Production Management
Production management refers to the administration of business practices to create the highest level of efficiency possible within an organization. Production management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize the profit of an organization.
Objective of production management
The objective of the production management is ‘to produce goods services of right quality and quantity at the right time and right manufacturing cost’.
1. RIGHT QUALITY
The quality of product is established based upon the customers needs. The right quality is not necessarily best quality. It is determined by the cost of the product and the technical
characteristics as suited to the specific requirements.
2. RIGHT QUANTITY
The manufacturing organization should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products.
3. RIGHT TIME
Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective.
4. RIGHT MANUFACTURING COST
Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost.
Functions of Production Management
The components or functions of production management are as follows:
1. Selection of Product and Design, 2. Selection of Production Process, 3. Selecting Right Production Capacity 4. Production Planning,
5. Production Control, 6. Quality and Cost Control, 7. Inventory Control, and
8. Maintenance and Replacement of Machines
The above functions of production management are briefly discussed below.
1. Selection of Product and Design
Production management first selects the right product for production. Then it selects the right design for the product. Care must be taken while selecting the product and design because the survival and success of the company depend on it. The product must be selected only after detailed evaluation of all the other alternative products. After selecting the right product, the right design must be selected. The design must be according to the customers' requirements. It must give the customers maximum value at the lowest cost. So, production management must use techniques such as value engineering and value analysis.
2. Selection of Production Process
Production management must select the right production process. They must decide about the type of technology, machines, material handling system, etc.
3. Selecting Right Production Capacity
Production management must select the right production capacity to match the demand for the product. This is because more or less capacity will create problems. The production manager must plan the capacity for both short and long term's production. He must use break-even analysis for capacity planning.
4. Production Planning
Production management includes production planning. Here, the production manager decides about the routing and scheduling.
Routing means deciding the path of work and the sequence of operations. The main objective of routing is to find out the best and most economical sequence of operations to be followed in the manufacturing process. Routing ensures a smooth flow of work.
Scheduling means to decide when to start and when to complete a particular production activity.
5. Production Control
Production management also includes production control. The manager has to monitor and control the production. He has to find out whether the actual production is done as per plans or not. He has to compare actual production with the plans and finds out the deviations. He then takes necessary steps to correct these deviations.
6. Quality and Cost Control
Production management also includes quality and cost control. Quality and Cost Control are given a lot of importance in today's competitive world. Customers all over the world want good- quality products at cheapest prices. To satisfy this demand of consumers, the production manager must continuously improve the quality of his products. Along with this, he must also take essential steps to reduce the cost of his products.
7. Inventory Control
Production management also includes inventory control. The production manager must monitor the level of inventories. There must be neither over stocking nor under stocking of inventories.
If there is an overstocking, then the working capital will be blocked, and the materials may be spoiled, wasted or misused.
If there is an understocking, then production will not take place as per schedule, and deliveries will be affected.
8. Maintenance and Replacement of Machines
Production management ensures proper maintenance and replacement of machines and equipments. The production manager must have an efficient system for continuous inspection (routine checks), cleaning, oiling, maintenance and replacement of machines, equipments, spare parts.
Modern Production Methods
Job Production
Job Production is used when a product is produced with the labor of one or few workers and is scarcely used for bulk and large scale production. It is mainly used for one-off products or prototypes, as it is inefficient; however, quality is greatly enhanced with job production compared to other methods. Individual wedding cakes and made-to-measure suits are examples of job production. New small firms often use job production before they get a chance or have the means to expand. Job Production is highly motivating for workers because it gives the workers an opportunity to produce the whole product and take pride in it.
Boutique Manufacturing
Contrary to jobbing production, the method Boutique Manufacturing is suitable for the production of very small to small batches, i.e. orders of a few units up to several dozens of similar or equal goods. The workflow organization of a Boutique Manufacturing entity can be a mixture of both jobbing and batch production but involves higher standardization than job production. Boutique Manufacturing is often organized with single workplaces or production cells carrying out a number of subsequent production steps until completion of certain components or even the whole product; large assembly lines are generally not used. The flexibility and variety of products able to be produced in the entity therefore are much higher than with the more standardized method of batch production.
Batch Production
Batch production is the method used to produce or process any product in groups or batches where the products in the batch go through the whole production process together. An example would be when a bakery produces each different type of bread separately and each object (in this case, bread) is not produced continuously. Batch production is used in many different ways and is most suited to when there is a need for a quality/quantity balance. This technique is probably the most commonly used method for organizing manufacture and promotes specialist labor, as very often batch production involves a small number of persons. Batch production occurs when many similar items are produced together. Each batch goes through one stage of the production process before moving onto next stage.
Flow Production
Flow production (Process Production) is also a very common method of production. Flow production is when the product is built up through many segregated stages; the product is built upon at each stage and then passed directly to the next stage where it is built upon again. The production method is financially the most efficient and effective because there is less of a need for skilled workers.
Make-or-Buy decision
Introduction
Are you outsourcing enough? This was one of the main questions asked by management consultants during the outsourcing boom. Outsourcing was viewed as one of the best ways of getting things done for a fraction of the original cost.
Outsourcing is closely related to make or buy decision. The corporations made decisions on what to make internally and what to buy from outside in order to maximize the profit margins.
As a result of this, the organizational functions were divided into segments and some of those functions were outsourced to expert companies, who can do the same job for much less cost.
