Production Management

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Production & Operation Management

Dr. Che Kingsley


What is production Management

Production management (POM) is the management of an


organization’s production systems, which converts inputs into the
desired product and services. As they define; “It is the process of
effective planning and regulating the operations of that section of an
enterprise which is responsible for the actual transformation of
materials into finished products.”
Functions of production management

• Production management attempts to utilize 6M’s: Men, Machines,


Money, Methods, Materials, and Market in order to better serve
consumer needs. Its fundamental goal is to produce products and
services in the right quantity, quality, on a schedule, and for optimum
money. Production management makes it simple to adopt various
technologies and innovative changes in the workplace. Production
management is in charge of supervising and controlling all employees
involved in the company’s production processes in order to ensure
that the target output is achieved.
• Let’s discuss the functions of production management.
1. Selection of product and design
Production management helps the organisation select the right product for production and also choose
a relevant design for the product. This becomes imperative for the survival of organisations to possess a
good understanding of their consumers in order to create products that fully satisfy needs. Products
need to go through a detailed evaluation in order to meet customer needs while also remaining cost-
efficient.

2. Production planning and control


Choosing the correct production processes for a particular product also becomes important. Decisions
must be taken in order to choose the correct type of machines and technology, the capital investment
required, and so on. It entails planning prior to production. Decisions like the quantity of production, the
flow of processes, and so on are all planned out. Routing is the term used for charting out the sequence
of operations for a smooth workflow.

3. Machine maintenance and replacement


Production management takes care of the maintenance and replacement of machines and equipment to
ensure the efficient and smooth working of production processes. This is taken care of by the production
manager and the team to prevent speed breaks and halts in production.
Importance of production management
1. Efficent use of capital and resources
Production management minimizes the cost of production and enhances the use of resources to the fullest.
A concise blueprint enables proper use of resources and time, minimising disparity between production
process and output. Evaluation of production processes and maintenance downtime will ensure processes
can be managed efficiently optimising workforce efficiency. A well-thought-out production function will
result in high-quality products, a faster rate of production, and a lower cost per unit.

2. Competitive edge
Production management can be a great tool for organisations facing competition in the market. A
smoother flow of processes increases efficiency whilst also allowing the company to provide quality
products and services. Production management techniques play a role in the effective innovation of new
products and facilitate research in developing new and quality products. It can aid organisations in
emerging as market leaders since less time spent for production processes means more resources to spare
for other domains that may need more attention.

3. Minimizes risk of product failures


Preparing a lucid roadmap and collating information and assumptions helps assess the market and reduce
chances of failure. Knowing the requirements and needs of the market will help reduce the chance that a
product will flop. Ultimately, product management, like everything else, cannot guarantee success, but it
does reduce it.
Current Challenges for Operations Management

1. Globalization - Globalization is defined as the process by which businesses interact with people,
companies, and governments on an international scale. This is being driven by the reduction of trade
barriers, advancements in information/transportation technology, and more. The benefit of
globalization is that there is more interactions between different populations around the globe and
allows companies to reach a wider market. However, operations managers have found themselves
facing competition not only from their country of origin, but from countries all around the globe. To
maintain their competitive advantage, operations managers must keep up with the trends and
software technology available to help increase their production.

2. Sustainability -Sustainability is a frequent issue discussed among various news outlets - with
manufacturing being one of the largest factors contributing to conversation. There is much debate
over whether or not we will have the appropriate amount of resources needed in order to have a
sustainable future. When discussing the concept of sustainability, the three pillars of sustainable
usually come into play, which include social, environmental, and economic. Operations managers
need to be aware of the outcomes of each of these pillars, including how their production facility or
work will affect these factors. Effective operations management will implement practices that will
address these concerns pertaining to sustainability
3. Effective Communication - Consistency and effectiveness of communication is extremely difficult within
organizations. The challenge for operations managers is to be able to communicate effectively with all internal
and external stakeholders. This will ultimately allow for more thorough transparency within your production
facility, which will aid your factory floor immensely. Having everyone on the same page can boost efficiency
within your manufacturing operation with ease and operations management needs to look into softwares that
can make this much simpler for them. Effective communication is a must for manufacturing facilities that are
seeking to boost operational efficiency in areas such as demand planning, demand forecasting, using the
plan/forecast, and ultimately implementing this into a proper production plan.

4. Ethical Conduct - Ethics is defined as a subset of business ethics that is meant to ensure that production
functions or activities are not damaging to people or society. Understanding the ethics of business will ensure
that you will not fall out of line in terms of keeping the people and environment of your business safe.
Unethical behavior has contributed to the demise of various companies around the globe - which is why
understanding them is so important. Being ethical across all functions of your business will ensure that your
operation runs smoothly and that you will not turn into one of the companies that have failed due to this.
5. Streamlining processes
There is always something to improve in every aspect of the business. Even if the company has been doing the
same thing for years – same client, customer, raw materials, and processing techniques – there will always be
areas that needs to be updated.

As the manager, you must regularly monitor changes in market demands, consumer trends, and government
policies. Adaptability in these areas is vital to make sure the company remains in business and stays
competitive in the arena.

Scheduling a regular review of existing practices will help you catch the areas that are bogging down the
organisation. Being proactive in this situation will help stop issues in operations management from getting out
of hand before they catch your attention.

Small errors can pile up and be costly to the organisation, especially when done several times. Oftentimes, the
fault lies in misunderstood processes, vague guidelines, and inconsistent implementation in policies. When
people follow a wrong system, expect their output to be erroneous as well.

When people start getting used to a wrong system, it will be hard to pull them back to the right path. Catching
loopholes and correcting wrong processes are the challenges in operations management that you must resolve
immediately.
6. Consumer satisfaction
Guaranteeing customer satisfaction is one of the challenges in operations management that must be
prioritized and continuously monitored for performance. Handling returns, investigating complaints, and
responding to concerns all have scores that count toward consumer approval.
According to research, dependability is one of the key factors that drive the success of operations.
Providing consistent, fast, and reliable customer service help establish brand loyalty.
Customers understand that there will be times they will encounter a problem with the product or service
they bought. However, they expect excellent customer service to make up for the hassle. It is your
responsibility to make sure adequate support is given to customer concerns.

7. Internal conflicts
Friction between employees or departments is one of the unavoidable issues in operations management.
It is your duty to de-escalate conflicts and guide everyone to come to an amicable conclusion that all
parties can agree with.
While there are rarely any cases that elevate to a point that needs intervention from the management, the
probability of it happening is still there, especially when everyone is in a bad mood and is rushing to meet
deadlines and quotas.
8. Productivity concerns

One of the challenges in operations management you will continuously face is to find ways to increase
productivity. It is part of your responsibility to push people to work better, faster, and with more
efficiency, but the burden lies on the method to do this.
Those who are already doing their best to perform the assigned tasks might be at their wit’s end.
Carelessly pushing them to do more without checking the workload, capacity, and situation might
work against pulling out their maximum potential.
The best way to resolve productivity issues in operations management is to have the proper metrics in
place. Set KPIs to gauge the performance of each employee and determine which areas can be worked
on to improve productivity and efficiency.
For those who fail to pass the test, offer support programs that can be headed by more experienced
and senior members of the team. By providing real-time guidance, fewer errors will be committed
once the employee starts to work without supervision.
9. Pandemic Outbreak
The ongoing pandemic has brought new challenges in operations management as it continues to upend
existing processes and short- and long-term targets. In situations like this, there is no leeway for
indecision as the organisation is given two simple choices: to evolve or to perish.
With limited supply, constrained logistics, disrupted workforce availability, uncertainty in regulations, and
seesawing market demands, you must find ways to stay afloat and flourish amidst the crisis. You must
look for solutions to retain market relevance and customer demand while adapting to new regulations
and expectations.

