Browse Business > Production & Operations Management eBooks to read online or download in EPUB or PDF format on your mobile device and PC. Introduction to Production and Operation functions – Understanding the relationship . Production and operations management concerns not only with the. No part of this ebook may be reproduced in any form, by photostat, microfilm, This book on 'Production and Operations Management' covers the complete.
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Manufacturing and Service Operations. The Systems View of Operations Management. The Process View of Organisations. 2. Operations Strategy. Chapter 1: Introduction to Production and Operations Management Chapter 2: Strategic Operations Management Chapter 3: Production Processes. This book covers the emerging and important topics related to production and operations management in a systematic way. It covers not only the essentials of.
In order for a firm to have a competitive advantage, it must understand and provide products and services whose factors create order winners for its customers Slack et al.
As a precursor, factors which customers have a certain minimum expected level from are defined as order qualifiers that firms should conform to. Therefore business decisions should be thought of in terms of order winning and order qualifying criteria, designed to win customers and drive business growth to the firm.
A firm can outperform rivals only if it can establish a difference that it can preserve. This could be delivering great value to customers or creating comparable value at a lower cost, or both.
Such differentiation arises from both the choice of performance objectives activities and how they are performed, or deliberately choosing a different set of activities to deliver a unique mix of value or perform similar operational activities better than rivals. Porter, Operations managers should decide on which of the sub-dimensions of these five performance objectives Figure 1 they wish to excel at, and how they are going to configure the operation to do so.
Neely, illustration not visible in this excerpt Figure 1: The Multiple Dimensions of the Five Operations Performance Objectives adapted from: Neely, The goal of this paper is to investigate and compare operations strategies of two manufacturing-based and two service-based companies. Chosen organisations 1. Its the UK's second largest clothing retailer and its largest value clothing retailer targeting the underyear-old, fashion-conscious market through 13 departments including womenswear, lingerie, childrenswear, menswear, footwear, accessories, and household textiles providing range flexibility to consumers Figure 2.
Hoovers, b illustration not visible in this excerpt 2. CenterParcs CenterParcs operates four forested holiday villages, which attract vacationers by offering such amenities as villas, swimming pools, restaurants, high street shops, lakes and spas. CenterParcs caters primarily to the "short-break" market. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management.
He recommended breaking of jobs down into subtasks and recognises workers to specialised tasks in which they would become highly skilled and efficient. In the early twentieth century, F. From then till , many techniques were developed prevailing the traditional view. Brief information about the contributions to manufacturing management is shown in the Table 1.
TABLE 1. Taylor Motion of study of jobs Frank B. Gilbreth Scheduling techniques for employees, machines jobs in manufacturing Henry L. Gantt Economic lot sizes for inventory control F.
Harris Human relations; the Hawthorne studies Elton Mayo Statistical inference applied to product quality: Shewart Statistical sampling applied to quality control: Blacker and others. Eckert Linear programming G. Charnes, W. Sperry Univac Organizational behaviour: Cummings, L. Porter Integrating operations into overall strategy and policy, W.
Skinner J. Orlicky and Computer applications to manufacturing, Scheduling G. Production management becomes the acceptable term from s to s. Workers were studied in great detail to eliminate wasteful efforts and achieve greater efficiency. In addition, economists, mathematicians, and computer socialists contributed newer, more sophisticated analytical approaches.
With the s emerges two distinct changes in our views. The most obvious of these, reflected in the new name operations management was a shift in the service and manufacturing sectors of the economy. The second, more suitable change was the beginning of an emphasis on synthesis, rather than just analysis, in management practices. At each stage of processing, there will be value addition. Some examples of production are: It is that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with the policies communicated by management.
A simplified production system is shown above. Production is an organized activity, so every production system has an objective. The system transforms the various inputs to useful outputs. It does not operate in isolation from the other organization system. There exists a feedback about the activities, which is essential to control and improve system performance. The distinguishing feature of this is low volume and high variety of products. A job shop comprises of general purpose machines arranged into different departments.
Each job demands unique technological requirements, demands processing on machines in a certain sequence. Characteristics The Job-shop production system is followed when there is: High variety of products and low volume.
