Decision Making In Production Management

THE RUDIMENTS OF DECISION MAKING IN PRODUCTION MANAGEMENT. HIGHLIGHTING THE UNDERLYING PRINCIPLES, FUMDAMENTALS AND PROCESSES INVOLVED Production management is also called operations management. Productions management is the activity of managing the resources which are devoted to theproduction and delivery of products and services. Examples of goods and services are found all around us from the book we read, videos we watch, e-mails we send to every medical treatment we receive involves the operations function of one or more organizations. So does everything we wear, eat, travel in, sit on, and access the Internet with. It is one of the core functions of any business, although it may not be called operations management in some industries. Techniques of production management are employed in service as well as in manufacturing industries. It is a responsibility similar in level and scope to other specialties such as marketing or human resource and financial management. In manufacturing operations, production management includes responsibility for product and process design, planning and control issues involving capacity and quality, and organization and supervision of the workforce. The span of responsibility varies between companies, but will usually overlap with the other functions. Operations management is concerned with the managing processes. And all processes have internal customers and suppliers. Since all management functions manage processes. Therefore, operations management has relevance for all managers. All productions follow an input–transformation–output process Inputs to the process: These are the resources that are treated, transformed or converted in the process. They are usually a mixture of the following; materials, information, customers, facilities and staffs. Transformation: is the execution phase where all input materials are put together to produce a unique commodity (goods or service). Outputs from the process: All processes exist to produce products and services, and although products and services are different, this distinction can be subtle. Perhaps the most obvious difference is in their respective tangibility. (Products are usually tangible. You can physically touch a television set or a newspaper while Services are usually intangible. You cannot touch consultancy advice or a medical service, although you can often see or feel the results of these services). Also, services may have a shorter stored life. Products can usually be stored for a time, some food products for only a few days, and some buildings for thousands of years. The life of a service is often much shorter. Operations managers are required to make a series of decisions in the production function. They plan, organize, staff, direct and control all the activities in the process of converting all the inputs into finished products. At each level, operating managers are expected to make decisions and implement them too. The decisions made by operations managers about the activities of production systems tend to fall into three general categories viz. Strategic (Long Range): Decisions relating to products, processes and manufacturing facilities. 1

These decisions are major ones, having strategic importance and long-term significance for the organization. It Includes; which products to produce, on which of the dimensions of cost, quality, delivery and flexibility to compete; where to locate facilities; what production equipment to use; and long-range choices concerning raw materials, energy and labour skills. Operating (Medium Range): Decisions relating to planning production to meet demand. These decisions are necessary in order to ensure that the ongoing production of goods and services meets the market demand and provides reasonable profits for the organization. It takes the basic physical production capacity constraints and projected demand pattern, established by a longrange plan, and ration available resources to meet demand as effectively and as profitable as possible. Even though basic production capacity is essentially fixed by long-range considerations, production capacity can be increased or decreased within limits in the medium term. A decision can be made to vary one or more of the following: the size of the work force, the amount of overtime worked, the number of shifts worked, the rate of production, the amount of inventory, the shipping modes and possible the amount of subcontracting utilized by the company. These plans, in turn, constrain but provide stability to what can be done at the operational level. Control: Decisions relating to planning and controlling operations. These decisions concern the day to day activities of workers, quality of products and services, production and overhead costs and maintenance of machines. Short-range operating schedules take the orders directly from customers, or as generated by the inventory system and plan in detail how the products should be processed through a plant. In most cases detailed schedules are drawn up for one week, then one day and finally one shift in advance. The schedules involve the assignment of products to machines, the sequencing and routing of orders through the plant, the determination of replenishment quantities for each stock keeping unit and so on. Production management’s responsibilities are summarized by the “five M’s”: men, machines, methods, materials, and money. “Men” refers to the human element in operating systems. Since the vast majority of manufacturing personnel work in the physical production of goods, “people management” is one of the production manager’s most important responsibilities. The production manager must also choose the machines and methods of the company, first selecting the equipment and technology to be used in the manufacture of the product or service and then planning and controlling the methods and procedures for their use. The flexibility of the production process and the ability of workers to adapt to equipment and schedules are important issues in this phase of production management. The production manager’s responsibility for materials includes the management of flow processes — both physical (raw materials) and information (paperwork). The smoothness of resource movement and data flow is determined largely by the fundamental choices made in the decision phase of the product and in the process to be used. The manager’s concern for money is explained by the importance of financing and asset utilization to most manufacturing organizations. A manager who allows excessive inventories to 2

