PRODUCTION AND OPERATIONS MANAGEMENT 

Definition: 

Production / Operations Management is defined as the process which transforms the inputs/resources of an organization into final goods (or services) through a set of defined, controlled and repeatable policies. By policies, we refer to the rules that add value to the final output.

What is Production Management?

The goal of all manufacturing companies is to maximize profit.  This comes about through the utilization of a well-designed production process that continually pursues process improvements and gains in efficiency.  This process requires solid production management to realize these gains and apply them to the bottom line.

As an integral part of overall business management, production management is the process of transforming raw materials or components into finished products.  It is the management of the physical materials, adherence to design specifications, equipment utilization, performance, and labor to implement the company’s production strategy.

Production management requires the coordination and supervision of people, materials, and equipment.  This requires managers to continually make decisions in four key areas:

Production Planning

Production planning is the stage where the master schedule is produced.  It requires managers to decide where production will begin. For example - which machines or which facility.

It also requires deciding upon when production will start.  Different products run at different speeds and require numerous inputs to complete, so the decision of when is based on the overall product mix.

PRODUCTION AND OPERATIONS MANAGEMENT NOTES PDF

Production Control

Production control is the floor level application of design specifications.  Here, much like a traffic officer in a busy intersection, managers direct staff and equipment to conduct the steps to complete their part of a finished good.  This also involves active management against quality standards as well as close monitoring of production speeds against established measured run times.

Process Improvement

All production managers are responsible for monitoring and driving continuous improvement.  Many companies may use methodologies such as Lean or Six Sigma to formalize the efforts, but even without such methodologies, no process is static and production management requires reliance on honing and approving floor level process activities of equipment and labor.

Equipment Maintenance

Just as production managers need to monitor and coach staff to perform tasks using efficient steps, so too does the equipment need to be managed to keep it in optimal running condition.  Maintenance costs are usually rolled into the fully costed finished goods, especially for manufacturers using a cost-plus system to determine costs and set prices.  Because of this, overall equipment effectiveness (OEE) is vital.

Why is Production Management Important?

Without effective floor-level management of production processes, error and inefficiency would be more common within a factory.  There are other reasons that production management is important to business operations:

1. Reduces Manufacturing Cost – By maximizing outputs while minimizing inputs, production management lowers the cost required to produce finished products.  This can be used to improve profit margin, or it may be passed onto the customer to ensure a competitive advantage.
2. Improves Competitiveness – Knowing that the right products are available on time and will be delivered on schedule means that a company is always in the game in any market.  
3. Accomplishes Business Objectives – Production management helps companies produce finished goods efficiently.  Because these finished products are always made with high quality and delivered when needed, businesses can leverage those things to grow the business, secure capital for improvement, and increase customer satisfaction.
4. Improves Brand Image – Many manufacturing companies today operate some or all their production on a Direct to Consumer (D2C) basis. As a result, branding and brand image have become important.  Sound production management means that customers rely on products and can have confidence in their quality and availability thus improving brand image. Overall, a good brand image is important whether your products are Engineer-to-Order (ETO), Make-to-Order (MTO), or Make-to-Stock (MTS).
5. Optimizes Use of Resources – Production management means that labor, equipment, and resources are optimized in the production effort.  This can lower waste levels and create an environment for employees that is positive and well balanced.  With the emphasis on today's work/life balance and green initiatives to reduce carbon footprints, effective production management that optimizes the use of resources can help deliver on both of those trends.

Production and Operations Management

While integrally linked, there is a difference between production and operations management.  In any factory, the production manager applies management principals specifically to the production process.  On the other hand, the role of operations management is broader as it relates to business activities outside of manufacturing.

Operations managers apply business management principals to ensure that the entire organization, and not just production, runs smoothly and efficiently.  This not only involves direct input into the production process.  It also includes responsibility for services that may accompany production such as customer service or field service. 

Operations management also encompasses inventory, warehousing, and supply chain.  This may include purchasing and delivery systems.  And they may manage quality departments and quality initiatives as well.  Other functions involved in operations management include:

• Strategic Plans – Operations management is involved in making sure that effective strategies are developed to maximize all company resources in tandem.
• Finance – Operations management is often involved in the capital and operational budgeting and planning.
• Product Design – Operations managers are responsible for ensuring that the products developed can be manufactured by the factory efficiently and at optimal cost.
• Forecasting – Operations management is a bridge between sales and production and may be tasked with forecasting to predict which products and services are required for the future. 

While the distinction may be somewhat blurred in small and medium-sized businesses (SMB) where managers wear many hats, operations management and production management are different in meaning, scope, focus, and organizational structure.

Benefits of Production Management in Manufacturing

Effective production management is critical in today’s manufacturing environments.  Without it, operations cannot meet commitments or profit targets.  But with sound production management, companies can realize several benefits regardless of their size.  These benefits include:

• Better Quality – Products made on well-maintained equipment, with trained and measured labor will result in a higher quality finished goods.  This requires a balance between all these variables and others to help managers, supervisors, technicians, and operators catch defects before they happen.  A systematized program will create standard operating procedures (SOPs), standard work documentation, and built-in audit procedures to do this.
• Lower Waste Levels – Waste is a danger in any operation.  But effective production management allows for the development and deployment of procedures that mitigate waste to its lowest possible level.  Without it, quality rejects, scrap, and over-processing will increase production costs and reduce profitability.  But waste isn’t just physical rejects.  Waste may also include excess or unnecessary movement by operators and repetitive transportation of WIP.  Production management relies on principals that reduce these types of waste as well.
• Lower Operating Cost – Some Make to Order (MTO), Assemble to Order (ATO) and Engineer to Order (ETO) factories producing discrete goods operate off-market cost systems due to the customizability of their product and the fact that they can command a high price.  Others, such as Make to Stock (MTS) goods such as consumables or commodified goods, utilize a cost-plus costing method where each contributing factor of production (materials, labor, direct labor, indirect labor, overhead, warehousing, and delivery) is rolled into a “to the penny” cost and then marked up to achieve profit targets.  But regardless of the costing method, lowering cost is always high on the minds of managers.  Effective production management techniques and systems lower these costs by providing mechanisms and methodologies to identify, analyze, and change processes to render the most cost-effective production method possible.  By applying these techniques to all variables, costs are reduced cumulatively across the board.
• Better Decision-Making – A sound system of production management incorporates the use of data to help managers evaluate the progress of the factory.  This includes things such as operator output, equipment performance and effectiveness, quality monitoring methods, and others.  With these tools, managers can identify variances that could impact quality, production time, and defects and address them proactively.