Use of general purpose machines and facilities. Highly skilled operators who can take up each job as a challenge because of uniqueness. Large inventory of materials, tools, parts. Detailed planning is essential for sequencing the requirements of each product, capacities for each work centre and order priorities.
Because of general purpose machines and facilities variety of products can be produced. Operators will become more skilled and competent, as each job gives them learning opportunities. Full potential of operators can be utilised. Opportunity exists for creative methods and innovative ideas. Limitations Following are the limitations of job shop production: Higher cost due to frequent set up changes. Higher level of inventory at all levels and hence higher inventory cost.
Production planning is complicated.
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Larger space requirements. Characteristics Batch production system is used under the following circumstances: When there is shorter production runs. When plant and machinery are flexible. When plant and machinery set up is used for the production of item in a batch and change of set up is required for processing the next batch.
When manufacturing lead time and cost are lower as compared to job order production. Advantages Following are the advantages of batch production: Better utilisation of plant and machinery.
Promotes functional specialisation. Cost per unit is lower as compared to job order production. Lower investment in plant and machinery. Flexibility to accommodate and process number of products. Job satisfaction exists for operators. Limitations Following are the limitations of batch production: Material handling is complex because of irregular and longer flows. Production planning and control is complex. Work in process inventory is higher compared to continuous production. Higher set up costs due to frequent changes in set up.
This production system is justified by very large volume of production. The machines are arranged in a line or product layout. Product and process standardisation exists and all outputs follow the same path. Characteristics Mass production is used under the following circumstances: Standardisation of product and process sequence. Dedicated special purpose machines having higher production capacities and output rates. Large volume of products. Shorter cycle time of production.
Lower in process inventory. Perfectly balanced production lines. Flow of materials, components and parts is continuous and without any back tracking. Production planning and control is easy.
Material handling can be completely automatic. Advantages Following are the advantages of mass production: Higher rate of production with reduced cycle time. Higher capacity utilisation due to line balancing. Less skilled operators are required.
Low process inventory. Manufacturing cost per unit is low. Limitations Following are the limitations of mass production: Breakdown of one machine will stop an entire production line. Line layout needs major change with the changes in the product design. High investment in production facilities. The cycle time is determined by the slowest operation. The items are made to flow through the sequence of operations through material handling devices such as conveyors, transfer devices, etc.
Characteristics Continuous production is used under the following circumstances: Dedicated plant and equipment with zero flexibility. Material handling is fully automated. Process follows a predetermined sequence of operations. Component materials cannot be readily identified with final product.
Planning and scheduling is a routine action. Advantages Following are the advantages of continuous production: Manpower is not required for material handling as it is completely automatic.
Person with limited skills can be used on the production line. Unit cost is lower due to high volume of production. Limitations Following are the limitations of continuous production: Flexibility to accommodate and process number of products does not exist. Very high investment for setting flow lines. Product differentiation is limited. It combines and transforms various resources used in the production subsystem of the organization into value added product in a controlled manner as per the policies of the organization.
The right quality is not necessarily best quality.
It is determined by the cost of the product and the technical characteristics as suited to the specific requirements. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products. So, the production department has to make the optimal utilization of input resources to achieve its objective.
Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard pre-established cost. It converts physical resources into outputs, the function of which is to satisfy customer wants i. In some of the organization the product is a physical good hotels while in others it is a service hospitals.
Bus and taxi services, tailors, hospital and builders are the examples of an operating system. Everett E. Operations in an organization can be categorised into manufacturing operations and service operations. Manufacturing operations is a conversion process that includes manufacturing yields a tangible output: Consumption of output 3. Nature of work job 4. Degree of customer contact 5. Customer participation in conversion 6. Measurement of performance. Manufacturing is characterised by tangible outputs products , outputs that customers consume overtime, jobs that use less labour and more equipment, little customer contact, no customer participation in the conversion process in production , and sophisticated methods for measuring production activities and resource consumption as product are made.
