CHAPTER ONE: Introduction to Production and Operations management, Historical Milestones in POM, Factors Affecting POM, Production as a System,

Production as an Organization Function, Decision Making in POM, Styles of World-Class Producers

Production and operations management (POM) means the management of the production system of an organization. A production system receives inputs and converts them into outputs. A transformation process uses resources to transform inputs into some previously desired outputs. Production is the process of taking resources such as raw materials or component parts and processing them into products. Inputs of the production system are changed into outputs, which means some value is added to them. Crude oil is processed into petroleum and its by products, thus adding value to the crude oil. The final outputs of the production sytem can be mostly used directly by consumers without making any changes to them. This is the value added concept of the production process. The different ways in which the value has been added differentiates organizations from each other. Crude oil can be processed into airplane fuel or fuel that is used for automobiles. Consumers identify the concerned organisations that fulfill their demand . Thereby, organisations differ from each other in the final products they offer by adding different kinds of value to the same raw materials. Production and its process is the pivotal function of any business organisation that has manufacturing as its business. The operations manager is concerned with the different activities of the production system. Operations management decisions, processes and issues involving the creation of tangible goods are called production management or manufacturing. Decisions involving the creation of intangible goods are called service operations management. Production management thereby involves the transformation of raw materials and component parts into finished or semi- finished goods utilising capital, labour and technology. Operations management (OM) can therefore be defined as the design, operation, and improvement of the systems that create and deliver the firms primary products and services. Historical Milestones in POM: The historical milestones that led to the development of Production and operations management are; 1The Industrial Revolution 2The Post-Civil War Period 3Scientific Management 4Human Relations and Behaviorism

5Operations Research and 6The Service Revolution The Industrial Revolution: 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. The industrial revolution spread from England to other European countries and to the United States. In 1790 an American, Eli Whitney, developed the concept of interchangeable parts. The first great industry in the U.S. was the textile industry. 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. Post-Civil War Period: 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. There was seen an increase in capital and production capacity, the urban workforce expanded, new Western U.S. markets opened up and the transportation system became more efficient. Scientific Management: Frederick Taylor is known as the father of scientific management. His shop system employed the following steps: 1Each workers skill, strength, and learning ability were determined. 2Stopwatch studies were conducted to precisely set standard output per worker on each task. 3Material specifications, work methods, and routing sequences were used to organize the shop. 4Supervisors were carefully selected and trained. 5Incentive pay systems were initiated. Human Relations and Behaviorism: 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.

Operations Research: 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 cab be expensive. The Service Revolution: The creation of services organizations accelerated sharply after World War II. Today, more than two-thirds of the workforce is employed in services. About two-thirds of GDP is from services. There is a huge trade surplus in services. Investment per office worker now exceeds the investment per factory worker. Thus there is a growing need for service operations management. Factors Affecting POM: 1Global Competition 2Quality, Customer Service, and Cost Challenges 3Computers and Advanced Production Technology 4Growth of U.S. Service Sector 5Scarcity of Production Resources 6Issues of Social Responsibility

Production as a System: Inputs of a Production System: 1External Legal, Economic, Social, Technological

2Market Competition, Customer Desires, Product Info.

3Primary Resources Materials, Personnel, Capital, Utilities

Conversion Subsystem: 1Physical (Manufacturing)

2Locational Services (Transportation) 3Exchange Services (Retailing) 4Storage Services (Warehousing) 5Other Private Services (Insurance) 6Government Services (Federal, State, Local)

Outputs of a Production System: 1Direct Products Services

2Indirect Waste Pollution Technological Advances

2Production as an Organization Function: Synergies must exist with other functional areas of the organization. Operations account for 60-80% of the direct expenses that burden a firms profit. Companies cannot compete using marketing, finance, accounting, and engineering alone. We focus on POM as we think of global competitiveness, because that is where the vast majority of a firms workers, capital assets, and expenses reside. To succeed, a firm must have a strong operations function teaming with the other organization functions. Decision Making in POM: 1Strategic Decisions: These decisions are of strategic importance and have long-term significance for the organization. Examples include deciding the design for a new products production process, where to locate a new factory and whether to launch a newproduct development plan 2Operating Decisions: These decisions are necessary if the ongoing production of goods and services is to satisfy market demands and provide profits. Examples include deciding

how much finished-goods inventory to carry, the amount of overtime to use next week, the details for purchasing raw material next month 3Control Decisions: These decisions concern the day-to-day activities of workers, quality of products and services, production and overhead costs, and machine maintenance. Examples include deciding labor cost standards for a new product, frequency of preventive maintenance and new quality control acceptance criteria Styles of World-Class Producers:
WORLD-CLASS MANUFACTURER The term "world-class manufacturer" is popularly used to denote a standard of excellence: the best of the best manufacturers at the international level. It came into prominence following the 1986 publication of World Class Manufacturing: The Lessons of Simplicity Applied by Richard J. Schonberger, which was his follow-up to Japanese Management Techniques: Nine Hidden Lessons in Simplicity.

World marketplace events during the 1970s and 1980s caused competition to grow to such an intense level that many firms were forced to re-examine their concept of manufacturing strategy, especially in terms of the tradeoffs among the four competitive priorities: cost, quality, delivery/service, and flexibility. Managers began to realize that they no longer had to make these tradeoffs but could instead compete on several competencies.

Some of those excited by the concept describe it as capturing the breadth and the essence of the fundamental changes taking place in larger industrial enterprises, with their overriding goal and underlying mindset of continual and rapid improvement. Others describe it as the culmination of the relentless pursuit of competitive excellence. Richard Schonberger states that the emphasis on world-class manufacturing may someday be chronicled as the third major event in the history of manufacturing management, following the use of standard methods and times espoused by Frederick Taylor and Frank Gilbreth, and the findings of the Hawthorne experiments at Western Electric, which held that motivation, to a significant degree, comes from recognition. For simplicity's sake, we will describe a world-class manufacturer as a company that is able to compete effectively in a global market.

Clearly, there are some demands placed on individuals and organizations that desire world-class status. Peter Stonebreaker and Keong Leong presented a hierarchy of steps, appearing as five levels, that lead to world-class operations (see Figure 1). This series of steps will be used to describe the characteristics of world-class manufacturers. Check for Figure

The Journey to World-Class Manufacturing Source: Stonebreaker, Peter W. and Leong, G. Keong, Operations Strategy: Focusing Competitive Excellence. Boston: Allyn and Bacon, 1994, pg. 578. LEVEL ONE: BUSINESS AND OPERATIONS STRATEGY All world-class manufacturers have an explicit, formal manufacturing mission. Within this mission is the operating goal to become world class. They use competitive information to establish organizational goals and objectives, which they communicate to all members of the enterprise. They regularly assess the appropriateness of these objectives to attaining and maintaining world-class status.

World-class manufacturing requires an overall willingness to establish closer connections with everyone, from suppliers to workers. It requires an unwavering commitment to self-analysis and improvement. It requires an aggressive approach to technology that can turn visionary strategies into reality. All of these must be reflected in the firm's business and operations strategy if worldclass status is to be attained. LEVEL TWO: ORGANIZATION DESIGN, HUMAN RESOURCES, TECHNOLOGY, AND PERFORMANCE MEASUREMENT The following sections discuss how organization design, human resources, technology, and performance measurement factor into an organization's effort to become a world-class manufacturer. ORGANIZATION DESIGN. World-class manufacturers integrate all elements of the manufacturing system in such a way that the needs and wants of its customers are satisfied in an effective, timely manner. This requires the commitment and the expenditure of efforts and resources by all elements within the system to ensure their proper integration. This commitment extends to outside elements as well, as the world-class manufacturer encourages and motivates its suppliers and vendors to become coequals with the other elements of the manufacturing system.

World-class manufacturers work to eliminate organizational barriers to communication and to organize the firm in such a way that the core values needed to reach world-class status take precedence. In fact, most companies that have succeeded in implementing many of the worldclass toolssuch as just-in-time production (JIT), total quality management (TQM), manufacturing resource planning (MRP II) and total productive maintenance (TPM)already had the core values well in place. Companies that are already world class are able to quickly absorb other world-class manufacturing concepts as they are developed and publicized. HUMAN RESOURCES.

World-class manufacturers recognize that employee involvement and empowerment are critical to achieving continuous improvement in all elements of the manufacturing system. The continuity of organizational development and renewal comes primarily through the involvement of the employee. World-class companies invest comparatively more in their relationships with their workers, providing significantly more training than their competitors. An Industry Week survey found that firms approaching world-class status were three to five times more likely to report "highly effective" human-resources programs than other firms. Some analysts note that combining lean manufacturing principles with employee participation can help firms become world-class manufacturers.

TECHNOLOGY. A great deal of emphasis is placed on technology, equipment, and processes by those trying to attain world-class status. World-class manufacturers view technology as a strategic tool for achieving and maintaining their world-class status. A high priority is placed on the discovery, development, and timely implementation of the most relevant technology available and the identification and support of those who can communicate and implement this technology. The most highly competitive firms have made significantly more progress than others in implementing TQM, reengineering, simultaneous engineering, group technology, computerassisted manufacturing (CAM), material resources planning (MRP), and the use of local area networks (LANs). PERFORMANCE MEASUREMENT. World-class manufacturers recognize the importance of measurement in defining the goals and performance expectations for their organization. They routinely adopt or develop the appropriate performance measurements needed to interpret and quantitatively describe the criteria used to measure the effectiveness of their manufacturing system and its interrelated components.

Use of the proper measurements allows world-class manufacturers to assess their performance against themselves (internal benchmarking), their competitors (competitive benchmarking), and against other world-class manufacturing firms that are not competitors (generic and functional benchmarking). World-class status is achieved through a relentless commitment to continuous improvement, which cannot be achieved without measurement. LEVEL THREE: INFORMATION SYSTEMS, MANAGEMENT DIRECTION, AND OPERATIONS CAPABILITIES The following sections discuss how information systems, management direction, and operations capabilities factor into an organization's effort to become a world-class manufacturer. INFORMATION SYSTEMS.

