CHAPTER 1INTRODUCTION TO

FOOD PLANT OPERATION MANAGEMENT AND PRODUCTION

FOOD PRODUCTS MANAGEMENT AND MARKETING(BWD 40203)

BY

DR. NOORHASLINA HASHIM

Objectives:• to understand the food production process by providing

techniques for real-time resource management, product quality assessment and traceability.

• to gain an understanding of the interdepartmental and organizational relationships and interdependencies within the food processing industry.

• to identify key factors, that affects the entire production process, and the logical relationship between them.

• to investigate the feasibility to provide suitable methods and propose solutions in the form of a generic suite of intelligent decision and management support tool. The transformation must be gradual to avoid any prohibitive costs and consequences.

What?

Food Plant Operations Management

is a unique program designed to cater

the needs of food processing industry.

It involves a unique blend

of food technology and operations

management to foster improvement in

production processes of food industry.

OPERATIONS MANAGEMENT DEFINITION

• Operations management is defined

as the design, operation, and

improvement of the systems that

create and deliver the firm’s primaryproducts or services.

THE SCOPE OF OPERATION MANAGEMENT

• Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and quality improvement of the organization’s products or services.

• The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more.

• Operations Management includes:

–Forecasting

–Capacity planning

–Scheduling

–Managing inventories

–Assuring quality

–Motivating employees

–Deciding where to locate facilities

–And more . . .

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SCOPE OF OPERATIONS MANAGEMENT

RESPONSIBILITIES OF OPERATIONS MANAGEMENT

• Planning– Capacity, utilization– Location– Choosing products or services– Make or buy– Layout– Projects– Scheduling– Market share– Plan for risk reduction, plan B?– Forecasting

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WHY STUDY OPERATIONS MANAGEMENT?

BECAUSE it is such a costly part of an organization

WE STUDY how people organize themselves for

productive enterprise

WE WANT to know how products or services are produced

to understand whatoperations managers do

OperationsManagement

OPERATIONS DECISION MAKING

Materials &

Customers

Products &

Services

Input Output

Operations Management

Marketing StrategyFinance Strategy

Marketplace

Corporate Strategy

Operations Strategy

People Plants Parts Processes

Planning and Control

Materials &

Customers

Products &

Services

KEY OM CONCEPTS

• Efficiency - Doing something at the lowest possible cost

• Effectiveness - Doing the right things to create the most value for the organization

• Value - Quality divided by price

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TRANSFORMATIONS

• Physical--manufacturing

• Locational--transportation

• Exchange--retailing

• Storage--warehousing

• Physiological--health care

• Informational--telecommunications

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EXAMPLES OF PRODUCTION SYSTEMS

System Inputs Conversion Output(desired)

Hospital PatientsMDs, NursesMedical SuppliesEquipment

Health Care HealthyIndividuals

Restaurant Hungry CustomersFood, ChefServersAtmosphere

Prepare FoodServe Food

SatisfiedCustomers

AutomobilePlant

Sheet SteelEngine PartsTools, EquipmentWorkers

Fabricationand Assemblyof Cars

High QualityAutomobiles

University High School GradsTeachers, BooksClassroom

Transferringof Knowledgeand Skills

EducatedIndividuals

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WHAT OPERATIONS MANAGERS DO

• The management process consists of planning , organizing , staffing , leading , and controlling .

• Operations managers apply this management process to the decisions they make in the OM function.

• The 10 strategic OM decisions are introduced in Table 1.

OPERATIONS MANAGERS• Controlling

– Inventory– Quality– Costs

• Organization– Degree of standardization– Subcontracting– Process selection

• Staffing– Hiring/lay off– Use of overtime– Incentive plans– Job assignments

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Quality

Management

Statistical

Process Control

Just in Time

Materials Requirement Planning

Inventory Control

Aggregate

Planning

Operations Management - Overview

Project

Management

Supply Chain

Management

Process Analysis

and Design

Process Control

and Improvement

Waiting Line Analysis and

Simulation

Services

Manufacturing

Operations

Strategy

Facility Layout

Consulting and

Reengineering

Process Analysis

Job Design

Capacity Management

Planning for Production

Supply Chain

Strategy

Strategy Begins with Priorities

Consider the personal computer assembler

1. How would we segment the market according to

product group?

