Industrial Production and Operations Management | PDF

INDUSTRIAL PRODUCTION Concepts of Industrial Production - Industrial production is the output of the industrial sector of the economy. It includes manufacturing, mining, electricity, gas and steam and air-conditioning. - Industrial produ...

INDUSTRIAL PRODUCTION Concepts of Industrial Production - Industrial production is the output of the industrial sector of the economy. It includes manufacturing, mining, electricity, gas and steam and air-conditioning. - Industrial production measures the process of manufacturing raw materials into finished products. It is an indicator of the economic activity and growth of a country. - Industrial productions refers to the output of the business entities in the industrial sector. The primary purpose is to measure the overall production of the industrial sector comprising industries like manufacturing, mining, and utilities in the economy. Among this sectors manufacturing is the most important. - Industrial production refers to the process of manufacturing and producing goods on a large scale within an economy. It encompasses the activities involved in transforming raw materials into finished products through various stages of production, such as extraction, processing, assembly, and packaging. - Industrial production is a measure of the change in the production output of factories, mines, and utilities, while capacity utilization is a measure of their industrial capacity and how much of it is being used. - Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of gross domestic product (GDP), they are highly sensitive to interest rates and consumer demand. This makes industrial production an important tool for forecasting future GDP and economic performance. Industrial production figures are also used by central banks to measure inflation, as high levels of industrial production can lead to uncontrolled levels of consumption and rapid inflation. Industrial production is important because: 1. It forms a major part of the economy, along with agriculture and the service sector. Analyzing industrial production is significant to understanding and measuring the industrial sector’s output. In addition, it helps track the change in the output produced between years. 2. It provides a substantial amount of employment. Manufacturing units and industries employ several thousands of people. As a result, they provide a substantial amount of employment. An uptick in industrial output, both for domestic consumption and exports is a sign of a strengthening economy and the sectors that are placing orders for durable goods. 3. It is a leading indicator of Gross Domestic Product (GDP) growth and economic performance. Despite the fact that the industrial sector only accounts for a portion of an economy’s total output, it is a leading indicator of Gross Domestic Product (GDP) growth and economic performance due to its sensitivity to consumer demand and interest rates. 4. It has improved productivity and allowed for mass production, which has increased standards of living. Industrialization has been instrumental in the economic development of the world. 5. Most innovation and technological advances originate in the manufacturing sector. Factors of Production The factors of production are inputs that companies need to develop goods and services. This enables them to earn profits. 1. Land Land is generally considered one of the most important factors of production. Certain industries rely on land more than others. For instance, a real estate developer needs it to make good on its investments. But technology companies and those that rely on automation tend to rely less on hand , making it a less significant factors of production. 2. Labor Labor consists of the people who are responsible for the creation of goods and services (from beginning to end) and the effort they put forth. These individuals include factory workers, managers, salespeople, and engineers who design the machinery used in production. As such, it can take on many forms. For instance, the effort to construction workers who work on a building site and quality control workers who ensure products are ready to go to market make up this category. Individuals are compensated for their time and effort, and the amount they are paid depends on the skills they bring to the table. People with fewer skills and training tend to earn lower wages while people who are educated and highly skilled often get paid more. Innovation, though, is changing the labor force. Automation, increased technology, and equipment are putting a dent into the need for workers. Companies that continue to innovate their production processes rely less on human labor. For instance, the invention and availability of equipment cut the need for physical laborer on farms. 3. Capital Capital is cash. Capital goods are also considered capital, which includes manufacturing plants, machinery, tools or any equipment used in the production process. Capital may also refer to a fleet of trucks or forklifts as well as heavy machinery. When the economy is flourishing and expands; corporations are able to access capital so they can spend and make investments and continue making profits. During times of economic contraction, though, they must cut costs to preserve capital to ensure they are still profitable. All of this is necessary in order to ensure that they can continue bringing new products and services to market. 