Unit 2: Production Management

Syllabus:

Production Management: Definition, Objectives, Functions and Scope, Production Planning and Control; its significance, stages in production planning and control. Brief introduction to the concepts of material management, inventory control; its importance and various methods.

PYQ Analysis

High Priority Topics (15 marks)

1. Production Management - Objectives, Functions - Jul-21, Jul-22, May-23
2. Production Planning and Control (PPC) - Jul-21, Jul-22, May-23
3. Inventory Control - Importance & Methods - Jul-21, Jul-22, May-23
4. Material Management - May-23

Short Answer Topics (3 marks)

1. Production Control - Jul-21
2. EOQ (Economic Order Quantity) - Jul-21
3. Production Planning - May-23
4. Importance of Inventory Control - May-23

1. Production Management

PYQ: Explain the production management with their objectives. Which type of function is performed by a production manager in an organization? Define all those functions. (Jul-21, 15 marks)
PYQ: What is production Management? Explain the importance and functions of production management. Also explain the steps involved in production planning and control. (Jul-22, 15 marks)

1.1 Definition

Production Management is the process of planning, organizing, directing, and controlling production activities to convert raw materials into finished goods efficiently and economically.

Other Definitions:

E.L. Brech: "Production management is the process of effective planning and regulating the operations of that section of an enterprise which is responsible for the actual transformation of materials into finished products."

Simple Definition: Production management means managing the process of converting inputs (raw materials, labor, machines) into outputs (finished products) in the most efficient way.

1.2 Objectives of Production Management

PYQ: Explain the production management with their objectives. (Jul-21, 15 marks)

1. Right Quality:

• Produce goods of desired quality
• Meet customer specifications
• Quality standards maintained
• Example: Manufacturing phones with zero defects

2. Right Quantity:

• Produce required quantity
• Avoid overproduction or underproduction
• Meet demand without excess inventory
• Example: Produce 1000 units as per order

3. Right Time:

• Deliver products on time
• Meet delivery schedules
• Avoid delays
• Example: Complete order before deadline

4. Right Cost:

• Minimize production costs
• Use resources efficiently
• Reduce wastage
• Example: Produce at lowest possible cost without compromising quality

5. Right Place:

• Make products available at right location
• Proper distribution
• Example: Deliver goods to warehouse or customer location

6. Maximum Utilization of Resources:

• Optimal use of machines, materials, manpower
• Reduce idle time
• Increase productivity

7. Customer Satisfaction:

• Meet customer expectations
• Quality products at reasonable price
• Timely delivery

1.3 Functions of Production Management

PYQ: Which type of function is performed by a production manager in an organization? Define all those functions. (Jul-21, 15 marks)
PYQ: Explain the importance and functions of production management. (Jul-22, 15 marks)

1. Product Design and Development:

Deciding what product to make and how it should look.

• Design new products
• Improve existing products
• Consider customer needs
• Use technology and innovation
• Example: Designing new smartphone model with better features

2. Production Planning:

Deciding in advance what to produce, how much, when, and with what resources.

• Determine production targets
• Schedule production activities
• Allocate resources
• Plan for materials, machines, manpower
• Example: Plan to produce 5000 units next month using 3 machines and 50 workers

3. Production Control:

PYQ: Production control (Jul-21, 3 marks)

Monitoring actual production and comparing with planned production, taking corrective action if needed.

• Monitor progress
• Compare actual vs planned
• Identify deviations
• Take corrective measures
• Example: If only 800 units produced instead of 1000, investigate and fix issues

4. Quality Control:

Ensuring products meet quality standards.

• Set quality standards
• Inspect products
• Test samples
• Reject defective items
• Continuous improvement
• Example: Check 10% of products for defects

5. Inventory Control:

Managing stock of raw materials, work-in-progress, and finished goods.

• Maintain optimal inventory levels
• Avoid stockouts and overstocking
• Reduce carrying costs
• Example: Keep 2 weeks of raw material stock

6. Maintenance and Replacement:

Keeping machines and equipment in good working condition.

• Regular maintenance
• Repair breakdowns
• Replace old equipment
• Prevent production stoppage
• Example: Weekly machine servicing

7. Cost Control:

Minimizing production costs without compromising quality.

