Lecture Slides Dr.

Biju K Thapalia Management Campus Purbanchal University, Nepal

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Activities related to producing goods in an organisation is called Production functions. It is mainly related to manufacturing of tangible goods Basically a conversion function Example -A Biscuit factory- producing biscuits for commercial purpose

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What does a Hotel produce? -Services To increase the scope of the field the term Operations is used. The Operations functions consist of all the activities that are directly related to producing goods or providing services. List all the activities of a College and a noodle company. Are there any similarities?

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Production System

Inputs

Conversion Subsystem

Outputs

Control Subsystem

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Marketing

Finance

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Nature of output Customer involvement Labor involvement Consumptions of output Uniformity of output Measurement of productivity

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The Industrial Revolution Post-Civil War Period Scientific Management Human Relations and Behaviorism Operations Research The Japanese influence New trends

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The industrial revolution developed in England in the 1700s. The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories. Adam Smiths The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor. Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers.
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The industrial revolution spread from England to other European countries and to the United Sates In 1790 an American, Eli Whitney, developed the concept of interchangeable parts. Forced consistent production of parts. Variation evil. In the 1800s the development of the gasoline engine and electricity further advanced the revolution. By the mid-1800s, the old cottage system of production had been replaced by the factory system. Development of rail lines provided quick, cheap transportation of goods. Also influx of labor from farm to urban centers. . . . more

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During the post-Civil War period great expansion of production capacity occurred. By post-Civil War the following developments set the stage for the great production explosion of the 20th century:
increased capital and production capacity the expanded urban workforce new Western US markets an effective national transportation system

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Frederick Taylor is known as the father of scientific management. His shop system employed these steps:
Each workers skill, strength, and learning ability were determined. Stopwatch studies were conducted to precisely set standard output per worker on each task. Material specifications, work methods, and routing sequences were used to organize the shop. Supervisors were carefully selected and trained. Incentive pay systems were initiated.

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Gilbreth couple time and motion study Henry Gantt- system of scheduling (Gantt chart)
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In the 1920s, Ford Motor Companys operation embodied the key elements of scientific management:
standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts

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In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production. Researchers and managers alike were recognizing that psychological and sociological factors affected production. From the work of behavioralists came a gradual change in the way managers thought about and treated workers.

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During World War II, enormous quantities of resources (personnel, supplies, equipment, ) had to be deployed. Military operations research (OR) teams were formed to deal with the complexity of the deployment. After the war, operations researchers found their way back to universities, industry, government, and consulting firms. OR helps operations managers make decisions when problems are complex and wrong decisions are costly. Quantitative methods use like LP, Forecasting, Inventory management and many more
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Quality focus Continuous improvement Elimination of waste Customization Total quality management JIT

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Globalization and global competition Cost reduction Computerization Rapid advancement of IT Automation Out sourcing

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Cost
Ryanair- no baggage facility, direct hall, second airport of the city Nano Car

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Quality
Toyota Quality comes first

Flexibility
Colgate Toothpaste- 10 variety in Indian market

Speed
DHL- quick delivery Sony- new products always

Differentiation
Ncell Blackberry service, wide coverage
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Make-to-Order
products and services are made to customer specifications after an order has been received

Make-to-Stock
products and services are made in anticipation of demand

Assemble-to-Order
products and services add options according to customer specifications

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Project
one-at-a-time production of a product to customer order

Batch Production
systems process many different jobs at the same time in groups (or batches)

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Mass Production
large volumes of a standard product for a mass market

Continuous Production
used for very high volume commodity products

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Source: Adapted from Robert Hayes and Steven Wheelwright, Restoring the Competitive Edge: Competing Through Manufacturing (New York: John Wiley & Sons, 1984), p. 209

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Capacity strategic decisions include:

When, how much, and in what form to alter capacity

Facility strategic decisions include:

Whether demand should be met with a few large facilities or with several smaller ones Whether facilities should focus on serving certain geographic regions, product lines, or customers Facility location can also be a strategic decision

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What are the skill levels and degree of autonomy required to operate production system? What are the training requirements and selection criteria? What are the policies on performance evaluations, compensation, and incentives? Will workers be salaried, paid an hourly rate, or paid a piece rate? Will profit sharing be allowed, and if so, on what criteria? Will workers perform individual tasks or work in teams? Will they have supervisors or work in selfmanaged work groups? How many levels of management will be required? Will extensive worker training be necessary? Should workforce be cross-trained? What efforts will be made in terms of retention?
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What is the target level of quality for our products and services? How will it be measured? How will employees be involved with quality? What will the responsibilities of the quality department be? What types of systems will be set up to ensure quality? How will quality awareness be maintained? How will quality efforts be evaluated? How will customer perceptions of quality be determined? How will decisions in other functional areas affect quality?
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Vertical Integration

Strategic Decisions

degree to which a firm produces parts that go into its products How much work should be done outside the firm? On what basis should particular items be made inhouse? When should items be outsourced? How should suppliers be selected? What type of relationship should be maintained with suppliers? What is expected from suppliers? How many suppliers should be used? How can quality and dependability of suppliers be ensured? How can suppliers be encouraged to collaborate?