4. Entrepreneurship Entrepreneurship is the fourth factor and includes the visionaries and innovators behind the entire production process. The entrepreneurs combine all the other factors of production to conceptualize, create, and produce the product or service. They are the drivers behind any technical change in the economic system which has been shown to be a major source of economic growth. Economists believe that entrepreneurship is one of the most integral parts of production process. That’s because it uses all three of the other factors in the manufacturing of goods and services. The success of entrepreneurs depends entirely on the development of a business plan. This is a document that business owners use to describe how their company operates, its objectives should look for resources, hire personnel, and get access to financing.  PRODUCTION / OPERATIONS MANAGEMENT Production/Operations management is the process which combines and transforms various resources used in organization into value-added products/services in a controlled manner as per the policies of the organization and the principles of productivity measures and quality controls put in place in these policies. Production/Operations function, therefore, is that part of an organization which is concerned with the transformation of a range of inputs into the required outputs (products/services) having the required acceptable quality level. Production refers to the creation of finished goods and services using the factors production: land, labor, capital, entrepreneurship and knowledge. It also means the use of resources, such as workers and machinery, to convert materials into finished goods and services. Production management is a set of inter-related management activities which are involved in manufacturing certain products. It is the term used to describe all the activities managers do to help their firms create goods. Operations management is the corresponding set of management activities. It is the term used to describe all the activities managers do to help their firms create goods and services. It is converting resources into goods and services. Resources are inputs to the production system. The range of resources include the following: 1. Manpower : workers are directly concerned with production. It includes both direct and indirect labor. Indirect labor constitutes service production, such as warehouse clerk, storekeepers, shop floor personnel, and maintenance technicians. Supervision and management are involved along side with quality control personnel and laboratory /R&D staff. 2. Machines and equipment : such as machines and spares directly used in the production and non-production equipment and equipment tooling. 3. Materials : which include direct materials used in the production processes. Indirect materials such as lubricating oils, wiping clothes, and stationary also constitute materials. 4. Methods 5. Power : which means energy from all sources and their economical process is mainly used and consumed by production equipment. 6. Packaging 7. Plant and buildings Production and operations management : The process of overseeing the production process by managing the people and machinery that convert materials and resources into finished goods and services. Figure 1.1 INPUTS CONVERSION OUTPUT *Resources PROCESS *Goods *Raw Materials *Services  Figure 1.2 Input Transformation Process Output  Men  Product design  Product  Materials  Process planning  Service  Machines  Production control  Information  Maintenance  Capital Continuous  Inventory  Quality  Cost Environment Feedback Information Figure 1.3 Labor Capital Raw Material Input Scientific Process Output-Services/Goods Taylor’s Principles of Production Management (Frederick W. Taylor) 1. Development of science for each element of work. This is to find out what is to be done by a particular worker, how he has to do it, what equipment will be necessary to do it. This information is provided to the worker which in turns lead to better understanding of the production to reduce wastage of time, material , etc. and improve the quality of work. 2. Scientific selection, placement and training of workers. A principle that selects the workers according to best fit to perform the specific tasks, and then train them within the department in order to attain the objective of the factory. This eliminates the possibility of misfits in the factory and ensures better working. Workers should also be trained from time to time to keep them informed of latest development in the techniques of production. 3. Division of labor (or separation of planning function from producing function). The principle of separation states the division of work in smaller tasks and separation of thinking element of job from producing element of the job. It is essential for efficiency in all aspects of activities as well as in supervision of work. To be more effective and efficient , Taylor, the founder of scientific management introduced functional organization in which one foreman was made in charge for each function. 4. Standardization of methods, procedures, tools and equipment. Standardization helps in reducing time, labor, and cost of production. The success of scientific management largely depends upon standardization of system, tools, equipment, and techniques of production. 