What is Production Management?

Meaning
Production management means planning, organising, directing and controlling of production activities.
Production management deals with converting raw materials into finished goods or products. It brings
together the 6M's i.e. men, money, machines, materials, methods and markets to satisfy the wants of
the people.

Image Credits © jovijovijovi.

Production management also deals with decision-making regarding the quality, quantity, cost, etc., of
production. It applies management principles to production.
Production management is a part of business management. It is also called "Production Function."
Production management is slowly being replaced by operations management.
The main objective of production management is to produce goods and services of the right quality,
right quantity, at the right time and at minimum cost. It also tries to improve the efficiency. An efficient
organisation can face competition effectively. Production management ensures full or optimum
utilisation of available production capacity.

Definition of Production Management

According to Elwood Spencer Buffa,

"Production management deals with decision-making related to production processes so that the
resulting goods or service is produced according to specification, in the amount and by the schedule
demanded and at minimum cost."

Importance of Production Management

The importance of production management to the business firm:

1. Accomplishment of firm's objectives : Production management helps the business firm to
achieve all its objectives. It produces products, which satisfy the customers' needs and wants.
So, the firm will increase its sales. This will help it to achieve its objectives.
2. Reputation, Goodwill and Image : Production management helps the firm to satisfy its
customers. This increases the firms reputation, goodwill and image. A good image helps the firm
to expand and grow.
 3. Helps to introduce new products : Production management helps to introduce new products in
the market. It conducts Research and development (R&D). This helps the firm to develop newer
and better quality products. These products are successful in the market because they give full
satisfaction to the customers.
4. Supports other functional areas : Production management supports other functional areas in an
organisation, such as marketing, finance, and personnel. The marketing department will find it
easier to sell good-quality products, and the finance department will get more funds due to
increase in sales. It will also get more loans and share capital for expansion and modernisation.
The personnel department will be able to manage the human resources effectively due to the
better performance of the production department.
5. Helps to face competition : Production management helps the firm to face competition in the
market. This is because production management produces products of right quantity, right
quality, right price and at the right time. These products are delivered to the customers as per
their requirements.
6. Optimum utilisation of resources : Production management facilitates optimum utilisation of
resources such as manpower, machines, etc. So, the firm can meet its capacity utilisation
objective. This will bring higher returns to the organisation.
7. Minimises cost of production : Production management helps to minimise the cost of
production. It tries to maximise the output and minimise the inputs. This helps the firm to
achieve its cost reduction and efficiency objective.
8. Expansion of the firm : The Production management helps the firm to expand and grow. This is
because it tries to improve quality and reduce costs. This helps the firm to earn higher profits.
These profits help the firm to expand and grow.
The importance of production management to customers and society:
1. Higher standard of living : Production management conducts continuous research and
development (R&D). So they produce new and better varieties of products. People use these
products and enjoy a higher standard of living.
2. Generates employment : Production activities create many different job opportunities in the
country, either directly or indirectly. Direct employment is generated in the production area,
and indirect employment is generated in the supporting areas such as marketing, finance,
customer support, etc.
3. Improves quality and reduces cost : Production management improves the quality of the
products because of research and development. Because of large-scale production, there are
economies of large scale. This brings down the cost of production. So, consumer prices also
reduce.
4. Spread effect : Because of production, other sectors also expand. Companies making spare parts
will expand. The service sector such as banking, transport, communication, insurance, BPO, etc.
also expand. This spread effect offers more job opportunities and boosts economy.
5. Creates utility : Production creates Form Utility. Consumers can get form utility in the shape,
size and designs of the product. Production also creates time utility, because goods are available
whenever consumers need it.
6. Boosts economy : Production management ensures optimum utilisation of resources and
effective production of goods and services. This leads to speedy economic growth and well-
being of the nation.

Plant location means deciding a suitable location, area or place where the plant will
start functioning. It refers to the area where the plant will operate to produce goods or services.
Factors Affecting Plant Location

Plant location must be selected properly by entrepreneurs while planning to set up their business units.

While taking such a decision, they must consider some important factors.
The following image depicts important factors affecting a plant location.

Image credits © Prof. Mudit Katyani.

The ten main factors that affect a plant location are as follows:
1. Law and order situation,
2. Availability of infrastructure facilities,
3. Good industrial relations,
4. Availability of skilled workforce,
5. Social infrastructure,
6. Investor friendly attitude,
7. Nearness to market,
8. Nearness to raw-materials' source,
9. Nearness to supportive industries and services, and
10. Must meet safety requirements.
Now let's discuss above factors affecting the location of a plant.

