Page 585 - Encyclopedia of Business and Finance

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Operations Management

paid for the use of land; goods and materials used in pro- Planning the product involves all parts of the business sys-
duction must be paid for; and taxes must be paid to the tem. The marketing department may discover the need
government. The output is the result of the system and is for a new or improved product, and the production
closely related to its objective. Output will accomplish or department may then determine whether it can manufac-
help to accomplish the specific objective if the system has ture the product for sale at a given price. The finance
been designed correctly. department then decides whether the venture will be prof-
itable and whether financing is available to cover the costs
of development, manufacturing, and distribution. Such
FEEDBACK
product planning determines whether development and
All systems should include feedback. When an input is design will go forward.
received in the system and undergoes a transformation
operation, the result or output is then monitored and The process of refining a product to a finished form
transmitted for comparison with a standard. If there is sheds further light on the problems of manufacture: the
variation between the output and the standard, suitable equipment, raw materials, and fabricated parts that will be
action can be taken to correct the variation. required, as well as the flow of production. Planning for
production actually starts as soon as the decision is made
A business organization with many systems that range
to develop and design a product.
from very simple to very complex requires a much more
Production management makes suggestions for man-
complicated feedback network. Information must be com-
ufacturing that will save time, effort, and money without
municated from person to person and from one part of the
impairing the design of the product. Production manage-
organization to another. In fact, the original data may be
ment is very complex. Decisions must be made about
transformed many times before it reaches its final destina-
tion. Each of these transformations is subject to feedback. labors, money, machinery, and materials. Inventories of
parts must be maintained, and proper machinery and
Feedback can be defined as knowledge of results. Three
equipment must be combined with labor. All these activ-
basic types of feedback are needed: informational feedback,
ities, although performed within the production system,
corrective feedback, and reinforcing feedback. The flow of
must be closely coordinated with the overall system of the
information in an organization should be two-way from
firm.
managers to workers as well as vice versa. In contrast to
Production managers are involved in many diverse
informational feedback, corrective feedback is evaluative
areas. They are concerned with all the peripheral aspects
and judgmental. An effective manager will not only point
of production and must be able to manage workers, mate-
out mistakes but also get the individual worker headed in rials, and machines in a changing environment.
the right direction by means of corrective feedback. Positive
consequences or reinforcements are one key to desired per- Why is productivity so important? The basic reason is
that productivity is a measure of the efficiency with which
formance. In other words, reinforcing feedback is a prime
means of achieving growth in job performance. a person, business, or entire economy produces goods and
services. It is a key indicator of a nation’s economic
strength. In general, the concept of productivity refers to
PRODUCTION MANAGEMENT a comparison of the output of a production process with
Products can be classified in many ways and their distri- one or more of its inputs. Thus, productivity may mean
bution can take many forms. However, the essence of different things in different situations.
production management is that the factors of produc- Manufacturing is simply a special form of production
tion—land, labor, and capital—are transformed by man- by which raw and semifinished materials are processed
agement from raw materials into something finished, and converted into finished products needed by con-
something to be used, or something to be sold profitably sumers. In a broader and more basic sense, production is
in order to keep the business in operation. the transformation of inputs from human and physical
Before production can be started, the firm must resources into outputs desired by consumers. These out-
determine what kind of product it can profitably produce. puts may be either goods or services. The production of
Management must decide what markets the product will services is often called operations management.
satisfy, what materials it will contain, what processes will At the beginning of the twenty-first century, produc-
be required to form it, by what means it can be trans- tion and corporate management are becoming recommit-
ported, and what quality and quantity of labor will be ted to one of the basics of business: making a better
needed to produce it. Knowledge of all this provides direc- product faster and cheaper. This effort is important
tion to the planning and organization of manufacturing. because the great bulk of assets used in manufacturing
Once the firm has decided on the basic product or companies, including capital invested, people employed,
service to produce, design and development can begin. and management time, are allotted to the production

562 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION