Productions and operations management

Production and Operations Management (POM) refers to the processes

involved in the production of goods and services, as well as the efficient use of
resources to meet customer demands

Production mgt- Concerned only with goods (tangible products)

examples
 Making shoes in a factory
 Assembling smartphones
 Bottling soft drinks

Operations mgt-Covers both goods and services (tangible + intangible)

examples

 Running a hotel (service)

 Managing an airline (service)
 Car manufacturing (goods)
STEPS/SCOPE
1.Product/Service Design
 Decide what to produce or offer.
 Consider customer needs, market trends, cost, quality, and feasibility.
Example: Designing a new smartphone model or a healthcare service package.

2. Process Design
 Choose the best method of production or service delivery.
 Decide on the sequence of operations, technology, equipment, and labor
requirements.
Example: Will you use an assembly line or batch production?

3. Capacity Planning
 Determine how much production is needed.
 Match production ability with market demand.
Example: Can the factory produce 10,000 units per month if that's the
expected demand?
4. Location Selection
 Choose the best location for facilities.
 Consider costs, logistics, labor, proximity to market and suppliers.
Example: Building a factory near raw material sources to reduce transport
costs.

5. Facility Layout Planning

 Organize machines, workstations, and storage for efficient workflow.
Example: In a restaurant, the kitchen should be near the dining area for quick
service.

6. Materials Management
 Plan and control inventory, raw materials, work-in-progress (WIP), and
finished goods.
 Use tools like EOQ, JIT, and ABC analysis.
Example: Ensuring raw materials are available just in time to avoid
overstocking.

7. Production Planning and Scheduling

 Create detailed production schedules.
 Assign tasks, allocate resources, and set timelines.
Example: Weekly production schedule for bakery items based on forecasted
demand.

8. Quality Control and Assurance

 Set quality standards.
 Monitor and control production to meet those standards.
 Use techniques like TQM, Six Sigma, and SPC.
Example: Testing a random sample of products on the assembly line.

9. Maintenance Management
 Ensure machinery and equipment are always in working condition.
 Use preventive and corrective maintenance.
Example: Regular servicing of factory machines to prevent unexpected
breakdowns.

10. Evaluation and Continuous Improvement

 Analyze performance using KPIs (e.g., cost, efficiency, defect rate).
 Apply improvements using Lean, Kaizen, or Six Sigma methods.
Example: Reducing waste or time delays in the supply chain.

Example of smartphone manufacturing company

1. Product Development and Design – Planning what to make

T he company identifies demand for a budget-friendly phone with a good
camera.
Based on customer feedback and competitor models, they finalize the
features: 5G, 64MP camera, 5000mAh battery.
Engineers and designers create the technical design and prototype
2. Process Design – Planning how to make it
They plan how to manufacture each component (circuit board, camera
unit, screen) and the assembly sequence.
3. Capacity Planning – Deciding how much to produce
 Forecasting shows 1 million units in first 6 months.
 They decide how many units the plant should produce monthly and
what capacity is needed.
4. Facility Location and Layout – Deciding where and how the production
facility will be set up
Decide on expanding an existing plant in Noida.
Layout designed for assembly-line production with minimal material
movement
5. Materials Requirement Planning (MRP) – Planning materials and
inventory
Plan how much raw material is needed: batteries, chips, cases, etc.
Orders placed with suppliers globally.
6. Workforce Planning – Hiring and training people
7. Scheduling – Planning the timeline and work order
8. ✅ Production/Operations – 💥 Actual production starts here
 9. Quality Control – Checking output quality
10.Maintenance and Continuous Improvement – Keeping production
efficient and sustainable

MODULE 1

PRODUCTION OF GOODS V/S PROVIDING SERVICES

Production of Goods Providing Services (Service

Aspect
(Manufacturing) Operations)

Intangible — experiences,
Nature of Output Tangible — physical items
processes, or assistance

Yes — goods can be No — services are consumed

Can Be Stored?
inventoried as they are produced

Customer Usually low — product is made Usually high — customer is

Involvement before customer receives it part of the service process

Simultaneous — production
Production & Separate — goods are made
and consumption happen
Consumption first, consumed later
together

Subjective — based on
Quality Objective — based on
customer experience,
Measurement features, defects, durability
satisfaction