Some services are equipment based namely rail-road services, telephone services and some are people based namely tax consultant services, hair styling. Operation managers are concerned with planning, organizing, and controlling the activities which affect human behaviour through models. The operations manager defines the objectives for the operations subsystem of the organization, and the policies, and procedures for achieving the objectives.
It also involves product planning, facility designing and using the conversion process. Operation managers establish a structure of roles and the flow of information within the operations subsystem. They determine the activities required to achieve the goals and assign authority and responsibility for carrying them out. To ensure that the plans for the operations subsystems are accomplished, the operations manager must exercise control by measuring actual outputs and comparing them to planned operations management.
Controlling costs, quality, and schedules are the important functions here. Their interest lies in decision-making behaviour. MODELS As operation managers plan, organise, and control the conversion process, they encounter many problems and must make many decisions.
They can simplify their difficulties using models like aggregate planning models for examining how best to use existing capacity in short-term, break even analysis to identify break even volumes, linear programming and computer simulation for capacity utilisation, decision tree analysis for long-term capacity problem of facility expansion, simple median model for determining best locations of facilities etc. Therefore, customer service is a key objective of operations management.
The operating system must provide something to a specification which can satisfy the customer in terms of cost and timing. These aspects of customer service—specification, cost and timing—are described for four functions in Table 1. They are the principal sources of customer satisfaction and must, therefore, be the principal dimension of the customer service objective for operations managers.
Transport Management of a given, requested Cost, i. Timing, i. Duration or time to move. Wait or delay from requesting to its commen- cement. Supply Goods of a given, requested or Cost, i. Service Treatment of a given, requested or Cost, i. Duration or time required for treatment. Wait or delay from requesting treatment to its commencement.
Generally an organization will aim reliably and consistently to achieve certain standards and operations manager will be influential in attempting to achieve these standards.
Inefficient use of resources or inadequate customer service leads to commercial failure of an operating system. Operations management is concerned essentially with the utilisation of resources, i.
Each measure indicates the extent to which the potential or capacity of such resources is utilised. This is referred as the objective of resource utilisation. Operations management is also concerned with the achievement of both satisfactory customer service and resource utilisation.
An improvement in one will often give rise to deterioration in the other. Often both cannot be maximised, and hence a satisfactory performance must be achieved on both objectives. All the activities of operations management must be tackled with these two objectives in mind, and many of the problems will be faced by operations managers because of this conflict.
Hence, operations managers must attempt to balance these basic objectives. Table 1. The type of balance established both between and within these basic objectives will be influenced by market considerations, competitions, the strengths and weaknesses of the organization, etc.
Hence, the operations managers should make a contribution when these objectives are set. The resource utilisation objective. Globalization can be defined as a process in which geographic distance becomes a factor of diminishing importance in the establishment and maintenance of cross border economic, political and socio-cultural relations. It can also be defined as worldwide drive toward a globalized economic system dominated by supranational corporate trade and banking institutions that are not accountable to democratic processes or national governments.
There are four developments, which have spurred the trend toward globalization. These are: Improved transportation and communication technologies; 2. Opened financial systems; 3. Increased demand for imports; and 4. Reduced import quotas and other trade barriers.
When a firm sets up facilities abroad it involve some added complexities in its operation. Global markets impose new standards on quality and time.
Also, they must have a good understanding of their competitors.
Some other important challenges of managing multinational operations include other languages and customs, different management style, unfamiliar laws and regulations, and different costs.
Managing global operations would focus on the following key issues: It distinguishes itself from other functions such as personnel, marketing, finance, etc. Location of facilities 2. Plant layouts and material handling 3. Product design 4. Process design 5. Production and planning control 6. Quality control 7. Materials management 8.
Maintenance management. It is an important strategic level decision-making for an organization. An improper location of plant may lead to waste of all the investments made in plant and machinery equipments. The purpose of the location study is to find the optimal location that will results in the greatest advantage to the organization. It is the configuration of departments, work centres and equipment in the conversion process. The overall objective of the plant layout is to design a physical arrangement that meets the required output quality and quantity most economically.