10. Integration of new technology


The adoption of new technology has often been the solution to the most common issues in operations
management, especially in the execution of repetitive tasks. Your role is to fully understand the key
features of the technology that is to be implemented. Conduct in-depth research on its potential
advantages, future value, and the benefits it can provide to the organisation.
Being an early adopter of new technologies has its benefits. Technology can give you a competitive
advantage, save on costs, or streamline existing processes. Being a forward-thinker can make your brand
stand out and attract customers who embrace progressive and sustainable thinking.
Before considering automation, make sure all the processes have been well-established to harness
optimal efficiency. Running new technology on a system with loopholes will just result in more issues in
the future.
Forecasting
• #1 Straight-line Method
• The straight-line method is one of the simplest and easy-to-follow forecasting
methods. A financial analyst uses historical figures and trends to predict future
revenue growth.
• In the example provided below, we will look at how straight-line forecasting is
done by a retail business that assumes a constant sales growth rate of 4% for
the next five years.
• The first step in straight-line forecasting is to determine the sales growth rate
that will be used to calculate future revenues. For 2016, the growth rate was
4.0% based on historical performance. We can use the formula =(C7-B7)/B7 to
get this number. Assuming the growth will remain constant into the future, we
will use the same rate for 2017 – 2021.
2. To forecast future revenues, take the previous year’s figure and multiply it by the growth rate. The
formula used to calculate 2017 revenue is =C7*(1+D5).
3. Select cell D7 to H7, then use the shortcut Ctrl + R to copy the formula all the way to the right.
#2 Moving Average
Moving averages are a smoothing technique that looks at the underlying pattern of a set of data to establish
an estimate of future values. The most common types are the 3-month and 5-month moving averages.
To perform a moving average forecast, the revenue data should be placed in the vertical column. Create two
columns, 3-month moving averages and 5-month moving averages.
2. The 3-month moving average is calculated by taking the average of the current and past two months
revenues. The first forecast should begin in March, which is cell C6. The formula used is =AVERAGE(B4:B6),
which calculates the average revenue from January to March. Use Ctrl + D to copy the formula down
through December.
3. Similarly, the 5-month moving average forecasts revenue starting the fifth period, which is May. In cell D8, we use the
formula =AVERAGE(B4:B8) to calculate the average revenue for January to May. Copy the formula down using shortcut
Ctrl + D.
4. It is always a good idea to create a line chart to show the difference between actual and MA forecasted values in
revenue forecasting methods. Notice that the 3-month MA varies to a greater degree, with a significant increase or
decrease in historic revenues compared to the 5-month MA. When deciding the time period for a moving average
technique, an analyst should consider whether the forecasts should be more reflective of reality or if they should
smooth out recent fluctuations.
Production Planning & Scheduling

Production planning and scheduling are similar concepts. However, there are notable differences between
them.
The resources needed for production planning and scheduling are:
• Material
• People
• Machinery, equipment.
• Energy
• Management
The first four elements on the list are material assets.
The management, however, is the brain that defines how to convert the raw materials into final products.
It is the “software” of the company, or in other words, the way of performing business activities. For
example, two companies producing similar articles can have completely different ways and processes for
doing so.
It is the management’s task to combine the first four elements in the most efficient way to make finished
goods.
Production Planning
Production planning involves the whole manufacturing process on a high level in
order to plan the production of finished goods. With planning, it is possible to map
out the whole process, from gathering the resources to producing the final
products.

Production planning balances the resources and the demand.


• Quantities to produce from a product family
• Desired inventory levels
• Resources to use per period
• Investments necessary to match capacity and demand

The time horizon for production planning is from 6 months to 3 years and involves
the top management. The planning buckets, the smallest distinguished units of
time, are weeks or months.
Components of Production Planning

The required inputs for making a proper production plan are:

• Bill of Materials: the broken-down list of components and subcomponents that


make the final product.
• The availability of items in stock: sometimes it is necessary to purchase more;
sometimes they are already on hand.
• Cost of resources, to produce items in compliance with quality needs.
• Lot sizes involving the frequency and the proper volume to have the right quantity
on hand. It prevents the organization from falling into stock-outs or excesses of
stock.
• The manufacturing lead time, which means the time that production takes to
convert the raw material into finished goods.
To give a simple example from daily life, assume you are making a cake. You will need to
know:

• The ingredients you combine to make a cake (the bill of materials or BOM)
• The ingredients you already have at home (stock on hand)
• The ingredients you need to buy (purchasing)
• How much the preparation will cost (the cost of resources)
• How much of the ingredients and when you need them (the frequency and lot sizes)
• How long it will take to produce a cake that would be enough for all the guests (the lead
time)

The next step involves the internal combination of resources to produce the final items. In
the case of the cake example, it would mean cooking it.
Production Scheduling

Production scheduling is more detail-oriented in comparison to production planning. It is also the next step going from
general to detail. The time horizon is shorter than in production planning and has a higher level of detail:

• It defines the production quantities of single finished products or SKUs, instead of product families.
• It defines who or which machine will produce every single SKU.
• The time horizon is shorter and more detailed, between one month and one year, depending on the industry and
management type.
• The planning buckets could be as short as hours or minutes.
• It defines the inventory level of single finished products or SKUs, instead of product families.
• It requires a higher review frequency of middle management and involves the shop floor more.
After production planning, the next step is to create a detailed production schedule.

The goal is to schedule every single operation at a certain time in the calendar, assign the resources and workers, and plan
all the detailed steps.

It is not a forecast, but it needs to see the future and to get the appropriate resources where they need to be when they
need to be. It is a bridge between production planning and actual production and it helps to allocate the necessary
resources in a timely manner.
Components of Production Scheduling
Production scheduling involves:

• Identifying and assigning the appropriate number of workers


• Identifying and allocating the appropriate raw materials
• Identifying and assigning appropriate machinery and equipment
• Synchronizing all the resources to define priorities and fulfill customer needs.

As you can see, in both stages it is important to understand that resources are finite. The
purpose is to combine the limited resources to make the final products in the most
effective way. Production planning establishes when something could be made in general
while scheduling looks at how and when something will be made in much more detail.
Production Planning and Scheduling example
Let’s say your organization sells a variety of chips to the market. The operational team will start preparing the
production plan and, at this stage, they will define:

1. The volume of chips they expect to sell within one year.


2. The capacity of ovens, fryers, bag makers, etc. necessary to sustain the sales volume every month.
3. The infrastructure (layout, space, equipment, pallets, forklifts, tools) necessary to operate without
bottlenecks.
4. The number of workers and skills necessary to operate the machinery.
5. The number of shifts available and needed during the year.
6. The desired inventory levels of flour, oil, salt, additives, water, potatoes, corn, packaging, and other raw
material at the beginning and end of every month.
7. The expected amount of tons and units necessary in the finished good warehouse at the beginning and
end of every month to respond to demand.
Following the chips company example, the company will proceed to the next stage:
production scheduling. At this stage, the following questions will be answered:
• Which machine will be running each shift, day, and week?
• Who is going to operate each machine each shift, day, and week?
• What is the necessary amount of ingredients, when they must arrive, and when
they must be ordered?
Material Planning
• What is Material Planning?
Material planning is the scientific method of planning and determining
the requirements of consumables, raw materials, spare parts and other
miscellaneous materials essential for the production plan
implementation. This plan forms a sub- component of the overall
organizational plan, hence it is always derived from the overall
organizational plan. Material planning essentially carries out the
process of forecasting and planning of procurement of materials.
Material Planning Factors
There are two major factors influencing the material planning, they are:

1. Macro factors: These include factors such as business cycles, import and export p
[policies, price trends, credit policy and other global factors.

2. Micro factors: These factors include the internal organization factors such as
production plan, investments, corporate policies, inventory holding. Other essential
factors such as the time of procurement, working capital, acceptable inventory levels,
delegation of power seasonality also influence the material planning.
The key factors influencing material planning can also be shown as inputs from:

1. Based on the forecasting & project management type.

2. Total manufacturing order & service order.

3. Capacity which needs to be produced as well as distribution metrics.

4. Finally, depending upon the purchase order & customer order.

Material Planning can be carried out by:

1. Requirement based on past consumption

2. Material Resource Planning (MRP): MRP starts with the production plan of the concerned
manufacturing. Once the annual production plan is determined, the material requirement is calculated
by detailed analysis of materials not in use, the ones not in use and requiring procurement, lead time of
procurement etc.

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