Easier to standardize mass Harder — each service may be

Standardization
production customized or variable

Lower (though increasing) —

Automation Use High — machines, robots used
human labor dominant

Example Car manufacturing, textile, Banking, healthcare,

Industries electronics education, hospitality

Goods = Tangible, Storable, Measurable

Services = Intangible, Immediate, Interactive
PRODUCT DEVELOPMENT AND DESIGN-FIRST
STEP
Product Development and Design refers to the process of creating a new
product or improving an existing one to meet market needs, customer
expectations, and company goals. It is the first step in production, laying the
foundation for everything that follows — from manufacturing to marketing.
In Production and Operations Management (POM), this topic is about:
Identifying future demands of customer
Developing a product based on customer feedback and features expected
Create a technical design and prototype of the product

1. Forecasting
This involves predicting future customer demand, trends, or preferences
before designing the product. Forecasting helps to:
 Determine what kind of product or service is needed
 Estimate how much demand exists
 Align production and resource planning
 Reduce risks of overproduction or underproduction
It includes quantitative methods (like time series analysis, regression) and
qualitative methods (like expert opinion, market surveys).

2.PRODUCT DESIGN
This stage is all about planning and designing — you're not actually
producing the product yet.
It involves:
 Deciding what the product will be (features, look, materials)
 Creating drawings, models, and prototypes
 Testing and improving the design based on customer needs and technical
feasibility
no mass production happens here. You're just finalizing how the product
should be.
STEPS
 Idea Generation
 New ideas come from various sources such as R&D, employees, market
research, and especially customer input (feedback, complaints,
suggestions).
 Customer-driven innovation helps in identifying real-world problems and
unmet needs.
 Idea Screening
 All collected ideas are evaluated.
 Non-feasible or low-potential ideas are removed based on cost, capability,
and customer value.
 Feasibility Analysis
 Technical feasibility: Can we make it?
 Economic feasibility: Will it be profitable?
 Market feasibility: Will it succeed in the current market conditions?
 Concept Development and Testing
 Selected ideas are converted into product concepts.
 Concepts are tested with potential users for relevance and desirability,
again incorporating customer feedback as validation.
 Design and Engineering
 The technical design of the product is developed, including models,
drawings, and specifications.
 Here, reverse engineering may be used — analyzing existing products
(often competitors’) to improve design, identify better materials, or reduce
cost.
 Prototype Development and Testing
 A physical or digital prototype is created and tested for function,
durability, and user acceptance.
 Prototype mans working model or sample product is made before the
actual production starts
 This stage can also involve competitor analysis — benchmarking the
prototype against existing products in the market to identify strengths and
weaknesses.
 Final Product Design
 After successful prototype testing, the design is finalized.
 This includes choosing materials, planning the manufacturing process,
estimating costs, and setting quality standards.
  Materials and process finalized.
 Design handed off to production team

 Product Improvement (Ongoing)

 Even after launch, products are continuously improved using:
o Customer feedback

o Reverse engineering of newer market entrants

o Competitor actions (new features, pricing changes, innovations)

 This ensures the product remains competitive, efficient, and aligned with
evolving customer expectations.

SERVICE DESIGN
Service Design is the blueprint — you're not delivering the service yet, but
planning how it will be delivered smoothly and effectively .

 What the service will be

 How it will be delivered

 Who will deliver it

 Where and when it will be delivered

It focuses on how a service will be delivered, not the delivery itself.

1. What the Service Will Be

 Defines the purpose and value of the service.

 Focuses on the problem being solved and the benefit to the
customer.
 Clarifies the type of service offered.

Example: Online doctor consultation service offering 24/7 medical advice

through mobile app.

2. How the Service Will Be Delivered

 Describes the steps/process flow of service delivery.

 Includes platforms, tools, technology, and infrastructure used.
 Ensures a smooth and consistent service experience.
Example:
Booking via app → Doctor assigned → Video consultation → E-prescription sent →
Feedback collected.

3. Who Will Deliver the Service

 Specifies the staff, teams, or third parties involved.

 Covers roles, responsibilities, and training required.
 Ensures right people are in place to deliver quality service.

Example:
Doctors conduct consultations, support team manages bookings, IT team
maintains platform.

4. Where and When It Will Be Delivered

 Defines the delivery channels (online/offline/hybrid).