2. How would we identify product requirements,

demand patterns, and profit margins for each group?

3. How do we identify order winners and order

qualifiers for each group?

4. How do we convert order winners into specific

performance requirements?

Us

(Core competencies)

Competition

(Them) Differentiation

WHAT IS OPERATION STRATEGY AND STRATEGY?

• A plan specifying how an organization will allocate resources in order to support infrastructure and production. An operations strategy is typically driven by the overall business strategy of the organization, and is designed to maximize the effectiveness of production and support elements while minimizing costs.

OPERATIONS STRATEGY

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processesand Infrastructure

ExampleStrategy Process

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory

Productivity Measurement

• Partial measures– output/(single input)

• Multi-factor measures– output/(multiple inputs)

• Total measure– output/(total inputs)

Productivity = Units producedInput used

For example, if units produced = 1,000 and labor-hours used is 250, then:Single@factor productivity = Units produced

Labor@hours used= 1,000

250= 4 units per

labor@hourThe use of just one resource input to measure productivity is known as single-factor productivity .

COMPUTING SINGLE-FACTOR AND MULTIFACTOR GAINS IN PRODUCTIVITY

Protigam Food Ind. Sdn. Bhd. wants to evaluate its labor and multifactor productivity with a new computerized title-search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of RM640/day) and overhead expenses of RM400 per day. The company processes and closes on 8 units of sardin each day. The new technology machine will allow the processing of 14 units of sardin per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now RM800 per day.APPROACH »» Protigam uses Equation (1-1) to compute labor productivity and Equation (1-2) to computemultifactor productivity.

SOLUTION

Labor productivity with the old system: 8 units per day/ 32 labor@hours

= 0.25 units per labor@hour

Labor productivity with the new system: 14 units per day/ 32 labor@hours

=0 .4375 units per labor@hour

Multifactor productivity with the old system: 8 units per day/ RM640 + 400

= 0.0077 units per RM

Multifactor productivity with the new system: 14 units per day/ RM640 + 800

= 0.0097 units per RM

Labor productivity has increased from 0.25 to 0.4375.

The change is (0.4375 - 0.25) >0.25 = 0.75, or a 75% increase in labor productivity.

Multifactor productivity has increased from 0.0077 to 0.0097.

This change is (0.0097 - .0077) >0.0077 = 0.26, or a 26% increase in multifactor productivity.

INSIGHT » Both the labor (single-factor) and multifactor productivity measures show an

increase in productivity. However, the multifactor measure provides a better picture of the

increase because it includes all the costs connected with the increase in output.

LEARNING EXERCISE!!!!!!If the overhead goes to RM 960 (rather than RM

800), what is the multifactor

productivity?

AN EXAMPLE 1: AIRLINE COMPANY-illustrate a service organization’s operations system

• The activities include:

• Forecasting such things as weather and landing conditions, seat demand for flights, and the growth in air travel.

• Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit. (Too few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.)

• Facilities and layout, important in achieving effective use of workers and equipment.

• Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers.

• Managing inventories of such items as foods and beverages, first-aid equipment, inflight magazines, pillows and blankets, and life preservers.

• Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb service, where the emphasis is on efficiency and courtesy.

• Motivating and training employees in all phases of operations.

• Locating facilities according to managers’ decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs.

AN EXAMPLE 2: Bicycle factory• Buying components such as frames, tires, wheels, gears,

and other items from suppliers, and then assembling bicycles.

• The factory also might do some of the fabrication work itself, forming frames, making the gears and chains, and it might buy mainly raw materials and a few parts and materials such as paint, nuts and bolts, and tires.

