CHAPTER 6PRODUCTION OF GOODS AND SERVICESMGT153

DEFINITION OF PRODUCTIONProduction refers to all activities involved in converting natural resources into finished goods(Jackson & Mussleman, 1987)

Production is defined as the physical process of transforming resources into goods and services (Ferrel & Hirt, 1993)

Production is the process of creating goods and services by converting raw materials into finished form-Goods are anything that a company produces-Services are intangible and are performed by organizations

OPERATION MANAGEMENTOperation management is the process of coordinating the production of goods and services

Operation management is a systematic direction and control of the processes that transform resources into finished goods and services into outputs or finished products or services.

(Griffin, 1996)

THREE component in operation management

a)Inputb)Transformation processc)Output

INPUTINPUTTRANSFORMATIONPROCESS

PRODUCTION PROCESSA production process is the series of tasks in which resources are used to produce a product or service

The organizations type of products produces have bearing on the types of production processes used. There are two types:

a)Standard productsb)Custom products

CLASSIFICATION OF PRODUCTION PROCESSThere are two major classification in the production process:

a)Analytic process and Synthetic process- based on the nature of the process

b)Continuous process and Intermittent process- based on the length of the production runs

ANALYTIC & SYNTHETIC PROCESSAnalytic Process

-It is a manufacturing process that breaks down substances and reduces raw material to its component parts for the purpose of obtaining one or more products.

Synthetic Process

-It is a process of converting a number of raw materials or basic parts components or chemicals into finished products. It involves two process:a) Fabricationb) Modification

CONTINUOUS & INTERMITTENT PROCESSContinuous Process

-production sequence in which the flow of material is steady and constant-it is characterized by long production run

Intermittent Process

-production sequence in which the flow of materials is non-continuous-also known as batch process where there is a short production run on various products

RESOURCES USED FOR THE PRODUCTION PROCESSHuman resourcesMaterialsOther resourcesCombining resources for production

-Work stations are areas to which one or more workers re assigned together to perform a specific task-Assembly line consist of a sequence of work stations

SELECTING A SITEFactors affecting the site decision:Cost of workplace spaceCost of laborTax incentivesSource of demandAccess to transportationSupply of labor

SELECTING THE DESIGN AND LAYOUTDesign refers to the size and structure of the facility

Layout refers to the arrangement of machinery and equipment within the facility

Factors affecting design and layoutSite characteristicsProduction process

-product layout-fixed-position layout-flexible manufacturingProduct lineDesired production capacity

Reducing the layout spacea)Using space more efficientlyb)Downsizingc)Flexible layout- hotelling/just-in-time office

PRODUCTION CONTROLThere are five steps in production control:Purchasing materialsInventory controlRoutingSchedulingQuality control

PURCHASING MATERIALSRequires production managers to perform thefollowing steps:a)Selecting a supplier of materials requires managers to evaluate such factors as the price, quality, speed, reliability, servicing, and credit availability offered by potential suppliers to pick the best sources for its materials

b)Many firms now rely on e-procurement, or the use of the Internet to purchase materials. Thus, the ability of a supplier to react to an Internet-based order system may be a consideration when buyers select suppliers

c)Managers of large firms will also attempt to negotiate volume discounts when they order large quantities of materials

d)Production managers must also determine the degree they want to make use of outsourcing, which is the act of purchasing component parts from suppliers rather than producing the components internally.

A related issue is whether to make use of deintegration, which is the strategy of delegating some parts of the production process itself to other firms. These strategies can reduce a firm's expenses if the suppliers and outside producers can perform the tasks at lower cost

INVENTORY CONTROLProcess of managing inventory at a level that minimizes costs

Requires the firm to control the costs of materials inventories, work-in-process inventories, and finished goods inventories

Firms must control two different types of costs when dealing with materials inventories

-Firm must be concerned with carrying costs, which involve the cost of storing, insuring, and financing inventories-Firm must control ordering costs, which deal with the expense of placing orders for additional inventory as needed-A tradeoff exists between carrying cost and ordering cost-Just-in-time inventory technique minimizes the amount of materials inventory-Materials requirements planning (MRP) is a computerized technique that helps managers determine when and how much to order

The work-in-process inventory consist of inventories of partially completed products-to control cost while ensuring that shortages do not arise

Inventories of finished goods will fluctuate as the result of mismatches between the supply and the demand for the firms products

ROUTINGRepresents the sequence of tasks necessary to complete the production of a product

Determines the path raw materials and component parts follow as they proceed from work station to work station and are converted into the final product

SCHEDULINGScheduling involves setting time periods for the completion of tasks

A production schedule is a plan for the timing and volume of production activities

-helps workers understand what they are expected to accomplish each time period-allows manager to forecast how much will be produced each time period

Technology is having an impact on production scheduling

Scheduling special projects that are complex and that must be completed on time requires special scheduling techniques:

(i)Gantt chart shows the expected timing of each activity that must be performed to complete a project

(ii)Program evaluation and review technique (PERT) enables managers to schedule tasks so as to minimize project completion time- A key element of PERT is the identification of the critical path which is the sequence of interrelated tasks that takes the longest to complete

QUALITY CONTROLProcess of determining whether the quality of a product meets a desired standard of quality level and identifying any improvements that must be made in the production process

The purpose of the quality control process is to identify and correct deficiencies

Firms may assess quality through various techniques:

a)Technologyb)Employeesc)Samplingd)Complaint monitoring

PRODUCTION EFFICIENCYThe ability to produce products at low cost (production efficiency) is a goal towards which firms striveMany firms use benchmarking as a method of evaluating performanceSome firms set production efficiency targets that the firm cannot achieve under present conditions. It is called stretch targets

Production efficiency can be improved through the following methods:

a)New technology adoptionb)Economies of scalec)Restructuring/reengineeringd)Downsizing- it is possible to downsize too much resulting in corporate anorexia

QUESTIONSExplain the factors that affect site decision.Explain the factors that affect design and layout.