5. Use of Time and Motion Study Taylor introduced time and motion study to determine standard work. Taylor undertook studies on fatigue incurred by the workers and the time necessary to complete the task. 6. Differential wage system Taylor suggested a different piece rate scheme which provides incentive to be rewarded for exceeding production volume beyond the standard expected production output. This then becomes the monetary incentive for the worker to achieve high level of optimum output. It distinguishes the more productive workers from less productive workers and motivates them to produce more. Taylor believed that it labor is suitably rewarded and is satisfied with the job; he will work whole-heartedly to achieve the objectives of the factory. 7. Cooperation between men (labor and management) Scientific management strives to get the thinking of management changed so as to make the management feel the mutual respect and cooperation between the workers and the management helps in providing proper and effective leadership. The labor starts thinking that it is their work and they must put their heart and soul in the work assigned to them. In fact the main job of scientific management is to revolutionize the mind of both workers and management for mutual benefit and also for the benefit of the factory. 8. Principle of management by exception In order to make effective utilization of time of top managers, Taylor suggested that only major or significant deviations between the actual production and standard production should be brought to the notice of top management. Top management should pay more attention to those areas of work where standards and procedures could not be established and where there is a significant variation between standard production and actual production. Taylor suggested that for increasing production rate, the work of each person should be planned in advance and he shall be allotted a definite work to complete by a given by using predetermined method. Production Management Production is any process developed to transform a set of input elements like men, materials, capital, information and energy into a specified set of output elements like finished products and services in proper quantity and quality, thus achieving the objectives of an enterprise. The essence of production is the creation of goods, may be by the transformation of raw materials or by assembling many small parts (as in television or bottle packaging production). Production in everyday life can be noticed in factories, offices, and other establishments. Five Recognized Factors of Production 1. Men ( labor or human efforts) 2. Materials (organic or nature provided, inorganic or semi-manufactured) 3. Machines (equipment , devices, jigs , tools , etc.) 4. Mega structures (factory building , generator, etc.) 5. Methods (technique, acquired know-how, guide sheet, etc.) Scope of Industrial Production Management 1. Acquisition of land 2. Constructing building 3. Procuring and installing machinery 4. Purchasing and storing raw materials and converting them into saleable products. Production Function Production function is concerned with the creation of product. It establishes the relationship between the quantity of output furnished or given out by a productive process and the quantities of different inputs used in that process. Production function involves a wide range of activities from the plant location to the packing of products to be distributed by the marketing division of an organization. The modern evolution of the production function started with the industrial revolution. The new machinery was developed which helped in starting new and big industries and along with this, the era of mechanization began. A major momentum to the improvement of production function was supplied after 1880 by the advancements in management techniques. Various factors like labor wages, dearth of skilled operators, human errors, etc. led to automation , that is, the automatic operation and control machinery and processes. Critical managerial decision: 1. Plant location - should be such that production and distribution costs are minimal but the profits are set to maximum. 2. Plant layout - After locating the plant site, the facilities, equipment, machines have to be laid out. This should permits the materials to move at desired speed and at maximum cost. Production planning and control - This should be done before starting the actual production. It should consider the determination and regulation of production process and has different functions routing, scheduling dispatching, progress control, etc. Production research and development - another important function in management, where by research means the critical investigation into sciences in order to acquire new knowledge and understanding. Applies research explores the facts and information for the practical and actual problems in mind and thus aims in achieving immediate results to practical and actual problems. Pure research is carried out to add to the knowledge in a particular field without expecting its immediate use to any practical and actual problem. Development comes after applied research. It involves design and fabrication of new or modified products and then testing them to find the usability and applicability. Production Process The production process takes resources, such as raw materials, labor, capital and equipment, and turns them into finished goods or services for consumers. The goal of the production process is not only to produce but to do so efficiently. The goods or services should be delivered to customers as quickly as possible. Capital, labor and whatever other resources are required to produce goods and services are called the factors of production. Capital is the amount of money invested in assets, such as machinery, raw materials , etc. Labor is the people who are involved in the time and effort required to put into the process. A production process must be effective as its impacts a company’s business performance. Therefore, project management software is used to streamline the process and deliver quality without overspending or extending the production time. Steps of the Production Process There are various stages that a typical production process goes through. These steps can vary from one manufacturer to another and across industries, but in general, the steps defined below are part of any production process. 