• Among the key management tasks in either case are scheduling production, deciding which components to make and which to buy, ordering parts and materials, deciding on the style of bicycle to produce and how many, purchasing new equipment to replace old or worn out equipment, maintaining equipment, motivating workers, and ensuring that quality standards are met.

• Obviously, an airline company and a bicycle factory are completely different types of operations.

• One is primarily a service operation, the other a producer of goods. Nonetheless, these two operations have much in common. Both involve scheduling activities, motivating employees, ordering and managing supplies, selecting and maintaining equipment, satisfying quality standards, and—above all—satisfying customers.

• And in both businesses, the success of the business depends on short- and long-term planning.

• Use of productivity measures aids managers in determining how well they are doing.

• But results from the two measures can be expected to vary.

• If labor productivity growth is entirely the result of capital spending, measuring just labor distorts the results.

• Multifactor productivity is usually better, but more complicated.

• Labor productivity is the more popular measure. • The multifactor-productivity measures provide better

information about the trade-offs among factors, but substantial measurement problems remain.

Some of these measurement problems are:

1) Quality may change while the quantity of inputs and outputs remains constant.

2) External elements may cause an increase or a decrease in productivity for which the system under study may not be directly responsible.

3) Precise units of measure may be lacking.

Productivity Variables

Productivity increases are dependent on three productivity variables :

1. Labor, which contributes about 10% of the annual increase.

2. Capital, which contributes about 38% of the annual increase.

3. Management, which contributes about 52% of the annual increase.

• Labor Improvement in the contribution of labor to productivity is the result of a healthier, better educated, and better-nourished labor force. Some increase may also be attributed to a shorter workweek.

• Historically, about 10% of the annual improvement in productivity is attributed to improvement in the quality of labor.

• Three key variables for improved labor productivity are:

1) Basic education appropriate for an effective laborforce.

2) Diet of the labor force.3) Social overhead that makes labor available, such as

transportation and sanitation.

LABOR

❑ Capital Human beings are tool-using animals. Capital investment provides those

tools.

❑ Inflation and taxes increase the cost of capital, making capital investment increasingly

expensive.

❑ When the capital invested per employee drops, we can expect a drop in productivity.

❑ Using labor rather than capital may reduce unemployment in the short run, but it also

makes

❑ economies less productive and therefore lowers wages in the long run.

❑ Capital investment is often a necessary, but seldom a sufficient, ingredient in the

battle for increased productivity.

❑ The trade-off between capital and labor is continually in flux. The higher the cost of

capital or perceived risk, the more projects requiring capital are “squeezed out”: they

are not pursued because the potential return on investment for a given risk has been

reduced.

❑ Managers adjust their investment plans to changes in capital cost and risk.

CAPITAL

• Management is a factor of production and an economic resource.

• Management is responsible for ensuring that labor and capital are effectively used to increase productivity.

• Management accounts for over half of the annual increase in productivity.

• This increase includes improvements made through the use of knowledge and the application of technology.

• Using knowledge and technology is critical in post industrial societies. Consequently, postindustrial societies are also known as knowledge societies . Knowledge societies are those in which much of the labor force has migrated from manual work to technical and information-processing tasks requiring ongoing education.

• The required education and training are important high cost items that are the responsibility of operations managers as they build organizations and workforces. The expanding knowledge base of contemporary society requires that managers use technology and knowledge effectively.

• More effective use of capital also contributes to productivity. It falls to the operations manager, as a productivity catalyst, to select the best new capital investments as well as to improve the productivity of existing investments.

MANAGEMENT

Current Challenges in Operations Management

❑ Globalization: The rapid decline in the cost of communication and transportation has made markets global. Similarly, resources in the form of capital, materials, talent, and labor are also now global. As a result, countries throughout the world are contributing to globalization as they vie for economic growth. Operations managers are rapidly seeking creative designs, efficient production, and high-quality goods via international collaboration.

❑ Supply-chain partnering: Shorter product life cycles, demanding customers, and fast changes in technology, materials, and processes require supply-chain partners to be in tune with the needs of end users. And because suppliers may be able to contribute unique expertise, operations managers are outsourcing and building long-term partnerships with critical players in the supply chain.

❑ Sustainability: Operations managers’ continuing battle to improve productivity is concerned with designing products and processes that are ecologically sustainable. This means designing green products and packaging that minimize resource use, can be recycled or reused, and are generally environmentally friendly.

❑ Rapid product development: Technology combined with rapid international communication of news, entertainment, and lifestyles is dramatically chopping away at the life span of products. OM is answering with new management structures, enhanced collaboration, digital technology, and creative alliances that are more responsive and effective.

❑ Mass customization: Once managers recognize the world as the marketplace, the cultural and individual differences become quite obvious. In a world where consumers are increasingly aware of innovation and options, substantial pressure is placed on firms to respond in a creative way. And OM must rapidly respond with product designs and flexible production processes that cater to the individual whims of consumers. The goal is to produce customized products, whenever and wherever needed.

❑ Lean operations: Lean is the management model sweeping the world and providing the standard against which operations managers must compete. Lean can be thought of as the driving force in a well-run operation, where the customer is satisfied, employees are respected, and waste does not exist. The theme of this text is to build organizations that are more efficient, where management creates enriched jobs that help employees engage in continuous improvement, and where goods and services are produced and delivered when and where the customer desires them.

COMPETITIVE DIMENSIONS

• Cost

• Quality and Reliability

• Delivery– Flexibility– Speed– Reliability

• Coping with Changes in Demand

• New Product Introduction– Speed– Flexibility

OPERATION FUNCTION

• Operations function is responsible for producing products and/or delivering services, it needs the support and input from other areas of the organization.

• Business organizations have three basic functional areas, as depicted in Figure 1 finance, marketing, and operations.

There are only two approaches that Production/Operation Management can use:

1. The functional field approach, and

2. The systems approach.

The system approach

The Functional Field Approach• With the functional field approach, operations

management is expected to perform its P/OM function with minimum reference to other parts of the business, such as marketing and finance.

• The functional field approach concentrates on the specific tasks that must be done to make the product or deliver the service.

• This approach is tactical, not strategic. Many marginal firms use the functional field approach (by default) because it is human nature to be territorial. Teamwork requires caring and takes effort.

THE SYSTEMS APPROACH

• The systems approach integrates P/OM decisions with those of all other business functions.

• This is an integrated and coordinated team-playing model of the organization.

• The challenge is to make the firm perform as a team.

• The systems approach entails having all participants cooperate in solving problems that require mutual involvement. It begins with strategic planning and moves to tactical accomplishments.

SYSTEMS (HOLISTIC) APPROACH• Emphasizes interrelations among subsystems.

• A systems approach is essential whenever something is being designed, redesigned, implemented, or improved. It is important to take into account the impact on all parts of the system.

• Example: A new feature is added to a product.

• Designer must take into account how customers will view the change, instruction for using new feature, the cost, training of workers, production schedule, quality standard, advertising must be informed about the new feature.

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SYSTEMS APPROACH

“The whole is greater than

the sum of the parts.”

Suboptimization

• The first among the many challenges is quality, both in the sense of foodsafety and in the sense of meeting the requirements and standards forthe product. Human safety is another high priority.

• Food processing can be a surprisingly hazardous occupation, primarilybecause of repetitive motion injuries, which result when workers arerequired to perform the same task for long periods of time. Without asafe and desirable product, there is no business.

• Demands from corporate management for excessive overtime andunusual scheduling practices should be resisted by plant managementbecause these can lead to worker fatigue, which then leads to accidents.

• A plant manager should be protective of the staff and insist on the properresources and time to achieve results. Common sense and diplomacy arecritical in balancing corporate demands with local responsibilities.

Process flow and operations managementwithin food-processing factories