Make or buy decision is always a valid concept in business. No organization should attempt to make something by their own, when they stand the opportunity to buy the same for much less price.
This is why most of the electronic items manufactured and software systems developed in the Asia, on behalf of the organizations in the USA and Europe.
Four Numbers You Should Know
When you are supposed to make a make-or-buy decision, there are four numbers you need to be aware of. Your decision will be based on the values of these four numbers. Let's have a look at the numbers now. They are quite self-explanatory.
The volume
The fixed cost of making
Per-unit direct cost when making
Per-unit cost when buying
Now, there are two formulas that use the above numbers. They are 'Cost to Buy' and 'Cost to Make'. The higher value loses and the decision maker can go ahead with the less costly solution.
Cost to Buy (CTB) = Volume x Per-unit cost when buying
Cost to Make (CTM) = Fixed costs + (Per-unit direct cost x volume) Reasons for Making
There are number of reasons a company would consider when it comes to making in-house.
Following are a few:
Cost concerns
Desire to expand the manufacturing focus
Need of direct control over the product
Intellectual property concerns
Quality control concerns
Supplier unreliability
Lack of competent suppliers
Volume too small to get a supplier attracted
Reduction of logistic costs (shipping etc.)
To maintain a backup source
Political and environment reasons
Organizational pride Reasons for Buying
Following are some of the reasons companies may consider when it comes to buying from a supplier:
Lack of technical experience
Supplier's expertise on the technical areas and the domain
Cost considerations
Need of small volume
Insufficient capacity to produce in-house
Brand preferences
Strategic partnerships The Process
The make or buy decision can be in many scales. If the decision is small in nature and has less impact on the business, then even one person can make the decision. The person can consider the pros and cons between making and buying and finally arrive at a decision.
When it comes to larger and high impact decisions, usually organizations follow a standard method to arrive at a decision. This method can be divided into four main stages as below.
1. Preparation
Team creation and appointment of the team leader
Identifying the product requirements and analysis
Team briefing and aspect/area destitution 2. Data Collection
Collecting information on various aspects of make-or-buy decision
Workshops on weightings, ratings, and cost for both make-or-buy 3. Data Analysis
Analysis of data gathered 4. Feedback
Feedback on the decision made
By following the above structured process, the organization can make an informed decision on make-or-buy. Although this is a standard process for making the make-or-buy decision, the organizations can have their own varieties.
******Mathematics
Lean manufacturing
The Lean approach is based on finding efficiencies and removing wasteful steps that don't add value to the end product. There's no need to reduce quality with lean manufacturing – the cuts are a result of finding better, more efficient ways of accomplishing the same tasks.
To find the efficiencies, lean manufacturing adopts a customer-value focus, asking "What is the customer willing to pay for?" Customers want value, and they'll pay only if you can meet their needs. They shouldn't pay for defects, or for the extra cost of having large inventories. In other words, they shouldn't pay for your waste.
Waste is anything that doesn't add value to the end product. There are eight categories* of waste that you should monitor:
1. Overproduction – Are you producing more than consumers demand?
2. Waiting – How much lag time is there between production steps?
3. Inventory (work in progress) – Are your supply levels and work in progress inventories too high?
4. Transportation – Do you move materials efficiently?
5. Over-processing – Do you work on the product too many times, or otherwise work inefficiently?
6. Motion – Do people and equipment move between tasks efficiently?
7. Defects – How much time do you spend finding and fixing production mistakes?
8. Workforce – Do you use workers efficiently?
Lean Manufacturing Process
The process has three key stages:
Stage 1 – Identify Waste
According to the Lean philosophy, waste always exists, and no matter how good your process is right now, it can always be better. This commitment to continuous improvement is known as Kaizen .
One of the key tools used to find this waste is a Value Stream Map (VSM). This shows how materials and processes flow through your organization to bring your product or service to the consumer. It looks at how actions and departments are connected, and it highlights the waste. As you analyze the VSM, you'll see the processes that add value and those that don't. You can then create a "future state" VSM that includes as few non-value-adding activities as possible.
Stage 2 – Analyze the Waste, and Find the Root Cause
For each waste you identified in the first stage, figure out what's causing it by using Root Cause Analysis . If a machine is constantly breaking down, you might think the problem is mechanical and decide to purchase a new machine. But Root Cause Analysis could show that the real problem is poorly trained operators who don't use the machine properly. Other effective tools for finding a root cause include Brainstorming and Cause and Effect Diagrams .
Stage 3 – Solve the Root Cause, and Repeat the Cycle
Using an appropriate problem-solving process, decide what you must do to fix the issue to create more efficiency.
Just-in-time (JIT) manufacturing
Just-in-time (JIT) manufacturing is a production model in which items are created to meet demand, not created in surplus or in advance of need. The purpose of JIT production is to avoid the waste associated with overproduction, waiting and excess inventory, three of the seven waste categories defined in the Toyota Production System (known in North America as the lean production model).
The JIT concept was described by Henry Ford in his 1923 book, My Life and Work:
We have found in buying materials that it is not worthwhile to buy for other than immediate needs. We buy only enough to fit into the plan of production, taking into consideration the state of transportation at the time. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads of raw materials would arrive on schedule and in the planned order and amounts, and go from the railway cars into production. That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials.
