Production Management Notes - Session 1 and 2

Production is one of the functions of business. It is responsible for the development and credation of products and services that will be sold to the market. Production function is as equally important with the business functions of marketing, administration and finance.

Production is the processes of converting raw materials into semi-finished and finished products.

Production Management - the management of those resources and activities of a business that are required to produce goods for sale to consumers or to other organizations. Production management is concerned with the manufacturing industry. The growing interest in the production management task in service industries has led to the use of operations management as a more general term.

The level of production activities is dependent on what products or services that are being produced, how they are produced and when they are needed by the marketing function.

Two Guiding Principles in Production

1) Efficiency
2) Effectiveness

INPUT COSTs/OUTPUT

Efficiency involves the measurement of the cost of inputs relative to outputs.
Example - If an enterprise A spends P1,000.00 to produce 100 pairs of slippers, then the cost to produce one pair is P10.00. If enterprise B spends PP750.00 to produce 100 pairs of slippers, then the cost per unit is P7.50. Under this scenario, enterprise be is more cost efficient. The lower the cost to produce one unit of production volume, the higher its cost efficiency. It is the inverse of cost of inputs/volume of outputs.

This gives the cost per unit of production, and so one measure of efficiency. Another measure would be to look at how much each particular factor of production (labour / capital / land) manages to produce. In this way we can measure productivity. For example to calculate labour productivity: In a garment factory, the following are:

Sewer A = Can finish "edging sewing" 20 pieces per day
Sewer B = can finish "edging sewing" 25 pieces per day

Obviously Sewer B has higher productivity and is more cost efficient, because he/she produces 25 pieces, 5 pieces more than Sewer A.

But supposing Sewer A is paid P200.00 per day and Sewer B is paid P300.00 per day. How will labor efficency and productivity be affected ? In this scenario, the labor efficiency of Sewer A is P200.00/20 while Sewer B has P P300.00/25 resulting in Sewer A's P10.00 cost to produce one unit while Sewer B has a per unit prodution cost of P12.00. Under this circumstances, Sewer A is more labor efficient and productive.

Effectiveness - is when you achieve the purpose or objective of the task or activities. Examples. Company A has the objective of producing 10,000 units of baseball caps for its customers who will attend the independence day parade and is able to do so but the cost to produce the 10,000 caps is P500,000. Company B is only able to produce 6,000 caps but incurring a cost of P180,000.00. Under this scenarios Company A has a per unit production cost of P50.00 per baseball cap while company B has a production cost of P30.00. per unit. Which company is more effective? The answer is Company A. Although it produced baseball caps at a higher costs, it was able to achieve its purpose of producing the 10,000 baseball caps. So, effectiveness is not about costs but rather the achievement of the production goal.

In production managemet, these two concepts should always serve as a guide. What is more important? Cost Efficiency or Effectiveness. There is no right or wrong answers depending on the expected outcomes of what management wants to achieve. It is prudent though that minimization of costs and the maximization of effectiveness should be the proper options.

Effective production management involves understanding of the characteristics of various types of production systems, identification of the dynamics of the different phases of the management process, realizing the potential of different analytical tools, learning the nuances of the implementation of these tools, visualizing the impact of various uncertain situations and developing the ability to react under various scenarios to achieve consistently excellent business results. There are evidences to show how a number of organizations achieved world class status by effective management of their production systems. These organizations achieved superior quality, higher productivity, perfect delivery performance, overall customer satisfaction and enterprise excellence all with lower cost.

Types of Production Systems

Job production (Craft) - this is a method of production where companies use all their factors of production to complete one job at a time. This will usually happen where products are all unique or they are being produced on a very small scale. Examples. Artists painting, basket weaving, sculptor pieces, jewelry making

Batch production - this is a method of production where one operation is completed on a number of units of the product, before they are then passed on to the next stage of the process. Examples: Food Processing like tocino,ham, balut making, softdrinks,

Flow production (assembly line) - this is where production takes place as a continuous process. The product flows from one process onto the next. This will usually happen where the product is standardised, and can be made using a production line automotive assembly, computer assembly

Combination of Batch and Assembly line - this is the type of production system that uses both batch and assemblyline systems. Examples. Fashion garments,