• Reduce wastage
• Improve efficiency
• Control expenses
• Example: Reduce material wastage from 10% to 5%

8. Methods Improvement:

Finding better ways to do work.

• Study work methods
• Eliminate unnecessary steps
• Simplify processes
• Use technology
• Example: Introduce automation to reduce manual work

1.4 Scope of Production Management

1. Location of Plant:

• Deciding where to set up factory
• Consider raw material availability, labor, transportation, market

2. Plant Layout:

• Arrangement of machines and equipment
• Smooth flow of materials
• Efficient space utilization

3. Materials Management:

• Procurement, storage, issue of materials
• Inventory control

4. Maintenance:

• Preventive and breakdown maintenance
• Equipment reliability

5. Production Planning and Control:

• Scheduling, routing, dispatching
• Progress monitoring

6. Quality Management:

• Quality assurance and control
• Continuous improvement

7. Cost Management:

• Cost reduction programs
• Budgeting and control

1.5 Importance of Production Management

1. Increases Productivity:

• Better use of resources
• Higher output with same input
• Reduces costs

2. Reduces Costs:

• Eliminates wastage
• Efficient processes
• Better planning

3. Improves Quality:

• Quality control measures
• Customer satisfaction
• Competitive advantage

4. Timely Delivery:

• Proper planning ensures on-time delivery
• Builds customer trust

5. Better Utilization of Resources:

• Optimal use of machines, materials, manpower
• Reduces idle time

6. Competitive Advantage:

• Lower costs and better quality
• Helps compete in market

2. Production Planning and Control (PPC)

PYQ: What is Production Planning and Control (PPC)? What is the importance of PPC in an organization and also explain the steps during PPC process? (May-23, 15 marks)
PYQ: Production Planning (May-23, 3 marks)
PYQ: Also explain the steps involved in production planning and control. (Jul-22, 15 marks)

2.1 Meaning

Production Planning is deciding in advance what to produce, how much to produce, when to produce, and with what resources.

Production Control is monitoring actual production, comparing with plans, and taking corrective action.

Production Planning and Control (PPC) is the integrated process of planning production activities and controlling them to ensure plans are executed properly.

2.2 Significance/Importance of PPC

PYQ: What is the importance of PPC in an organization? (May-23, 15 marks)

1. Optimum Utilization of Resources:

• Machines, materials, manpower used efficiently
• Reduces idle time
• Increases productivity

2. Reduces Production Costs:

• Eliminates wastage
• Better planning reduces expenses
• Economies of scale

3. Ensures Timely Delivery:

• Production scheduled properly
• Meets customer deadlines
• Improves customer satisfaction

4. Maintains Quality:

• Quality standards set and monitored
• Defects identified early
• Consistent quality

5. Improves Coordination:

• All departments work together
• Smooth flow of work
• Better communication

6. Inventory Control:

• Maintains optimal inventory levels
• Avoids stockouts and overstocking
• Reduces carrying costs

7. Flexibility:

• Can adapt to changes in demand
• Handles rush orders
• Quick response to market

8. Employee Morale:

• Clear work schedules
• Reduces confusion
• Better working conditions

9. Competitive Advantage:

• Lower costs, better quality, timely delivery
• Helps compete effectively

2.3 Stages/Steps in Production Planning and Control

PYQ: Stages in production planning and control. (Jul-21, 15 marks)
PYQ: Explain the steps during PPC process. (May-23, 15 marks)

PLANNING PHASE:

1. Routing:

Determining the path or route that work will follow through the factory.

• Decide sequence of operations
• Which machine will do which operation
• Path of materials through production
• Example: Raw material → Cutting → Shaping → Assembly → Painting → Packing

Activities:

• Analyze product design
• List all operations needed
• Determine sequence
• Select machines and tools
• Prepare route sheet

2. Scheduling:

Deciding when each operation will be performed and how long it will take.

• Prepare time table for production
• Allocate time for each operation
• Set start and finish dates
• Example: Cutting (2 hours) → Shaping (3 hours) → Assembly (4 hours)

Types:

• Master Schedule: Overall production plan
• Operation Schedule: Detailed time for each operation
• Daily Schedule: Day-to-day work plan

3. Loading:

Assigning work to machines and workers.

• Allocate jobs to specific machines
• Ensure machines not overloaded or underloaded
• Balance workload
• Example: Machine A gets 8 hours work, Machine B gets 7 hours

CONTROL PHASE:

4. Dispatching:

Issuing orders to start production.

• Release work orders
• Issue materials, tools, drawings
• Give instructions to workers
• Start actual production
• Example: Issue order to start production of 1000 units

Activities:

• Issue production order
• Provide materials from stores
• Give tools and equipment
• Instruct workers
• Record start time

5. Follow-up (Expediting):

Monitoring progress of work and ensuring it proceeds as planned.

• Check if work is on schedule
• Identify delays or problems
• Take corrective action
• Remove bottlenecks
• Example: If production delayed, find reason and fix it

Activities:

• Monitor progress regularly
• Compare actual vs planned
• Identify delays
• Find causes of delays
• Take corrective measures
• Report to management

6. Inspection:

Checking quality of products at various stages.

• Ensure quality standards met
• Detect defects early
• Accept or reject products
• Example: Check 10% of products for defects

7. Corrective Action:

Taking steps to fix problems and bring production back on track.

• Analyze deviations
• Find root causes
• Implement solutions
• Prevent recurrence
• Example: If quality poor, retrain workers or adjust machines

Flow Diagram:

PLANNING PHASE:
Routing → Scheduling → Loading
    ↓
CONTROL PHASE:
Dispatching → Follow-up → Inspection → Corrective Action
    ↓
Feedback to Planning

3. Material Management

PYQ: What is material management and why it is necessary to manage the material? (May-23, 15 marks)

3.1 Meaning

Material Management is the planning, organizing, and controlling of the flow of materials from their initial purchase through internal operations to service of the final product.

Simple Definition: Material management means managing all activities related to materials - from purchasing to storage to issue to production.

3.2 Objectives

1. Continuous Supply:

• Ensure materials always available
• No production stoppage due to material shortage
• Uninterrupted production

2. Minimum Investment:

• Reduce money locked in inventory
• Maintain optimal stock levels
• Better cash flow

3. Cost Reduction:

• Buy at best prices
• Reduce wastage
• Lower handling and storage costs

4. Quality Maintenance:

• Purchase quality materials
• Proper storage to prevent damage
• Right materials for production

5. Good Relations:

• Maintain good relations with suppliers
• Reliable suppliers
• Timely delivery

3.3 Why Material Management is Necessary

PYQ: Why it is necessary to manage the material? (May-23, 15 marks)

1. Large Investment:

• Materials constitute 50-60% of production cost
• Huge money involved
• Need proper management

2. Continuous Production:

• Materials must be available when needed
• Avoid production delays
• Meet customer deadlines

3. Cost Control:

• Proper management reduces costs
• Eliminates wastage
• Improves profitability

4. Quality Products:

• Quality materials lead to quality products
• Customer satisfaction
• Brand reputation

5. Competitive Advantage:

• Lower costs through better material management
• Can offer competitive prices
• Better market position

6. Avoid Stockouts:

• Prevents running out of materials
• No production stoppage
• No lost sales

7. Avoid Overstocking:

• Prevents excess inventory
• Reduces carrying costs
• Frees up working capital

3.4 Functions of Material Management

1. Material Planning:

• Forecast material requirements
• Plan purchases in advance

2. Purchasing:

• Buy materials at right price, quality, time
• Select suppliers
• Negotiate terms

3. Receiving and Inspection:

• Receive materials from suppliers
• Inspect for quality and quantity
• Accept or reject

4. Storage:

• Store materials properly
• Prevent damage and theft
• Maintain records

5. Inventory Control:

• Maintain optimal stock levels
• Use inventory control techniques
• Monitor stock movements

6. Issue of Materials:

• Issue materials to production as needed
• Maintain issue records
• Control consumption

4. Inventory Control

PYQ: What is the inventory control and its importance? Explain the following terms with the help of an example: (a) EOQ (b) ABC (c) VED (Jul-21, 15 marks)
PYQ: Define Inventory Control. Also explain the various methods of inventory control in detail. (Jul-22, 15 marks)
PYQ: Also explain some techniques of inventory control. (May-23, 15 marks)
PYQ: Importance of Inventory Control (May-23, 3 marks)

4.1 Meaning

Inventory means stock of materials held by an organization. It includes:

• Raw materials
• Work-in-progress (semi-finished goods)
• Finished goods
• Spare parts and consumables

Inventory Control is maintaining optimal level of inventory - not too much, not too little. It ensures materials are available when needed without excess investment.