1. Law and order situation

Plant location must be at that place where law and order situation is in control. Entrepreneurs give a lot
of importance to this factor while locating a business unit in any state or region. If a state has bad law
and order situation, then the business must not be located within that state, unless it has other
important factors such as availability of heavy or bulky raw materials.

2. Availability of infrastructure facilities

Plant location which is selected must have proper infrastructure facilities. Without good infrastructure
facilities, it will be difficult to do business efficiently. The infrastructure facilities are the backbone of all
industries. Without it, business cannot be done.
Crucial infrastructure facilities that help industries to grow:
1. Transport and communications,
2. Banking and insurance services,
3. Regular fuel supply,
4. Continuous supply of electricity and water, etc.

3. Good industrial relations

Plant location must be at those places where good industrial-relations are maintained. Industrial
relations become bad, because of militant and selfish trade unions. Entrepreneurs do not want to locate
their business at places where anti-social elements are rampant, although there are other favorable
factors such as good infrastructure facilities, cheap labor, etc.

4. Availability of skilled workforce

Plant location must be convenient and easily accessible to skilled workforce. Most businesses require
skilled-labor force such as engineers, management experts, computer programmers, etc. The
entrepreneurs must consider the availability of competent and skillful-workforce at a particular place to
locate their business.

5. Social infrastructure

Plant location must have good a social infrastructure. There is a need for social-infrastructure not only
for employees but also for the development of their families. The availability of social-infrastructure will
increase the employees' welfare.
There must be suitable social infrastructure facilities like;
● Education institutions,
● Hospitals and health centers,
● Community centers like worship place, garden, meditation center, etc.
● Recreation facilities like theaters, clubs, communication facilities, etc.

6. Investor friendly attitude

Plant location must be in those states whose governments have an investor-friendly attitude.
Government must give attractive incentives and concessions to those who start business units in their
states. There must not be any bureaucratic control for starting a business.
An investor-friendly attitude will not only attract investment, but will also result in the overall
development.

7. Nearness to market

Plant location must be near a market. Every business unit depends on a market for selling its goods and
services. The goods and services must reach the market on time, and it must be available to the
consumers at a low price. Therefore, this factor is given importance while selecting location of a plant.
Locating a plant near the market is preferred, when the product is fragile (easily breakable), perishable,
heavy or bulky and when quick service is required.

8. Nearness to raw-materials' source

Plant location must be usually near to the source of raw-material. Raw-materials' costs are about 50% of
the total cost. So, it is important in the business to get the raw materials in time and at a reasonable
price. Therefore, a business must be located close to the source of raw material, especially in the case of
“Gross Materials.”
Gross Materials are those which lose weight in the production process. Examples of Gross Materials are
sugarcane, iron ore, limestone, so on.
However, if the raw material is a “Pure Material,” then the business may be located away from the
source of raw materials.
Pure Materials are those which add their weight to the finished product. Examples of Pure materials are
cotton textiles, bakeries, silk fabrics, etc.

9. Nearness to supporting industries

Plant location must be near its supporting industries and services. If it purchases spare parts from an
outside agency, then these agencies must be located very close to the business. If not, the business will
have to spend a lot of extra money on transport. It will also be difficult, to control the quality of the
spare parts because of the distant location.

10. Must meet safety requirements

Plant location must meet all essential safety requirements. Due to air, water and sound pollution, some
factories have a bad effect on the health of the people. Therefore, these factories must be located away
from residential areas. Safety of environment must also be given priority in this regards.
10. Miscellaneous factors

Following miscellaneous factors also affect a plant location:

● Availability and cost of land,
● Suitability of land - soil and topography,
● Climatic conditions,
● Location of a similar unit, etc.

2.
PLANT LAYOUT
Definition: Plant layout refers to the arrangement of physical facilities such as machines, equipment, tools,
furniture etc. in such a manner so as to have quickest flow of material at the lowest cost and with the least
amount of handling in processing the product from the receipt of raw material to the delivery of the final
product.