This cost can be reduced by proper section, operation and maintenance of material handling devices. Material handling devices increases the output, improves quality, speeds up the deliveries and decreases the cost of production. Hence, material handling is a prime consideration in the designing new plant and several existing plants.
Every business organization have to design, develop and introduce new products as a survival and growth strategy. Developing the new products and launching them in the market is the biggest challenge faced by the organizations. The entire process of need identification to physical manufactures of product involves three functions: Product development translates the needs of customers given by marketing into technical specifications and designing the various features into the product to these specifications.
Manufacturing has the responsibility of selecting the processes by which the product can be manufactured. Product design and development provides link between marketing, customer needs and expectations and the activities required to manufacture the product.
These decisions encompass the selection of a process, choice of technology, process flow analysis and layout of the facilities. Hence, the important decisions in process design are to analyse the workflow for converting raw material into finished product and to select the workstation for each included in the workflow. Main functions of production planning and control includes planning, routing, scheduling, dispatching and follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are, to where we want to go.
It makes it possible for things to occur which would not otherwise happen. Routing may be defined as the selection of path which each part of the product will follow, which being transformed from raw material to finished products.
Routing determines the most advantageous path to be followed from department to department and machine to machine till raw material gets its final shape.
Scheduling determines the programme for the operations. The function of follow-up is to report daily the progress of work in each shop in a prescribed proforma and to investigate the causes of deviations from the planned performance. It is a systematic control of various factors that affect the quality of the product. Quality control aims at prevention of defects at the source, relies on effective feed back system and corrective action procedure.
It is the entire collection of activities which ensures that the operation will produce the optimum quality products at minimum cost. The main objectives of quality control are: The main objectives of materials management are: Therefore, their idleness or downtime becomes are very expensive.
Hence, it is very important that the plant machinery should be properly maintained. The main objectives of maintenance management are: To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost. To keep the machines and other facilities in such a condition that permits them to be used at their optimal capacity without interruption.
To ensure the availability of the machines, buildings and services required by other sections of the factory for the performance of their functions at optimal return on investment. What do you mean by production system? Mention the different types of production systems.
What is job shop production? What is batch production? What is mass production? What is continuous production?
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Mention any four advantages of job shop production. Mention any four limitations of job shop production. Mention any four advantages of batch production.
Mention any four limitations of batch production. Mention any four advantages of mass production. Mention any four limitations of mass production.
Mention any four advantages of continuous production. Mention any four limitations of continuous production. Define production management. Mention any four objectives of production management. Define operating system. How do you manage operations? What do you mean by operations? What do you mean by manufacturing operations? What do you mean by service operations?
Section B 1. Briefly explain the production system and its characteristics. What are its characteristics, advantages and limitations? Explain in brief the objectives of production management. Explain in brief the objectives of operations management. Distinguish between manufacturing operations and service operations.
Explain the key issues to be considered for managing global operations. Section C 1. Explain the different types of production systems.
Explain the framework of managing operations. Explain the scope of production and operations management. Identify the type of production system followed.
Check how production system is managed. Find out utilisation of the resources namely manpower, capacity and material. Although the company had gone through some tough times, things were starting to turn around. Customer orders were up, and quality and productivity had improved dramatically from what they had been only a few years earlier due company wide quality improvement program. After recovering from the initial shock, Sheena tried to find employment elsewhere.
Despite her efforts, after eight months of searching she was no closer to finding a job than the day she started. Her funds were being depleted and she was getting more discouraged. There was one bright spot, though: She was able to bring in a little money by mowing lawns for her neighbors. She got involved quite by chance when she heard one neighbor remark that now that his children were on their own, nobody was around to cut the grass.
Soon Sheena was mowing the lawns of five neighbors. However, as the rejection letters began to pile up, Sheena knew she had to make an important decision in her life. On a rainy Tuesday morning, she decided to go into business for herself taking care of neighborhood lawns. She was relieved to give up the stress of job hunting, and she was excited about the prospects of being her own boss. But she was also fearful of being completely on her own. Nevertheless, Sheena was determined to make a go of it.
At first, business was a little slow, but once people realized Sheena was available, many asked her to take care of their lawns. Some people were simply glad to turn - the work over to her; others switched from professional lawn care services. By the end of her first year in business, Sheena knew she could earn a living this way.
She also performed other services such as fertilizing lawns, weeding gardens, and trimming shrubbery. Business became so good that Sheena hired two part-time workers to assist her and, even then, she believed she could expand further if she wanted to.
Questions 1. Sheena is the operations manager of her business. Among her responsibilities are forecasting, inventory management, scheduling, quality assurance, and maintenance. Name one inventory decision she has to make periodically.
What things might occur to disrupt schedules and cause Sheena to reschedule? What are some of the trade-offs that Sheena probably considered relative to: The town is considering an ordinance that would prohibit putting grass clippings at the curb for pickup because local landfills cannot handle the volume.
What options might Sheena consider if the ordinance is passed? Name two advantages and two drawbacks of each option. Headquartered in Rochester, NY, Wegmans operates over 70 stores. The company employs over 23, people, and has annual sales of over Rs. Wegmans has a strong reputation for offering its customers high product quality and excellent service.
Through a combination of market research, trial and error, and listening to its customers, Wegmans has evolved into a very successful organization. In fact, Wegmans is so good at what it does that grocery chains all over the country send representatives to Wegmans for a firsthand look at operations. A superstore typically employs from to people. Individual stores differ somewhat in terms of actual size and some special features. Aside from the features normally found in supermarkets, they generally have a large bakery Section each store bakes its own bread, rolls, cakes, pies, and pastries , and extra large produce sections.
They also offer film processing a complete pharmacy, a card shop and video rentals. In-store floral shops range in size up to square feet of space, and offer a wide variety of fresh-cut flowers, flower arrangements, varies and plants.
In-store card shops covers over square feet of floor of floor space. The bulk foods department provides customers with the opportunity to select what quantities they desire from a vast array of foodstuffs and some nonfood items.
Each store is a little different. Among the special features in some stores are a dry cleaning department, a wokery, and a salad bar.
Some feature a Market Cafe that has different food stations, each devoted to preparing and serving a certain type of food. For example, one station has pizza and other Italian specialties, and another oriental food. There are also being a sandwich bar, a salad bar and a dessert station. In several affluent locations, customers can stop in on their way home from work and choose from a selection of freshly prepared dinner entrees. Some stores have a coffee shop section with tables and chairs where shoppers can enjoy regular or specialty coffees and variety of tempting pastries.
Produce is replenished as often as 12 times a day. The larger stores have produce sections that are four to five times the size of a produce section of an average supermarket. Wegmans offers locally grown produce a season. Growers may use specially designed containers that go right onto the store floor instead of large bins. This avoids the bruising that often occurs when fruits and vegetables are transferred from bins to display shelves and the need to devote labor to transfer the produce to shelves.
Although sales records are available from records of items scanned at the checkouts, they are not used directly for replenishing stock. Other factors, such as pricing, special promotions, local circumstances must all be taken into account. However, for seasonal periods, such as holidays, managers often check scanner records to learn what past demand was during a comparable period.
The superstores typically receive one truckload of goods per day from the main warehouse. During peak periods, a store may receive two truckloads from the main warehouse. The short lead-time greatly reduce the length of the time an item might be out of stock, unless the main warehouse is also out of stock. The company exercises strict control over suppliers, insisting on product quality and on-time deliveries.
It typically invests an average of Rs. In addition to learning about stores operations, new employees learn the importance of good customer service and how to provide it.
The employees are helpful, cheerfully answering customer questions or handling complaints. Employees are motivated through a combination of compensation, profit sharing, and benefits. Private label food items as well as name brands are regularly evaluated in test kitchens, along with the potential new products. Moreover, employees are encouraged to report problems to their managers. If a customer is dissatisfied with an item and returns it, or even a portion of the item, the customer is offered a choice of a replacement or a refund.
If the item is a Wegmans brand food item, it is then sent to the test kitchen to determine the cause of the problem. If the cause can be determined, corrective action is taken. How do customers judge the quality of a supermarket? Indicate how and why each of these factors is important to the successful operation of a supermarket: One of the key features of a conversion process manufacturing system is the efficiency with which the products services are transferred to the customers.
This fact will include the determination of where to place the plant or facility. The selection of location is a key-decision as large investment is made in building plant and machinery. It is not advisable or not possible to change the location very often. So an improper location of plant may lead to waste of all the investments made in building and machinery, equipment. Before a location for a plant is selected, long range forecasts should be made anticipating future needs of the company.
The purpose of the location study is to find an optimum location one that will result in the greatest advantage to the organization. When starting a new organisation, i. In case of existing organisation. In case of Global Location. The following are the factors to be considered while selecting the location for the new organisations: Identification of region: The organisational objectives along with the various long-term considerations about marketing, technology, internal organisational strengths and weaknesses, region- specific resources and business environment, legal-governmental environment, social environment and geographical environment suggest a suitable region for locating the operations facility.
Choice of a site within a region: Once the suitable region is identified, the next step is choosing the best site from an available set.
Evaluation of alternative sites for their tangible and intangible costs will resolve facilities-location problem. The problem of location of a site within the region can be approached with the following cost-oriented non-interactive model, i. Dimensional analysis: If all the costs were tangible and quantifiable, the comparison and selection of a site is easy. The location with the least cost is selected.
In most of the cases intangible costs which are expressed in relative terms than in absolute terms. Their relative merits and demerits of sites can also be compared easily. Since both tangible and intangible costs need to be considered for a selection of a site, dimensional analysis is used. Dimensional analysis consists in computing the relative merits cost ratio for each of the cost items for two alternative sites. For each of the ratios an appropriate weightage by means of power is given and multiplying these weighted ratios to come up with a comprehensive figure on the relative merit of two alternative sites, i.
When starting a new factory, plant location decisions are very important because they have direct bearing on factors like, financial, employment and distribution patterns.
In the long run, relocation of plant may even benefit the organization. But, the relocation of the plant involves stoppage of production, and also cost for shifting the facilities to a new location. In addition to these things, it will introduce some inconvenience in the normal functioning of the business.
Hence, at the time of starting any industry, one should generate several alternate sites for locating the plant. After a critical analysis, the best site is to be selected for commissioning the plant. Location of warehouses and other facilities are also having direct bearing on the operational performance of organizations. When the demand for product increases, it will give rise to following decisions: In Case of Location Choice for Existing Organisation In this case a manufacturing plant has to fit into a multi-plant operations strategy.
That is, additional plant location in the same premesis and elsewere under following circumstances: Plant manufacturing distinct products. Manufacturing plant supplying to specific market area. Plant divided on the basis of the process or stages in manufacturing. Plants emphasizing flexibility. The different operations strategies under the above circumstances could be: Plants manufacturing distinct products: Each plant services the entire market area for the organization.
This strategy is necessary where the needs of technological and resource inputs are specialized or distinctively different for the different product-lines. For example, a high quality precision product-line should not be located along with other product-line requiring little emphasis on precision. It may not be proper to have too many contradictions such as sophisticated and old equipment, highly skilled and semi-skilled personnel, delicates processes and those that could permit rough handlings, all under one roof and one set of managers.
Such a setting leads to much confusion regarding the required emphasis and the management policies. Product specialization may be necessary in a highly competitive market.
It may be necessary to exploit the special resources of a particular geographical area. The more decentralized these pairs are in terms of the management and in terms of their physical location, the better would be the planning and control and the utilization of the resources.
Manufacturing plants supplying to a specific market area: This type of strategy is useful where market proximity consideration dominates the resources and technology considerations. This strategy requires great deal of coordination from the corporate office. An extreme example of this strategy is that of soft drinks bottling plants. Plants divided on the basis of the process or stages in manufacturing: Each production process or stage of manufacturing may require distinctively different equipment capabilities, labour skills, technologies, and managerial policies and emphasis.
Since the products of one plant feed into the other plant, this strategy requires much centralized coordination of the manufacturing activities from the corporate office that are expected to understand the various technological aspects of all the plants.