4.2 Importance of Inventory Control

PYQ: What is the inventory control and its importance? (Jul-21, 15 marks)
PYQ: Importance of Inventory Control (May-23, 3 marks)

1. Ensures Continuous Production:

• Materials always available
• No production stoppage
• Meet delivery schedules

2. Reduces Investment:

• Avoids excess inventory
• Less money locked in stock
• Better cash flow

3. Reduces Costs:

• Lower carrying costs (storage, insurance, handling)
• Reduces obsolescence and deterioration
• Minimizes wastage

4. Protects Against Price Fluctuations:

• Can buy when prices low
• Stock for future use
• Hedge against inflation

5. Economies of Bulk Buying:

• Buy in large quantities at discount
• Reduce per unit cost
• Better negotiation with suppliers

6. Meets Emergencies:

• Buffer stock for unexpected demand
• Handles rush orders
• Prevents stockouts

7. Smooth Production:

• Balanced inventory ensures smooth operations
• No delays due to material shortage
• Efficient production

8. Customer Satisfaction:

• Products available when customers want
• No lost sales
• Builds loyalty

4.3 Methods/Techniques of Inventory Control

PYQ: Explain the following terms with the help of an example: (a) EOQ (b) ABC (c) VED (Jul-21, 15 marks)
PYQ: Define Inventory Control. Also explain the various methods of inventory control in detail. (Jul-22, 15 marks)
PYQ: Also explain some techniques of inventory control. (May-23, 15 marks)

A. Economic Order Quantity (EOQ)

PYQ: EOQ (Jul-21, 3 marks)

EOQ is the optimal order quantity that minimizes total inventory costs (ordering cost + carrying cost).

Concept:

• If order quantity is small: Frequent orders → High ordering cost
• If order quantity is large: High inventory → High carrying cost
• EOQ finds the balance

Formula:

EOQ = √(2 × Annual Demand × Ordering Cost / Carrying Cost per unit per year)

Where:

• Annual Demand = Total units needed per year
• Ordering Cost = Cost per order (paperwork, transportation, etc.)
• Carrying Cost = Cost to hold one unit in inventory for one year (storage, insurance, etc.)

Example:

A company needs 10,000 units per year

• Ordering cost = ₹100 per order
• Carrying cost = ₹5 per unit per year

EOQ = √(2 × 10,000 × 100 / 5)
    = √(2,000,000 / 5)
    = √400,000
    = 632 units (approximately)

Meaning: Company should order 632 units each time to minimize total cost.

Number of orders per year = 10,000 / 632 = 16 orders

Benefits:

• Minimizes total inventory cost
• Optimal order quantity
• Reduces wastage
• Better planning

B. ABC Analysis

ABC Analysis classifies inventory items based on their value and importance. It is based on Pareto Principle (80-20 rule).

Classification:

A Category Items (High Value):

• 10-20% of items
• 70-80% of total value
• Most important items
• Tight control needed
• Frequent review
• Example: Engines in car manufacturing, diamonds in jewelry shop

B Category Items (Medium Value):

• 30-40% of items
• 15-20% of total value
• Moderate importance
• Moderate control
• Periodic review
• Example: Tires in car manufacturing, gold in jewelry shop

C Category Items (Low Value):

• 40-50% of items
• 5-10% of total value
• Least important
• Simple control
• Annual review
• Example: Nuts and bolts in car manufacturing, packaging material in jewelry shop

Example:

A store has 100 items worth ₹10,00,000:

Control Measures:

Benefits:

• Focus on important items
• Efficient use of management time
• Reduces inventory cost
• Better control

C. VED Analysis

VED Analysis classifies items based on their criticality for production.

