Production Management – Definition, Importance and Software Solutions

Regardless of the size of a company, manufacturing is a complex task.  It involves people, materials, equipment, and many other variables to turn base components into finished products.  In some cases, production may be a simple process of just a few steps.  But in most manufacturing operations, production involves numerous sub-processing steps or assembly steps that add complexity.

What is Production Management?

The goal of all manufacturing companies is to maximize profit.  This comes about through the utilization of a well-designed production process that continually pursues process improvements and gains in efficiency.  This process requires solid production management to realize these gains and apply them to the bottom line.

As an integral part of overall business management, production management is the process of transforming raw materials or components into finished products.  It is the management of the physical materials, adherence to design specifications, equipment utilization, performance, and labor to implement the company’s production strategy.

Production management requires the coordination and supervision of people, materials, and equipment.  This requires managers to continually make decisions in four key areas:

Production Planning

Production planning is the stage where the master schedule is produced.  It requires managers to decide where production will begin. For example - which machines or which facility.

It also requires deciding upon when production will start.  Different products run at different speeds and require numerous inputs to complete, so the decision of when is based on the overall product mix.

Production Control

Production control is the floor level application of design specifications.  Here, much like a traffic officer in a busy intersection, managers direct staff and equipment to conduct the steps to complete their part of a finished good.  This also involves active management against quality standards as well as close monitoring of production speeds against established measured run times.

Process Improvement

All production managers are responsible for monitoring and driving continuous improvement.  Many companies may use methodologies such as Lean or Six Sigma to formalize the efforts, but even without such methodologies, no process is static and production management requires reliance on honing and approving floor level process activities of equipment and labor.

Equipment Maintenance

Just as production managers need to monitor and coach staff to perform tasks using efficient steps, so too does the equipment need to be managed to keep it in optimal running condition.  Maintenance costs are usually rolled into the fully costed finished goods, especially for manufacturers using a cost-plus system to determine costs and set prices.  Because of this, overall equipment effectiveness (OEE) is vital.

Why is Production Management Important?

Without effective floor-level management of production processes, error and inefficiency would be more common within a factory.  There are other reasons that production management is important to business operations:

  1. Reduces Manufacturing Cost – By maximizing outputs while minimizing inputs, production management lowers the cost required to produce finished products.  This can be used to improve profit margin, or it may be passed onto the customer to ensure a competitive advantage.
  2. Improves Competitiveness – Knowing that the right products are available on time and will be delivered on schedule means that a company is always in the game in any market.  
  3. Accomplishes Business Objectives – Production management helps companies produce finished goods efficiently.  Because these finished products are always made with high quality and delivered when needed, businesses can leverage those things to grow the business, secure capital for improvement, and increase customer satisfaction.
  4. Improves Brand Image – Many manufacturing companies today operate some or all their production on a Direct to Consumer (D2C) basis. As a result, branding and brand image have become important.  Sound production management means that customers rely on products and can have confidence in their quality and availability thus improving brand image. Overall, a good brand image is important whether your products are Engineer-to-Order (ETO), Make-to-Order (MTO), or Make-to-Stock (MTS).
  5. Optimizes Use of Resources – Production management means that labor, equipment, and resources are optimized in the production effort.  This can lower waste levels and create an environment for employees that is positive and well balanced.  With the emphasis on today's work/life balance and green initiatives to reduce carbon footprints, effective production management that optimizes the use of resources can help deliver on both of those trends.

Production and Operations Management

While integrally linked, there is a difference between production and operations management.  In any factory, the production manager applies management principals specifically to the production process.  On the other hand, the role of operations management is broader as it relates to business activities outside of manufacturing.

Operations managers apply business management principals to ensure that the entire organization, and not just production, runs smoothly and efficiently.  This not only involves direct input into the production process.  It also includes responsibility for services that may accompany production such as customer service or field service. 

Operations management also encompasses inventory, warehousing, and supply chain.  This may include purchasing and delivery systems.  And they may manage quality departments and quality initiatives as well.  Other functions involved in operations management include:

  • Strategic Plans – Operations management is involved in making sure that effective strategies are developed to maximize all company resources in tandem.
  • Finance – Operations management is often involved in the capital and operational budgeting and planning.
  • Product Design – Operations managers are responsible for ensuring that the products developed can be manufactured by the factory efficiently and at optimal cost.
  • Forecasting – Operations management is a bridge between sales and production and may be tasked with forecasting to predict which products and services are required for the future. 