Plants emphasizing flexibility: This requires much coordination between plants to meet the changing needs and at the same time ensure efficient use of the facilities and resources. Frequent changes in the long-term strategy in order to improve be efficiently temporarily, are not healthy for the organization.
In any facility location problem the central question is: This is acceptable when it does not violate the basic business and managerial outlines, i. For example, expansion should not compromise quality, delivery, or customer service. Unless there are very compelling reasons, relocation is not done.
The reasons will be either bringing radical changes in technology, resource availability or other destabilization. All these factors are applicable to service organizations, whose objectives, priorities and strategies may differ from those of hardcore manufacturing organizations.
In Case of Global Location Because of globalisation, multinational corporations are setting up their organizations in India and Indian companies are extending their operations in other countries.
In case of global locations there is scope for virtual proximity and virtual factory. Many firms use the communications highway for conducting a large portion of their business transactions.
Logistics is certainly an important factor in deciding on a location—whether in the home country or abroad. Markets have to be reached. Customers have to be contacted. Hence, a market presence in the country of the customers is quite necessary.
The location decision need not always necessarily pertain to own operations. Tangible Reasons The trangible reasons for setting up an operations facility abroad could be as follows: Reaching the customer: One obvious reason for locating a facility abroad is that of capturing a share of the market expanding worldwide. The phenomenal growth of the GDP of India is a big reason for the multinationals to have their operations facilities in our country. An important reason is that of providing service to the customer promptly and economically which is logistics-dependent.
Therefore, cost and case of logistics is a reason for setting up manufacturing facilities abroad. Reaching the customer is thus the main objective.
The tangible costs could be the logistics related costs; the intangible costs may be the risk of operating is a foreign country. The other tangible reasons could be as follows: This may be due to lower labour costs, lower raw material cost, better availability of the inputs like materials, energy, water, ores, metals, key personnel etc.
Intangible Reasons The intangible reasons for considering setting up an operations facility abroad could be as follows: Organisational Learning-related Reasons a The firm can learn advanced technology.
For example, it is possible that cutting-edge technologies can be learn by having operations in an technologically more advanced country. Such learning may help the entire product-line of the company. A physical location there may be essential towards this goal. For this reason, it may have to be physically present where the action is. If the firm has a manufacturing plant there, it will have intensive interaction with the suppliers in that country from whom there may be much to learn in terms of modern and appropriate technology, modern management methods, and new trends in business worldwide.
This may help the firm in lobbying with the government of that country and with the business associations in that country. The firm could, thus, reduce its supply risks. Thus, the firm can gather the best of people from across the globe. If one market goes slow the other may be doing well, thus lowering the overall risk. Managers of both service and manufacturing organizations must weigh many factors when assessing the desirability of a particular site, including proximity to customers and suppliers, labour costs, and transportation costs.
Location conditions are complex and each comprises a different Characteristic of a tangible i. Freight rates, production costs and non-tangible i. Location conditions are hard to measure. Tangible cost based factors such as wages and products costs can be quantified precisely into what makes locations better to compare.
On the other hand non-tangible features, which refer to such characteristics as reliability, availability and security, can only be measured along an ordinal or even nominal scale. Other non-tangible features like the percentage of employees that are unionized can be measured as well. To sum this up non-tangible features are very important for business location decisions. It is appropriate to divide the factors, which influence the plant location or facility location on the basis of the nature of the organisation as 1.
General locational factors, which include controllable and uncontrollable factors for all type of organisations. Specific locational factors specifically required for manufacturing and service organisations.
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Location factors can be further divided into two categories: Dominant factors are those derived from competitive priorities cost, quality, time, and flexibility and have a particularly strong impact on sales or costs.
Secondary factors also are important, but management may downplay or even ignore some of them if other factors are more important. Proximity to markets 2. Supply of materials 3. Transportation facilities 4. Infrastructure availability 5.
External economies 7. Government policy 9. Climate conditions Supporting industries and services Community and labour attitudes Proximity to markets: Every company is expected to serve its customers by providing goods and services at the time needed and at reasonable price organizations may choose to locate facilities close to the market or away from the market depending upon the product. When the downloaders for the product are concentrated, it is advisable to locate the facilities close to the market.