 Decides timing, availability, and locations of service.
 Matches customer convenience and business capability.

Example:
Service available 24/7 via app and website, accessible pan-India.

LEGAL ETHICAL AND ENVIRONMENTAL CONSIDERATIONS

When designing a product or service, organizations must ensure their

decisions are legally compliant, ethically sound, and environmentally
sustainable. These considerations protect the company’s reputation and
promote responsible practices.

1. Legal Considerations
 Ensure product/service complies with government laws and
regulations.
 Avoid legal disputes, fines, or bans.
 Key areas:
o Product safety standards

o Consumer protection laws

o Intellectual property rights (patents, copyrights)

o Labor laws
 o Industry-specific regulations

Example: Electrical products must follow BIS safety standards in India.

2. Ethical Considerations
 Refers to doing what is morally right, even beyond legal requirements.
 Builds customer trust and protects brand image.
 Includes:
o Fair treatment of workers

o No child or forced labor

o Honest advertising and labeling

o Responsible sourcing of materials

o Avoiding exploitation or deception

Example: A food company clearly discloses all ingredients and does not make
false health claims.

3. Sustainability Considerations
 Focuses on minimizing environmental impact and promoting long-term
ecological balance.
 Key practices:
o Use of eco-friendly materials

o Minimizing waste and emissions

o Energy-efficient production

o Recyclable packaging

o Designing for durability and reusability

Example: A shampoo brand switches to biodegradable bottles and reduces

plastic use.

CAPACITY PLANNING – SECOND STEP

Deciding How Much to Produce Based on Demand
EX : If demand is forecasted to be 5,000 units next month, production should
be planned accordingly using available labor, machines, and time.

Design Capacity
 It is the maximum possible output that a system (like a factory, machine, or
service unit) can produce under ideal conditions.
It assumes everything runs perfectly — no breaks, no delays, no
maintenance issues.
Theoretical Maximum capacity
Ex: A bakery has an oven that can bake 1,000 loaves of bread per day if it
runs non-stop without any breakdowns or breaks — that’s the design capacity.
Effective Capacity is the realistic output that the system can achieve
under normal working conditions.
It considers breaks, maintenance, employee fatigue, machine downtime, etc.
It is a practical maximum capacity
That same bakery has to stop the oven for cleaning, workers take breaks, and
there’s some time lost in changing batches. So practically, it can only bake
800 loaves/day — that’s the effective capacity.

MEASURES OF CAPACITY

Term Based On Formula Indicates

Utilizati Design (Actual Output / Design Overall use of

on Capacity Capacity) × 100 installed capacity

(Actual Output /
Efficienc Effective Quality of internal
Effective Capacity) ×
y Capacity operations
100

DETERMINANTS OF EFFECTIVE CAPACITY

These factors refer to all the internal and external elements that influence
how much output a company can realistically produce under normal operating
conditions.

1. Facilities

 Layout: Poor facility layout can cause delays or bottlenecks.

 Space limitations: Restricted movement or insufficient space can reduce
capacity.
 Location: Accessibility to resources, suppliers, or customers affects
performance.

🔹 2. Product and Service Design

 Complexity: Complex designs take more time to produce or serve.

  Standardization: More standardized products/services → easier to produce
more units.

🔹 3. Process Factors

 Setup time: Time taken to change from one task/product to another

reduces output.
 Flexibility: Rigid processes limit how much can be adjusted to meet
demand.

🔹 4. Human Factors

 Training & skill levels: Poorly trained workers lower efficiency.

 Employee motivation and fatigue: Breaks, tiredness, and morale all impact
output.
 Absenteeism: Reduces available manpower.

🔹 5. Operational Factors

 Scheduling: Poor planning of shifts or jobs can waste time.

 Maintenance: Frequent breakdowns reduce output unless properly
managed.
 Quality control: Time spent reworking or checking defects lowers capacity.

🔹 6. Supply Chain and Materials

 Inventory shortages: Lack of raw materials halts production.

 Delivery delays: Late supplies reduce output.

🔹 7. External Factors

 Regulations & laws: Compliance can slow processes (e.g., safety checks).
 Environmental factors: Power cuts, climate issues can reduce capacity.