build up or who achieves level production and steady operation by sacrificing good customer service and timely delivery runs the risk that overinvestment or high current costs will wipe out any temporary competitive advantage that might have been obtained. Although the five M’s capture the essence of the major tasks of production management, control summarizes its single most important issue. The production manager must plan and control the process of production so that it moves smoothly at the required level of output while meeting cost and quality objectives. Process control has two purposes: first, to ensure that operations are performed according to plan and second, to continuously monitor and evaluate the production plan to see if modifications can be devised to better meet cost, quality, delivery, flexibility, or other objectives. For example, when demand for a product is high enough to justify continuous production, the production level might need to be adjusted from time to time to address fluctuating demand or changes in a company’s market share. This is called the “production-smoothing” problem. When more than one product is involved, complex industrial engineering or operations research procedures are required to analyze the many factors that impinge on the problem. Inventory control is another important phase of production management. Inventories include raw materials, component parts, work-in-process, finished goods, packing and packaging materials, and general supplies . Although the effective use of financial resources is generally regarded as beyond the responsibility of production management, many manufacturing firms with large inventories (some accounting for more than 50 percent of total assets) usually hold production managers responsible for inventories. Successful inventory management, which involves the solution of the problem of which items to carry in inventory in various locations, is critical to a company’s competitive success. Not carrying an item can result in delays in getting needed parts or supplies, but carrying every item at every location can tie up huge amounts of capital and result in an accumulation of obsolete, unusable stock. Managers generally rely on mathematical models and computer systems developed by industrial engineers and operations researchers to handle the problems of inventory control Operations and supply chains are intrinsically linked and no business organization could exist without both. A supply chain is the sequence of organizations—their facilities, functions, and activities—that are involved in producing and delivering a product or service. The sequence begins with basic suppliers of raw materials and extends all the way to the final customer, Facilities might include warehouses, factories, processing centers, offices, distribution centers, and retail outlets. Functions and activities include forecasting, purchasing, inventory management, information management, quality assurance, scheduling, production, distribution, delivery, and customer service.Note carefully that the value of the product increases as it moves through the supply chain. Supply chains are both external and internal to the organization. The external parts of a supply chain provide raw materials, parts, equipment, supplies, and/or other inputs to the organization, and they deliver outputs that are goods to the organization’s customers while the internal parts of

3

a supply chain are part of the operations function itself, supplying operations with parts and materials, performing work on products and/or services, and passing the work on to the next step in the process. The creation of goods or services (Production management) has five major decision areas: quality, process, capacity, inventory, and work force. 1. Quality. The operations function is typically responsible for the quality of goods and services produced. Quality is an important operations responsibility which requires total organisational support. Quality decisions must ensure that quality is built into the product in all stages of operations: standards must be set, people trained, and the product or service inspected, preferably by those who produce it, for quality to result. 2. Process. Decisions in this category determine the physical process or facility used to produce the product or service. The decisions include the type of equipment and technology, process flows, layout of the facility, and all other aspects of the physical plant or service facility. Many of these process decisions are long-range in nature and cannot be easily reversed, particularly when heavy capital investment is needed. It is, therefore, important that the physical process be designed in relation to the long-term strategic posture of the business. 3. Capacity. Capacity decisions are aimed at providing the right amount of capacity at the right place at the right time. Long-range capacity is determined by the size of the physical facilities which are built. In the short run, capacity can sometimes be augmented by subcontracting, extra shifts, or rental of space. Capacity planning, however, determines not only the size of facilities but also the proper number of people in operations. Staffing levels are set to meet the needs of market demand and the desire to maintain a stable work force. In the short run, available capacity must be allocated to specific tasks and jobs in operations by scheduling people, equipment, and facilities. 4. Inventory. Inventory decisions in operations determine what to order, how much to order, and when to order. Inventory control systems are used to manage materials from purchasing through raw materials, work in process, and finished goods inventories. Inventory managers decide how much to spend on inventory, where to locate the materials, and a host of related decisions. They manage the flow of materials within the firm. 5. Work force. Managing people is the most important decision area in operations because nothing is done without the people who make theproduct or service. Work-force decisions include selection, hiring, firing, training, supervision, and compensation. These decisions are made by the line managers in operations, often with the assistance of the personnel or human resources office. Managing the work force in a productive and humane way is a key task for operations today.

4

DECISION-MAKING STRUCTURE IN PRODUCTION MANAGEMENT A scientific and analytical structure for decision implies the following systematic steps: Defining the problem, Establish the decision criteria, Formulation of a model, Generating alternatives, Evaluation of the alternatives, Implementation and monitoring. DEFINING THE PROBLEM: Defining the problem enables to identify the relevant variables and the cause of the problem. Careful definition of the problem is crucial. Finding the root cause of a problem needs some questioning and detective work. If a problem defined is too narrow, relevant variable may be omitted. If it is broader, many tangible aspects may be included which leads to the complex relationships. ESTABLISH THE DECISION CRITERIA: Establish the decision criterion is important because the criterion reflects the goals and purpose of the work efforts. For many years profits served as a convenient and accepted goal for many organizations based on economic theory. Nowadays organization will have multiple goals such as employee welfare, high productivity, stability, market share, growth, industrial leadership and other social objectives. FORMULATION OF A MODEL: Formulation of a model lies at the heart of the scientific decision-making process. Model describes the essence of a problem or relationship by abstracting relevant variables from the real world situation. Models are used to simplify or approximate reality, so the relationships can be expressed in tangible form and studied in isolation. Modeling a decision situation usually requires both formulating a model and collecting the relevant data to use in the model. Mathematical and statistical models are most useful models for understanding the complex business of the problem. Mathematical models can incorporate factor that cannot readily be visualized. With the aid of computers and simulation techniques, these quantitative models become flexible. GENERATING ALTERNATIVES: Alternatives are generated by varying the values of the parameters. Mathematical and statistical models are particularly suitable for generating alternatives because they can be easily modified. The model builder can experiment with a model by substituting different values for controllable and uncontrollable variable . EVALUATION OF THE ALTERNATIVES: Evaluation of the alternatives is relatively objective in an analytical decision process because the criteria for evaluating the alternatives have been precisely defined. The best alternative is the one that most closely satisfies the criteria. Some models like LPP model automatically seek out a maximizing or minimizing solution. In problems various heuristic and statistical techniques can be used to suggest the best course of action. IMPLEMENTATION AND MONITORING: Implementation and monitoring are essential for completing the managerial action. The best course of action or the solution to a problem determined through a model is implemented in the business world. Other managers have to be convinced of the merit of the solution. Then the follow-up procedures are required to ensure about appropriate action taken. This includes an analysis and evaluation of the solution along with the recommendations for changes or adjustments.

5