Production and Operations Management: A Comprehensive Guide

Posted on Jun 20, 2024 in Economy

Unit 1: Introduction to Production and Operations Management

  1. General Definitions:

    • Production Management: The process of converting resources into finished goods/services.
    • Operations Management: The extension of production management to services.

  2. Key Functions:

    • Marketing: Generates demand.
    • Production/Operations: Creates and delivers the product/service.
    • Finance/Accounting: Tracks performance, pays bills, and collects money.

  3. Historical Evolution:

    • Focus shifted from production efficiency (1930s-1950s) to incorporating human behavior and advanced analytical approaches (1970s onwards).
    • The shift from ‘production’ to ‘operations’ emphasized the importance of service industries.

  4. Production System:

    • Continuous production involves automated material handling and follows a predetermined sequence of operations.

Unit 2: Production and Operations Strategies

  1. Strategies:

    • Focus on how to improve the efficiency and effectiveness of production and operations.

  2. Operations Strategies:

    • Consider various methods and processes to optimize production and operational outcomes.

Unit 3: Inventory Management

5. Inventory Management (1)

  • ABC Analysis: Divides inventory into three categories:

    • “A items” with very tight control and accurate records.
    • “B items” with less tightly controlled and good records.
    • “C items” with the simplest controls possible and minimal records.

5. Inventory Management (2)

  • Record Accuracy: Essential for inventory management, production scheduling, and sales.

    • Periodic Systems: Require regular checks of inventory.
    • Perpetual Systems: Continuously record inventory changes in real-time, usually with computerized systems.

  • Holding, Ordering, and Setup Costs:

    • Holding costs include obsolescence, storage costs (insurance, staffing, interest payments).

6. Inventory Models for Independent Demand

  • Basic Economic Order Quantity (EOQ) Model:

    • Commonly used inventory-control technique based on several assumptions:
      1. Demand for an item is known, constant, and independent.
      2. Lead time is known and consistent.
      3. Receipt of inventory is instantaneous and complete.
      4. Quantity discounts are not possible.
      5. The only variable costs are setup or ordering costs and holding costs.
      6. Stockouts can be completely avoided with timely orders.

  • Determination of EOQ by Tabulation (Trial & Error) Method:

    • Steps:
      1. Select possible lot sizes.
      2. Determine average inventory carrying cost.
      3. Determine total ordering cost.
      4. Determine total cost for each lot size.
      5. Select the ordering quantity minimizing total cost.

  • Reorder Points:

    • Simple models assume an order is placed when inventory reaches zero.
    • Reorder point (ROP) is calculated as: Demand per day x Lead time in days
    • With safety stock its ROP + Safety stock

Unit 4: Logistics and Operations: Plant Location and Plant Layout

1. Plant Location

1.1. Location Options:

  • Expanding an existing facility
  • Adding another facility
  • Closing and moving to another location

1.2. Factors Affecting Location Decisions:

  • Labor Productivity
  • Exchange Rates and Currency Risk
  • Costs
  • Political Risk, Values, and Culture
  • Proximity to Markets
  • Proximity to Suppliers
  • Proximity to Competitors (Clustering)

1.3. Specific Dominant Factors:

For Manufacturing Organizations:
  1. Favorable labor climate
    • Wage rates, training, work attitudes, productivity, union strength
  2. Proximity to markets
    • Important for bulky or heavy goods
  3. Quality of life
    • Schools, recreation, culture
  4. Proximity to suppliers and resources
    • Ease of coordination and communication
  5. Utilities, taxes, and real estate costs
    • Utility costs, taxes, incentives, relocation, land costs
For Service Organizations:
  1. Proximity to Customers
    • Convenience for customers
  2. Transportation Costs and Proximity to Markets
    • Important for warehousing and distribution
  3. Location of Competitors
    • Consider competitors’ locations and their reactions

2. Methods of Evaluating Location Alternatives

2.1. Factor-Rating Method:

  • Weighted scoring based on various factors

2.2. Locational Cost-Volume Analysis:

  • Economic comparison by identifying fixed and variable costs

2.3. Center-of-Gravity Method:

  • Finding the best location for a single distribution point

3. Plant Layout

3.1. Layout Types:

Fixed-Position Layout:
  • Product stays stationary; workers come to the site
    • Advantages: Reduces material movement, high flexibility, quality enrichment
    • Disadvantages: Movement of men/material/machine, equipment duplicates, skilled labor, space
Process Layout:
  • Similar products grouped together (e.g., departmental stores, auto shops)
    • Advantages: Smaller equipment investment, expertise, task diversity, flexibility
    • Disadvantages: Inefficiency, lower productivity, time-consuming, backtracking
Product Layout:
  • Equipment arranged according to product flow
    • Advantages: Mass production, fast, low manufacturing cost/unit, low material handling, fewer employees
    • Disadvantages: Huge capital, stoppages, inflexible, hard to maintain timing, absenteeism
Cell Layout:
  • Workstations capable of all steps needed to make a product
    • Advantages: Identifies problems easily, higher machine utilization, smoother flow, team spirit
    • Disadvantages: Greater labor skills, balancing cells, unbalanced flow may result in WIP

3.2. Designing Product Layouts

Cycle time = sum of all processing times.

Takt time = available producing time / customer demand

Overall Equipment Effectiveness (OEE) = (Availability x Performance x Quality)

Availability = Operating Time / Planned Production Time

Performance = Ideal Cycle Time × Total Units Produced / operating time

Quality = (Total units produced – defective units) / total units produced

3.3. Design of Product Layout:

  • Dedicated equipment for a product line with a straight-line flow of materials

3.4. Design of Process Layout:

  • Best relative locations of functional work centers
    • Steps:
      1. List functional work centers
      2. Draw and describe the facility
      3. Estimate material and personnel flow
      4. Use analytical methods for layout design
      5. Evaluate and modify layout

3.5. Design of Service Layout:

  • Based on customer contact and service type (e.g., product layout for car service, process layout for hospitals)

for hospitals) ges: Greater labor skills, balancing cells, unbalanced flow may result in WIP

Cycle time= sum of all processing times.

Takt time= avaliable producing time / customer demand

Overall Equipment Effectiveness (OEE) (Avaliability x Performance x Quality)

Availability=Operating Time / Planned Production Time

Performance= Ideal Cycle Time×Total Units Produced / operating time

​Quality= Total units produces – defective units / total units produced

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