1. Production Planning Before you going into production, thorough planning is needed. In here, the purpose and the goals of production is defined as well as how to achieve this are figured out. 2. Production Routing Once the plan is in place, the procurement of the necessary resources such as raw materials, begins. The raw materials might need processing, finishing and to be checked for quality and distribution. These activities are also part of the routing step. At this point, decisions are made to determine the quantity and quality of the goods and services and their.place in production. All steps are important in the production process, but this might be the most important. 3. Production Scheduling A schedule in the production process is where you determine the timing of the job. Each type of the production process should have a start date and an end date. Everyone working on the production line will have a scheduled workflow. 4. Production Dispatching This stage marks the start of production. There are many different activities that can take place over the course of dispatching, from the provision of items, maintenance of records to the monitoring of planned workflows and the times a machine is working or idle to ensure the production process in moving forward as expected. 5. Production Control Production control is the stage when the actual production process is composed to be planned production process. This identifies issues that took the production off track and helps managers come up with plans to remedy those issues for the next production cycle.  PRODUCTION SYSTEM Production system is a part of the larger system – that is, the business firm. It can be viewed as a framework or skeleton of activities within which the creation of value occur. The conceptual framework of a simplified production system where the inputs and outputs are connected through a series of operations or processes, storage and inspections. PRODUCTION Demand information SYSTEM Products RAW MATERIALS AND RESOURCES PARTS The concept of production system is applicable to both productions of components and production of services as well. In any plant or industrial taking , it may be required to take decisions on the following goals or objectives: 1. The inventory goal The main aim is to have optimum inventory at all times. Large inventory will tie up a big working capital, whereas fewer inventories will involve hazards of running out of stock. The inventory level is decided by striking a balance between the cost of running out of stock and the cost of holding stock. Besides inventory group, other sections connected with such a decision are sales, marketing and finance. 2. The production goal This involves decision on setting the level of output, low production costs, and maintenance of stable workforce. 3. The market goals  They are considered while taking decisions on sales strategy, that is when deciding a level (amount) of sales and the markets share of a particular concern in the total market sale. 4. The profit goal Profit may be defined as the revenue that is left over after all costs are subtracted. Profit is actually, a measure of performance and an excellent indicator of the general efficiency of plant or industrial undertaking. The decision involved in profit goal is the determination of the aspiration level of the concern with regard to profits. Taking from shareholders to the workers everybody is interested to maximize with profits. Business problems on which a plant or industrial undertaking unit has to take decisions are as follows: 1. Resource allocation problems Such problems involve loading, routing and scheduling of men, materials and machines. Allocation problems also include transportation problems which are solved by using quantitative tools such as linear programming methods. 2. Queuing problems Such problems occur whenever a queue forms. For example, a plant manager may have to decide about the additional powered trucks (material handling equipment) required to be purchased or leased so that the in-process inventory, waiting to be shifted from one workstation to another is neither too small nor too large. 3. Inventory problem The decision required on inventory problem is as regards the optimum level of stocks of raw inventories or finished products for an industrial unit to hold at a time. 4. Pricing problem The plant or industrial unit has to decide the selling price of the products and the amount which it has to pay for materials and labor. Pricing problems are also associated with allocation, marketing, inventory and queuing problem. 