Objectives of good Plant Layout:

∙          A well designed plant layout is one that can be beneficial in achieving the following objectives:
∙          Proper and efficient utilization of available floor space
∙          Transportation of work from one point to another point without any delay
∙          Proper utilization of production capacity.
∙          Reduce material handling costs
∙          Utilize labour efficiently
∙          Reduce accidents
∙          Provide for volume and product flexibility
∙          Provide ease of supervision and control
∙          Provide for employee safety and health
∙          Allow easy maintenance of machines and plant.
∙          Improve productivity

TYPES OF LAYOUT:

There are mainly four types of plant layout:

(a) Product or line layout

(b) Process or functional layout

(c) Fixed position or location layout

(d) Combined or group layout

 
PRODUCT OR LINE LAYOUT:
In this type of layout the machines and equipments are arranged in one line depending upon the
sequence of operations required for the product. It is also called as line layout. The material moves to
another machine sequentially without any backtracking or deviation i.e the output of one machine
becomes input of the next machine. It requires a very little material handling.
It is used for mass production of standardized products.
 

Advantages of Product layout:

∙          Low cost of material handling, due to straight and short route and absence of backtracking
∙          Smooth and continuous operations
∙          Continuous flow of work
∙          Lesser inventory and work in progress
∙          Optimum use of floor space
∙          Simple and effective inspection of work and simplified production control
∙          Lower manufacturing cost per unit

Disadvantages of Product layout:

∙          Higher initial capital investment in special purpose machine (SPM)
∙          High overhead charges
∙          Breakdown of one machine will disturb the production process.
∙          Lesser flexibility of physical resources.

 
PROCESS LAYOUT:
In this type of layout the machines of a similar type are arranged together at one place. This type of
layout is used for batch production. It is preferred when the product is not standardized and the quantity
produced is very small.
 
 Advantages of Process layout:
∙          Lower initial capital investment is required.
∙          There is high degree of machine utilization, as a machine is not blocked for a single product
∙          The overhead costs are relatively low
∙          Breakdown of one machine does not disturb the production process.
∙          Supervision can be more effective and specialized.
∙          Greater flexibility of resources.

Disadvantages of Process layout:

∙          Material handling costs are high due to backtracking
∙          More skilled labour is required resulting in higher cost.
∙          Work in progress inventory is high needing greater storage space
∙          More frequent inspection is needed which results in costly supervision

COMBINED LAYOUT:
∙          A combination of process & product layout is known as combined layout.

       Manufacturing concerns where several products are produced in repeated numbers with no likelihood of
continuous production, combined layout is followed
 
 
FIXED POSITION OR LOCATION LAYOUT:

Fixed position layout involves the movement of manpower and machines to the product which remains
stationary. The movement of men and machines is advisable as the cost of moving them would be lesser.
This type of layout is preferred where the size of the job is bulky and heavy. Example of such type of layout is
locomotives, ships, boilers, generators, wagon building, aircraft manufacturing, etc. 
 Advantages of Fixed position layout:
∙          The investment on layout is very small.
∙          The layout is flexible as change in job design and operation sequence can be easily incorporated.
∙          Adjustments can be made to meet shortage of materials or absence of workers by changing the
sequence of operations.

Disadvantages of Fixed position layout:

∙          As the production period being very long so the capital investment is very high.
∙          Very large space is required for storage of material and equipment near the product.
∙          As several operations are often carried out simultaneously so there is possibility of confusion and
conflicts among different workgroups.

 
Principles of Plant Layout
1. Principle of integration: A good layout is one that integrates men, materials, machines
and supporting services and others in order to get the optimum utilisation of resources and
maximum effectiveness.
2. Principle of minimum distance: This principle is concerned with the minimum travel
(or movement) of man and materials. The facilities should be arranged such that, the total
distance travelled by the men and materials should be minimum and as far as possible straight
line movement should be preferred.
3. Principle of cubic space utilisation: The good layout is one that utilise both horizontal
and vertical space. It is not only enough if only the floor space is utilised optimally but the third
dimension, i.e., the height is also to be utilised effectively.
4. Principle of flow: A good layout is one that makes the materials to move in forward
direction towards the completion stage, i.e., there should not be any backtracking.
5. Principle of maximum flexibility: The good layout is one that can be altered without
much cost and time, i.e., future requirements should be taken into account while designing the
present layout.
6. Principle of safety, security and satisfaction: A good layout is one that gives due
consideration to workers safety and satisfaction and safeguards the plant and machinery against
fire, theft, etc.
7. Principle of minimum handling: A good layout is one that reduces the material handling
to the minimum.