Production Functions and Operations Management
Item 7: Production Function and Company Costs
1. Production Department
Production Function: All activities that produce a good or provide a service using raw materials, machinery, facilities, and manpower.
Features of the Production Department:
- Manufacturing the product
- Provisioning (providing materials, selecting suppliers)
- Storage
- Quality Assurance
2. Production
- Product: Good or service.
- Involves a combination of production factors: raw materials, labor (manpower), machinery and facilities, and capital.
- Value is added to create useful gains.
- Producing Sectors: Primary, secondary, tertiary.
2.1 Technology
A way to combine production factors to create a product. Each product has a specific technology; the same product can also be made with different technologies. Companies invest in improving production technologies through R&D (Research + Development + Innovation).
3. Production Function
- L: Labor (workers)
- F: Productivity and Performance
- K: Capital (machinery)
- Q: Production (quantity of product to achieve)
Performance and Productivity: The relationship between the quality and quantity of production factors used.
Quantity Produced / Amount of Production Factors Used
- Labor Productivity: Production / Units of workers (Number of employees) FL = Q / L
- Capital Productivity: Production / Units of machinery (Number of Machines) FK = Q / K
- Total Productivity: Value of production (Euros gained from sales) / Cost of production (Euros spent on labor and machinery) FT = QT / CT
T8: Production Management
1. Production Function: Objectives and Elements
- Combining factors of production (labor and capital)
- Specifies a technology for a product (or service)
The Direction of Production (Heads of the Production Department):
- Handles objectives.
- Plans the entire process.
- Controls the results.
Key Considerations:
- Sufficient production capacity.
- Sufficient product demand.
- Favorable economic environment.
2. Production Planning
The production system operates under these criteria:
- Efficiency: “Work hard”
- Effectiveness: “Achieve good results in a short time”
Planning structures the production process into stages for product development:
- With sufficient quality.
- At minimal cost.
- Within the scheduled time.
3. MRP System (Material Requirements Planning)
Used to determine the needs and availability of raw materials for production:
Requires prior knowledge of:
- Production program (what and when to produce)
- List of materials needed
- Material availability (in storage, from suppliers)
- Lead time (time available)
4. Planning Methods and Techniques
Systems for programming and monitoring the production process, especially when complex with interdependent activities:
- PERT-CPM Method (graph): Outlines a project’s execution, including different situations and activities.
- Earliest Time (E): Minimum time to reach a situation.
- Latest Time (L): Maximum time to reach a situation.
- Total Time: L = E
- Critical Path: Situations where Earliest Time equals Latest Time; activities with no delay allowance, as any delay would impact the project. This requires the most attention.
- Gantt Charts (graphical and visually simple): Another method used.
5. Logistics
A comprehensive system to manage production and maintain market competitiveness:
- Management, planning, and control.
- Sourcing of materials.
- Storage.
- Transportation and distribution.
- Quality.
6. Quality
The set of features and technical specifications that define a product. Improving quality requires improving the production process, including:
- Raw materials.
- Machinery.
- Facilities.