Nearness to the market ensures a consistent supply of goods to customers and reduces the cost of transportation. Supply of raw material: It is essential for the organization to get raw material in right qualities and time in order to have an uninterrupted production. This factor becomes very important if the materials are perishable and cost of transportation is very high. General guidelines suggested by Yaseen regarding effects of raw materials on plant location are: Nearness to raw material is important in case of industries such as sugar, cement, jute and cotton textiles.
Transportation facilities: Speedy transport facilities ensure timely supply of raw materials to the company and finished goods to the customers. The transport facility is a prerequisite for! There are five basic modes of physical transportation, air, road, rail, water and pipeline. Goods that are mainly intended for exports demand a location near to the port or large airport. The choice of transport method and hence the location will depend on relative costs, convenience, and suitability.
Thus transportation cost to value added is one of the criteria for plant location. Infrastructure availability: The basic infrastructure facilities like power, water and waste disposal, etc.
Certain types of industries are power hungry e. The non-availability of power may become a survival problem for such industries. Process industries like paper, chemical, cement, etc. Supply of water in large amount and good quality, and mineral content of water becomes an important factor.
A waste disposal facility for process industries is an important factor, which influences the plant location. Labour and wages: The problem of securing adequate number of labour and with skills specific is a factor to be considered both at territorial as well as at community level during plant location. Importing labour is usually costly and involve administrative problem. The history of labour relations in a prospective community is to be studied.
Prospective community is to be studied. Productivity of labour is also an important factor to be considered. External economies of scale: External economies of scale can be described as urbanization and locational economies of scale. In the case of urbanization economies, firms derive from locating in larger cities rather than in smaller ones in a search of having access to a large pool of labour, transport facilities, and as well to increase their markets for selling their products and have access to a much wider range of business services.
Location economies of scale in the manufacturing sector have evolved over time and have mainly increased competition due to production facilities and lower production costs as a result of lower transportation and logistical costs. This led to manufacturing districts where many companies of related industries are located more or less in the same area. This high efficient production system was one main factor in the Japanese car industry for being so successful. Just in time ensures to get spare parts from suppliers within just a few hours after ordering.
To fulfill these criteria corporations have to be located in the same area increasing their market and service for large corporations. By looking at capital as a location condition, it is important to distinguish the physiology of fixed capital in buildings and equipment from financial capital.
Fixed capital costs as building and construction costs vary from region to region. But on the other hand buildings can also be rented and existing plants can be expanded. Financial capital is highly mobile and does not very much influence decisions. Capital becomes a main factor when it comes to venture capital. In that case young, fast growing or not high tech firms are concerned which usually have not many fixed assets. These firms particularly need access to financial capital and also skilled educated employees.
Government policy: The policies of the state governments and local bodies concerning labour laws, building codes, safety, etc. In order to have a balanced regional growth of industries, both central and state governments in our country offer the package of incentives to entrepreneurs in particular locations.
The incentive package may be in the form of exemption from a safes tax and excise duties for a specific period, soft loan from financial institutions, subsidy in electricity charges and investment subsidy. Some of these incentives may tempt to locate the plant to avail these facilities offered. Climatic conditions: The geology of the area needs to be considered together with climatic conditions humidity, temperature. Climates greatly influence human efficiency and behaviour.
Some industries require specific climatic conditions e. Supporting industries and services: Now a day the manufacturing organisation will not make all the components and parts by itself and it subcontracts the work to vendors. So, the source of supply of component parts will be the one of the factors that influences the location. The various services like communications, banking services professional consultancy services and other civil amenities services will play a vital role in selection of a location.
Community and labour attitudes: Community attitude towards their work and towards the prospective industries can make or mar the industry.What are its characteristics, advantages and limitations? Work centres that interact frequently, with movement of material or people, should be located close together, whereas those that have little interaction can be spatially separated. Evaluate the solution. What is job shop production? Manufacturing has the responsibility of selecting the processes by which the product can be manufactured.
A manager might go with a particularly efficient solution even if it does not match the output rate.