🔹 8. Management Decisions

 Capacity cushion: Some firms intentionally leave room for demand surges.
 Policy decisions: E.g., limiting overtime to reduce cost also reduces output .
MAKE OR BUY DECISION
Make or Buy decision refers to choosing whether to produce a
component/service in-house ("make") or purchase it from an external supplier
("buy").
When planning capacity, we must decide how much work we will do ourselves
(make) and how much we will get from outside (buy).

Why it's Important in Capacity Planning:

 If you choose to make a product:
o You need more capacity (machines, labor, space).

o You have more control but higher investment.

 If you choose to buy:

o You reduce internal capacity needs.

o You rely on external vendors but can be more flexible.

Example:
A car manufacturer needs engines:
 If it makes them in-house → it must plan for more machines, space, and
skilled workers.
 If it buys from an engine supplier → no extra capacity needed, but they
depend on the supplier’s reliability.

Buy (Get it from

Factor Make (Do it ourselves)
outside)

May be cheaper over time, May look cheaper quickly,

1. Cost but we need to spend on but suppliers charge profit
machines, staff, etc. margin.

Good if we have free Helpful when we don’t

2. Capacity machines and people. Need have space or people to
more setup if not. make it.

We can check and control Quality depends on

3. Quality
quality better. supplier’s work.

May take more time;

4. Speed & We can change the plan fast
depends on supplier's
Flexibility and make urgent orders.
timing.
 Buy (Get it from
Factor Make (Do it ourselves)
outside)

5. Best to make important or Okay to buy common or

Importance secret items ourselves. less important items.

We must trust the supplier

6. Supplier Not needed, since we do
to deliver on time and
Trust everything ourselves.
good quality.

We take the risk, but we also Lower risk, but more

7. Risk
have control. dependent on others.

8. Long- Needs long-term setup and Easy to stop or change

Term planning. supplier anytime.

OUT SOURCING
Outsourcing is the process of getting work done by an external party instead
of doing it within the organization.
It is a type of “Buy” decision under capacity planning or operations strategy.

Why Companies Outsource

1. Cost Savings – It may be cheaper to outsource than to produce in-house.
2. Focus on Core Activities – Allows the business to concentrate on its main
operations.
3. Lack of Expertise – External vendors may have better skills or technology.
4. Avoid Capital Investment – No need to spend on machines, buildings, or
full-time staff.
5. Flexibility – Easy to scale operations up or down based on demand.
6. Speed – External providers may be quicker due to ready infrastructure.

Risks in Outsourcing
1. Loss of Control – Company relies on outsiders for quality and timing.
2. Quality Issues – Vendor may not match the company’s quality standards.
3. Confidentiality Risks – Sensitive data might be exposed.
4. Hidden Costs – There may be extra or unexpected charges.

If the company
outsources... It is...
 A routine task or process (e.g., Buisness
support) Process

Outsourcing

A thinking or expert task (e.g., Knowledge

analysis/design) Process

Outsourcing

DEVELOPING CAPACITY STRATEGIES

1. Flexibility into Systems
 Design capacity to adjust easily to changes in demand, product types, or
technology.
 Example: Multi-purpose machines, cross-trained employees.

2. Take Stages of the Life Cycle into Account

 Match capacity with the product's demand stage: Introduction → Growth →
Maturity → Decline.
 Avoid over-investing in products nearing decline.

3. Take a Big-Picture Approach to Capacity Changes

 Consider how capacity changes affect the entire business, not just one
unit.
 Includes supply chain, staff, technology, space, etc.

4. Prepare to Deal with Capacity Chunks

 Capacity is usually added in fixed units, not gradually.
 Plan to utilize extra capacity efficiently when full use isn’t immediately
needed.

5. Attempt to Smooth Out Capacity Requirements

 Avoid wide variations in demand.
 Use demand forecasting, shift adjustments, or discounts to stabilize
workloads.
6. Identify the Optimal Operating Level
 Every system has a most efficient output level (neither too much nor too
little).
 Overuse causes wear and tear; underuse wastes resources.

7. Consider Economies of Scale

 Producing more units can lower cost per unit due to bulk buying,
specialization, and better equipment usage.
 But only up to a point — too much production can cause diseconomies.

PROCESS ANALYSIS AND DESIGN-THIRD STEP

Planning for the overall production process means deciding how to convert
inputs (like materials, labour, machines) into finished products or services —
in the most efficient, cost-effective, and timely manner.