5. Investment Investment problems involve decisions such as the amount of money to be spent on a new plant building and facilities, or to decide whether the machineries are to be purchased as new, or acquired as slightly used. This will also answer as to the source on where to get the funds to support the investment decision made. Productivity Productivity of a production system is analogous to the efficiency of a machine. Just as it is desired to increase the efficiency of a machine , it is also aimed to raise the productivity within the available resources. Productivity may be defined as the ratio between output and input , where the output means the amount produced or the number of items produced and inputs are the various resources employed , e.g. land and building , equipment and machinery , material , labor, etc. There are four factors that affect the productivity in production and these are : 1. Product design 2. Machinery and equipment 3. The skill of the worker 4. Production volume Production design Through better product design, a product can be simplified by eliminating some of its parts; it is obvious that the material these pieces are made of will no longer be needed. Nor, will the equipment, tooling, and labor to make them be required. Value analysis can bring out many product design changes that improve productivity. There are two sides here, for one, the research and development is a vital contributor to improved product design, two, the standardization of the product and the use of group technology are other design factors that make possible greater productivity in the factory. Machinery and equipment Once the product is designed, then how it is made offers the next opportunity for productivity improvement. The equipment used, machines, tools, conveyors, robots, the way the factory is laid out, are all important. Computer has helped design the products (CAD) , it helps operating complicated machine tools (CNC machines) and it contains the inventory of material and parts. It has become an essential ingredient in productivity improvement. Skill of the labor The trained and experienced worker can do the same job in a much shorter time and with far greater effectiveness than a new one. However, even the well trained employees must be motivated to be productive. Production volume Assume that the volume of output is to be doubled. The number of direct workers would have to be doubled and a few indirect workers might also be needed. But there would probably not be e need for more engineers, research scientists, headquarters staff people or other support personnel. So if the output is doubled, the productivity of these support people is in effect doubled.  Types of Productivity Measures 1. Labor productivity The resource inputs are aggregated in terms of labor hours. Hence this index is relatively free of changes caused by wage rates and labor mix. 2. Direct labor productivity The resource inputs are aggregated in terms of direct labor costs. This index will reflect the effect of both wage rates and changes in the labor mix. 3. Capital productivity Several formulations are possible. In one, the inputs are the charges during the period to depreciation; in another, the inputs may be the book value of capital investment. 4. Direct cost productivity In this formulation, all items of direct cost associated with resources used are aggregated on a monetary value basis. 5. Energy productivity In this formulation the only resource considered is the amount of energy consumed. 6. Raw material productivity In this formulation, the numerators are usually weight of product; the denominators are the weight of raw material consumed. Work measurement refers to any technique to determine the amount and kind if desired labor required to produce each kind of output in a base period. Components of Productivity Measurement System 1. Statement of the objectives of the organization. 2. List of the units of output of the organization. 3. Standard time, standard cost, raw material used, equipment use, tools used, etc. for each kind of the productivity. 4. Method building zero based budget using forecasts of outputs, standard time, and forecasts of the productivity. 5. Means of computing the productivity indexes at selected intervals. 6. Means of comparing output forecasts with actual output at selected intervals. 7. Means of adding resource usage data and associated productivity indexes in a meaningful fashion related to outputs to reduce the details in reports as data go to higher- and – higher- level managers. Determine Takt Time The plant rate, takt time (German word) is the rate at which operation , processes, parts, components, and so on must run in order to meet the production goal. To calculate the takt time or R value, you must know the production goal , the amount of time allotted for the production of these units and any non-productive time that is taken away from production such as breaks, team meetings, lunch , and so forth. Furthermore, a general knowledge of the overall plant efficiency as determined by unplanned downtimes, inventory stock outs, absenteeism, and so on is necessary in order to calculate the takt time. Fundamental Principles of the World Class Manufacturing 1. Involvement of people as the key to change. 2. Understanding that it is new way of working. 3. Understanding that accident prevention is key. 4. Ensuring the customer’s voice is heard throughout the organization. 5. Leadership ensuring respect for standards set via personal example and advocacy. 6. Ensuring that prescribed methods are applied with consistency and rigor. 7. Non-acceptance of forms of loss. 8. Ensuring visibility of faults – losses can only be tackled if they are made visible. 9. Eliminating the cause and not just treating the effect.