There are four functional areas in a business organization – marketing, production, finance and personnel. Production is the basic activity of all industrial units. All other activities revolve around this activity. The end product of the production activity is the creation of goods and services for the satisfaction of human wants. The production activity is nothing but the step-by-step conversion of one form of materials into another either chemically or mechanically. This is done in factories which house manufacturing processes. The basic inputs of the production processes are men, machines, plant, services and methods. The products of the mine, farm, sea and forest are used as raw materials on which the processing is done to create or enhance the form utility. It should be noted that the finished product of one manufacturing unit does not always furnish a readymade product for the ultimate consumption. In a chain of manufacturing activities, the finished product of the processor sometimes becomes the raw material (or component) for the other manufacturing firms falling next in the sequence.
Meaning: The meaning of the term “Production” and “Production management” should be noted carefully.
Production involves the step by step conversion of one form of materials into another through chemical or mechanical processing to create or enhance the utility of the products or services. According to economists, production is an activity through which the form utility is either created or enhanced e.g. a piece of wood has no doubt, some utility. However, when it is converted into a chair with some mechanical processing, the utility of the material (i.e. a piece of wood) would enhance substantially. According to E S Buffa, production is a process by which goods and services are created.
These days therefore both manufacturing and service organizations fall into the scope of production management. Thus production management which was formerly considered as manufacturing management only, now after inclusion of services into its services into its scope, is broadly known as operations management. Many non- manufacturing organizations providing services like hospitals, banks, transportation, farming, warehousing etc are now covered by operations management.
‘Operations’ by formal definition is a process of changing inputs into outputs, with the creation or adding of value to some entity. The process of alternation or transportation or storage or inspection or any combination thereof to add value to an entity is rightly called operations. The growth of service industry has brought with it the term operations management. It is a general term these days.
‘Operations’ in the services organizations has some unique features, different from those which has manufacturing base. These are:
1. Non-inventoriable output of service, since generally no stock is produced.
2. Variable demand
3. Labor intensive operations mostly.
4. Location of service is dictated by the location of the users.
The word production management arrived first with the emergence of manufacturing industry and the necessity to manage it as such. The meaning of the term production management is clarified in the following definitions:
Production management is the process of planning, organizing directing and controlling the activities of the production function. Production function is the conversion of raw materials into finished products.
The objectives of production management: Production is an organized activity in a manufacturing organization. Each organized activity must spell out its objectives so that its existence can be justified on the basis of the degree of they attainment of these objectives. Moreover, such identification of the objectives increases the consciousness of the personnel working in the respective organizations in checking their efforts by verifying whether they are in conformity with the stated objective of the organization. The objectives of the production function are classified as under: (1) Ultimate objectives, (2) Intermediate objectives.
Ultimate objectives: The primary responsibility of the manufacturing activity is to produce a product or products at (1) pre-established cost, (2) according to the specified quality, and (3) within the stipulated time schedule.
Thus the ultimate objectives can be sub classified as under: (1) Manufacturing costs, (2) Product quality, and (3) Manufacturing time schedule.
Manufacturing costs: The unit cost of the product should be estimated carefully and every effort should be made to stick to the cost standards. For this purpose, the efforts should be made to segregate the costs into two direct costs and variable costs.