Classification:

V - Vital Items:

• Absolutely essential for production
• Production stops without them
• Must always be in stock
• High safety stock
• Example: Engine parts, critical raw materials

E - Essential Items:

• Important but not critical
• Production can continue for short time without them
• Moderate stock levels
• Example: Lubricants, some spare parts

D - Desirable Items:

• Not critical
• Production can continue without them
• Low stock levels
• Order when needed
• Example: Cleaning materials, stationery

Example:

In a manufacturing plant:

• Vital: Machine motors (production stops if motor fails)
• Essential: Cutting tools (can manage for few days)
• Desirable: Paint for final finishing (can delay if needed)

Control:

• Vital items: Always maintain stock, high safety stock
• Essential items: Moderate stock, regular review
• Desirable items: Order as needed, low stock

Benefits:

• Ensures critical items always available
• Prevents production stoppage
• Optimizes inventory investment

D. FIFO (First In First Out)

FIFO means materials purchased first are issued first.

Example: Perishable items like food, medicines

Benefits:

• Prevents obsolescence
• Reduces deterioration
• Suitable for perishable items

E. LIFO (Last In First Out)

LIFO means materials purchased last are issued first.

Example: Non-perishable items like coal, sand

Benefits:

• Current prices reflected in cost
• Suitable for non-perishable items

F. Just-In-Time (JIT)

JIT means receiving materials just when needed for production, maintaining zero or minimal inventory.

Concept:

• No storage of materials
• Materials arrive just before use
• Reduces inventory cost to minimum

Example: Toyota production system

Benefits:

• Minimal inventory investment
• Reduces storage costs
• Less wastage

Challenges:

• Requires reliable suppliers
• Risk of production stoppage if supply delayed
• Needs excellent coordination

G. Two-Bin System

Two-Bin System uses two bins for each item. When first bin empty, order placed and second bin used until new stock arrives.

Process:

1. Use materials from Bin 1
2. When Bin 1 empty, place order
3. Use materials from Bin 2
4. When new stock arrives, refill Bin 1
5. Continue using Bin 2

Benefits:

• Simple to operate
• Automatic reordering
• Prevents stockouts

Suitable for: Low-value items (C category in ABC)

H. Reorder Level

Reorder Level is the inventory level at which new order should be placed.

Formula:

Reorder Level = Maximum Consumption × Maximum Lead Time

Example:

• Maximum daily consumption = 100 units
• Maximum lead time = 10 days
• Reorder Level = 100 × 10 = 1000 units

Meaning: When stock reaches 1000 units, place new order.

I. Safety Stock (Buffer Stock)

Safety Stock is extra inventory maintained to handle uncertainties in demand or supply.

Purpose:

• Protect against stockouts
• Handle unexpected demand increase
• Cover supply delays

Example: If normal requirement is 1000 units, maintain 1200 units (200 as safety stock)

Quick Revision

Production Management:

• Objectives: Right Quality, Quantity, Time, Cost, Place
• Functions: Product Design, Planning, Control, Quality Control, Inventory Control, Maintenance, Cost Control

Production Planning and Control:

Planning Phase:

1. Routing: Path through factory
2. Scheduling: When to do
3. Loading: Assign to machines

Control Phase: 4. Dispatching: Start production 5. Follow-up: Monitor progress 6. Inspection: Check quality 7. Corrective Action: Fix problems

Material Management:

• Planning, Purchasing, Storage, Inventory Control, Issue
• Necessary for: Continuous production, Cost control, Quality

Inventory Control Techniques:

1. EOQ: Optimal order quantity = √(2AD×OC/CC)

2. ABC Analysis:

• A: 10% items, 70% value (Tight control)
• B: 30% items, 20% value (Moderate control)
• C: 60% items, 10% value (Simple control)

3. VED Analysis:

• V: Vital (Must have)
• E: Essential (Important)
• D: Desirable (Good to have)

4. Other Methods:

• FIFO (First In First Out)
• LIFO (Last In First Out)
• JIT (Just In Time)
• Two-Bin System
• Reorder Level
• Safety Stock

These notes were compiled by Deepak Modi
Last updated: December 2025