Production and Operations Management
Manufacturing companies require three basic functions: finance, production or operations, and marketing. Finance raises the capital to buy the equipment to start the business, production or operations makes the product, and marketing sells and distributes it. Operations management is also of crucial importance to service companies.
The objectives of the production department are usually to produce a specific product, on schedule, at minimum cost. But there may be other criteria, such as concentrating on quality and product reliability, producing the maximum possible volume of output, fully utilizing the plant or the work force, reducing lead time, generating the maximum return on assets, or ensuring flexibility for product or volume changes. Some of these objectives are clearly incompatible, and most companies have to choose between price, quality, and flexibility. There is an elementary trade-off between low cost and quality, and another between low cost and the flexibility to customize products or to deliver in a very short lead time.
Production and operations management obviously involves production plants and factories or service branches, and the equipment in them, parts (raw materials or supplies), processes (the steps by which production or services are carried out), and planning and control systems (the procedures used by management to operate and monitor the system). But it also involves people — the personnel or human resources, who will always be necessary in production and operations, despite increasing automation. People are particularly important in organizations offering a service rather than making a product. Such organizations exist to serve the customer, but it can also be argued that they have to serve their workforce, because workers will often treat the public the same way that management treats them, so staff training and motivation are clearly important.
Manufacturing companies all have to decide how much research and development (R&D) to do. Should they do fundamental or applied research themselves, or use research institutes, universities, and independent research laboratories, or simply license product or service designs from other organisations as necessary? Companies are faced with a 'make or buy' decision for every item, process or service.
Decisions about what products to make or what services to offer have to take into account a company's operational capability, and labour, capital and equipment requirements. Introducing new products obviously requires accurate sales forecasting. If it is necessary to construct a new plant or facility, decisions have to be made concerning its location, its size or capacity, the floor layout, the hiring of staff, the purchase of equipment, the necessary level of inventory of parts and finished products, and so on.
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