and extremely low defect rates.
Controlling Projects with PERT
Program Evaluation and Review Technique (PERT) is a method for analyzing the tasks involved in completing a project and estimating the time required.
The presentation identifies four basic PERT steps:
- Analyze and sequence the tasks.
- Estimate the time needed to complete each task.
- Draw a PERT network showing the sequence and relationships among tasks.
- Identify the critical path.
The critical path is the sequence of tasks that takes the longest time to complete. Delays on this path can delay the entire project, so managers pay special attention to these activities.
Using Gantt Charts
A Gantt chart is a bar chart showing what projects or activities are being worked on and how much has been completed during a unit of time. It gives managers a visual picture of the schedule and progress of work.
PERT emphasizes task relationships, sequencing, estimated completion time, and the critical path. A Gantt chart emphasizes the timing and progress of activities. Both can help managers plan and control complex work.
Putting It Together
Operations management connects strategy to execution. A business may have an excellent product idea, but it still must decide how to produce or deliver it, where operations should be located, how facilities should be arranged, when materials should arrive, how quality will be maintained, and how projects will stay on schedule.
The best operations systems balance efficiency with flexibility. Lean methods and JIT can reduce waste and inventory, while flexible manufacturing and mass customization can help a company respond to customers. Quality systems, PERT, and Gantt charts help managers maintain control as work becomes more complex.
Common Mistakes to Avoid
- Assuming operations management applies only to manufacturing. Service organizations also manage operations.
- Confusing process manufacturing with assembly. One transforms materials; the other combines components.
- Confusing continuous production with intermittent production.
- Assuming lean manufacturing simply means producing less. Its focus is using fewer resources and reducing waste.
- Confusing facility location with facility layout. Location asks where the operation should be; layout asks how resources should be arranged inside it.
- Assuming JIT eliminates the need for inventory planning. JIT requires precise coordination and reliable delivery.
- Confusing a PERT chart with a Gantt chart. PERT emphasizes task dependencies and critical path; Gantt emphasizes schedule and progress over time.