World-class manufacturers require world-class information systems for collecting, processing, and disseminating data and for providing the feedback mechanism that is necessary for meeting their objectives. Information systems are fully integrated into the business processes of firms that adhere to continuous improvement and TQM strategies. Capturing and analyzing customer feedback and designing, manufacturing, and delivering world-class quality products and services is rooted in superior information systems. Richard Schonberger states that functions within a world-class firm all have a common language and signaling system. World-class firms embrace computerized maintenance management and computer-integrated manufacturing. Additionally, organizational commitment to continuous improvement is supported by the strategic use of information systems.

MANAGEMENT DIRECTION. Management is responsible for directing the manufacturing organization's journey to world-class status and for creating an organizational culture committed to all that is necessary for achieving continuous improvement. Corporate culture and values are the foundation for superior manufacturing, which in turn reflects and is reflected by the caliber of corporate management. This implies that personal commitment, involvement, and a sense of direction by management are critical to the success of world-class firms.

The manufacturing excellence needed for world-class status is nurtured by direction from superior management, which must penetrate the manufacturing function, viewing and managing it as an integral, indivisible part of the firm. It cannot tolerate mediocrity or even average manufacturing performance.

Management must seek to describe and understand the interdependency of the multiple elements of their manufacturing system, to discover new relationships, to explore the consequences of alternative decisions, and communicate unambiguously within the organization and with the firm's customers and suppliers. Stimulating and accommodating continuous change forces management to experiment and assess outcomes. They must be able to translate knowledge acquired in this way into some sort of direction, framework, or model that leads to improved operational decision making, while incorporating a learning process into their fundamental operating philosophy. The objective of world-class status tests management's ability to learn, adapt, and innovate faster in the face of an intensely competitive global market.

OPERATIONS CAPABILITIES. World-class manufacturers are concerned with whether their operations systems have the ability to meet design specifications, rather than with evaluating the quality and quantity of products

after the fact. In order to attain world-class status, the manufacturing firm has to be given the proper resources. With these resources, the firm must have the capability to produce the right quantity, the right quality, at the right time (often just in time), and at the right price. The proper technology must be on hand or readily attainable. In addition, the firm must have the necessary managerial capabilities to compete successfully on a global basis. For many firms, the necessary operational capability involves the ability to provide customers with a large degree of flexibility of either product or volume, or exceptional response time to orders, changes in orders, or new product development.

Beyond the firm itself, operations capability implies a superior interactive relationship with all vendors and suppliers. World-class firms have extensively implemented JIT, are heavily involved with programs that contractually commit suppliers to annual cost cuts, and are making efforts to involve the supplier early in the new product development process.

LEVEL FOUR: QUALITY World-class manufacturers place an emphasis on quality. Firms in this category are usually in an advanced state of TQM implementation, continually seeking to enhance their business. All quality costs (prevention costs, appraisal costs, and cost of defectsboth internal and external) are evaluated and held to the lowest reasonable sum. "Zero defects" is the goal of the world-class manufacturer. In order to achieve zero defects, the world-class firm is educated in and has fully implemented statistical quality control (SQC), sometimes called statistical process control (SPC) or quality at the source. Hence, quality is maintained and elevated through quality planning, quality control, and quality improvement. In conjunction with this effort to improve processes and products, world-class firms utilize an activity called benchmarking. This involves comparing the firm's performance, either overall or in a functional area, with that of other world-class organizations. The use of TQM techniques, according to some analysts, is the most striking differentiator between world-class and non-world-class firms. Quality has also been found to be the most important competitive differentiator in the eyes of the customer.

LEVEL FIVE: CUSTOMER SERVICE World-class manufacturers instill within their organization and constantly reinforce the idea that all who are a part of the organization must know their customers and must seek to satisfy the wants and needs of not only the customers, but also all other stakeholders. The goal of satisfaction is pursued in regards to the product, order processing, delivery, quick response to changes, and service after the sale. After all, the goal of continuous improvement is to improve processes and add value to products and services in such a way as to increase customer satisfaction and loyalty and ensure long-term profitability.

LEVEL SIX: WORLD-CLASS MANUFACTURING While world-class manufacturing may be difficult for manufacturers to define, many say they know it when they see it. Whatever it is, it must be from the customer's vantage point. An Industry Week survey found that, among factories approaching world-class status, a higher percentage were likely to belong to public companies; have corporate parents with revenues greater than $1 billion; participate in an automotive industry value chain; and employ 250 or more people at the location. These firms reported large cost reductions over the previous three years, as well as increased revenues, higher capacity utilization, higher sales per employee, and returns on invested capital (ROIC) that exceeded that of other manufacturers. Daniel F. Baldwin states that truly world-class firms are always examining their business processes and continuously seeking solutions to improve in key areas, such as lead time reduction, cost cutting, exceeding customer expectations, streamlining processes, shortening time to market for new products, and managing the global operation.

World-class manufacturers are the ones that possess the knowledge and technology to provide products and services of continually improving quality. It is what separates practitioners of the new paradigm from the industrialist dinosaurs.

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Production can take place within the primary, secondary or tertiary sector