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Production and productivity are different in concept. Its wrong to think that higher production leads to higher productivity Production is related to the activity of producing goods or services. It is a process (or system) of converting input into some useful, value-added output Productivity is related to the efficient utilization of input resource into produced in the form of value added goods or services
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Productivity

Output Input

Productivity is an arithmetic ratio of amount produced and the resources used during the process of production. Therefore productivity implies efficient resource utilization

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Production means a process of transformation ` of raw materials and other inputs into finished goods ` and services. Production is transforming inputs into outputs, by adding values. Production= value addition ` to new materials

Production denotes surplus generation. Productivity is defined in terms of input output relationship; productivity is to get higher output over given input. Productivity = efficiency of production

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Methods Capital Quality Technology Management

Improve Productivity by` ` ` ` `

Develop measures Analysis system to find bottleneck Improve methods- process and management Reasonable goals Incentives
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Better utilization of resources To earn good profit because of reduction in costs Competitive in market Higher wages reduced prices for customer

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A company is manufacturing 24,000 components per month by employing 100 workers in 8 hour shift. The company gets additional order from government to supply additional 6000 components. The management decides to employ additional workers. What will be production and productivity level when the number of a additional workers employed are: (i) 30 (ii) 25 (iii) 20

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Forecasting is a statement about the future Forecast or Prediction?

Features of forecasting ` Forecasting is rarely perfect ` All forecasting techniques assume that there is some degree of stability in the system ` what happened in the past will continue to happen in the future ` Forecasting for a group of items is more accurate than the forecast for individuals. ` 4. Forecasting accuracy decreases as time horizon increases.
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Timely: Forecasting horizon must cover the time necessary to implement possible changes. Reliable: It should work consistently. Accurate: Degree of accuracy should be stated. Meaningful: Should be expressed in meaningful units. Production should know how many units to be produced, and schedulers need to know what machines and skills will be required. Written: to guarantee use of the same information and to make easier comparison to actual results. Easy to use: users should be comfortable working with forecast.

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Information

Demand forecast for operations

Planning the systems

Scheduling the system

Output
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Controlling the system

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In Planning the system

Product design Process design Equipment investment Capacity planning

In Scheduling the system

Aggregate production planning Operation scheduling

In Controlling the system

Production control Inventory control Labour control
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Qualitative
x based on experience, x Judgment x Knowledge and opinion

Quantitative
x based on data x statistics

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Qualitative Methods ` Uses when situation is vague and little data available ` New products ` New technology ` Involves knowledge and judgement ` Example: forecasting newly introduced online sales

Quantitative Methods ` Used in stable situations ` Historical data available ` Existing products ` Current technology ` Involves mathematical techniques ` Example: Example: sales of color TVs

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1.

Executive Opinions
Group of upper-level managers (read expert) makes collective opinion about future Useful for long-range forecast or new product

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Sales Force Composite

estimates from sales individuals are reviewed for reasonableness (may tend to make under estimates), then aggregated

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Consumer Surveys
asking the customers may give best forecasts but it is higher in cost, difficult to apply

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Delphi method
The Delphi technique was developed at RAND Corporation in the 1950s to help capture the knowledge of diverse experts while avoiding the disadvantages of traditional group meetings.

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(a) Panel of experts queried. (b) Chosen experts to participate should be of a variety of knowledgeable people in different areas (finance, marketing, production etc). They are unknown to any one, except for the coordinator. (c) Through questionnaire the coordinator obtains estimates from all participants. (d) Coordinator summarizes results and redistributes them to participants along with appropriate new questions. (e) Summarize again and refine forecasts and develop new question (f) Continue till 2-3 times before getting almost similar answer from all

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Time Series Quantitative methods

Simple average Exponential smoothing

Causal Quantitative methods

Regression analysis Economic modeling

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Based on past data

Simple average Simple moving average Weighted moving average Exponential smoothing
x The pattern of weights is exponential x Demand of latest period is weighted most heavily x And weights on subsequent periods are decreased exponentially

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Ft

E Dt 1  (1  E ) Ft 1

where 0 e E e 1, and t is the period

What should be the value of ?

When the demands are stable over the period than .1-.3 are ok When the demands are very unstable than .7-.9 are ok When the demands are slightly unstable than .4-.6 are ok

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The sales for the ABC company are as followsMonth Feb March April May June July Aug Sales (in thousand units) 19 18 15 20 18 22 20

Forecast September sales a) A five-month moving average b) Exponential smoothing with smoothing constant equal to 0.2, assuming a March forecast of 19000
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When there is some kind of trend than first order exponential smoothing is not so good tool for forecasting If the trend is linear than we can use Trend equation Develop a straight line equation through which we forecast future value

yt ! a  bt where t ! time periods yt ! Forecast for period t a ! Value of y t at t ! 0 b ! Slope of the line
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b!

n ty  t y n t  ( t )
2 2

y  b t a!
n

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