While the distinction may be somewhat blurred in small and medium-sized businesses (SMB) where managers wear many hats, operations management and production management are different in meaning, scope, focus, and organizational structure.

Benefits of Production Management in Manufacturing

Effective production management is critical in today’s manufacturing environments.  Without it, operations cannot meet commitments or profit targets.  But with sound production management, companies can realize several benefits regardless of their size.  These benefits include:

  • Better Quality – Products made on well-maintained equipment, with trained and measured labor will result in a higher quality finished goods.  This requires a balance between all these variables and others to help managers, supervisors, technicians, and operators catch defects before they happen.  A systemized program will create standard operating procedures (SOPs), standard work documentation, and built-in audit procedures to do this.
  • Lower Waste Levels – Waste is a danger in any operation.  But effective production management allows for the development and deployment of procedures that mitigate waste to its lowest possible level.  Without it, quality rejects, scrap, and over-processing will increase production costs and reduce profitability.  But waste isn’t just physical rejects.  Waste may also include excess or unnecessary movement by operators and repetitive transportation of WIP.  Production management relies on principals that reduce these types of waste as well.
  • Lower Operating Cost – Some Make to Order (MTO), Assemble to Order (ATO) and Engineer to Order (ETO) factories producing discrete goods operate off-market cost systems due to the customizability of their product and the fact that they can command a high price.  Others, such as Make to Stock (MTS) goods such as consumables or commodified goods, utilize a cost-plus costing method where each contributing factor of production (materials, labor, direct labor, indirect labor, overhead, warehousing, and delivery) is rolled into a “to the penny” cost and then marked up to achieve profit targets.  But regardless of the costing method, lowering cost is always high on the minds of managers.  Effective production management techniques and systems lower these costs by providing mechanisms and methodologies to identify, analyze, and change processes to render the most cost-effective production method possible.  By applying these techniques to all variables, costs are reduced cumulatively across the board.
  • Better Decision-Making – A sound system of production management incorporates the use of data to help managers evaluate the progress of the factory.  This includes things such as operator output, equipment performance and effectiveness, quality monitoring methods, and others.  With these tools, managers can identify variances that could impact quality, production time, and defects and address them proactively.

Production Management Software Solutions

While the concept of systemized production management is not new, with the arrival of the digital age companies have tools available to them that were not possible before.  Production management software can take the system described above to the next level, further homing in to improve all areas through the identification of deeper levels of data that can be turned into improvements.  It also automates many functions reducing both time and human error.

Here are some of the benefits that production management software can deliver:

  • Cloud-Based – Most available software solutions today are cloud-based. This means that manufacturers using these platforms do not need to have a heavy infrastructure or IT presence to deploy.  This is especially important for small and medium-sized businesses (SMB) who may not have in-house skillsets for IT and may not be able to afford a traditional enterprise-level system.  It also means that companies always have access to the most updated version of the software – eliminating the need for costly and time-consuming periodic upgrades.
  • Intuitive and User Friendly – Software is also more user friendly using intuitive dashboards, drop-downs, and drag-and-drop features to simplify tasks.  This may be in the form of drag-and-drop scheduling or perhaps in the automation of the purchasing process.  In cases like these, rules-based logic can automate these and other tasks to eliminate the need for manual monitoring.  And because the data being analyzed is real-time, it means that these functional areas are optimized.  Finally, intuitive and user-friendly platforms reduce training time and the cost associated with steep learning curves.
  • Analytics – Today's production management software uses deep analytics to automate and produce more accurate views of the workflow and of the entire production operation.  This includes shop floor reporting, workforce, and labor utilization, equipment loading, and more.  It aligns Bills of Material (BOM) with manufacturing routing and uses real-time production performance data to maintain adherence to standards and to allow managers to make decisions in real-time with accurate data.
  • Interoperability – One traditional barrier to better production management was the existence of siloed data.  With each respective department and support area maintaining their own system and software for managing data, information was not real-time and had to be reconciled before it could be acted upon at higher levels.  Today, production management software can integrate through APIs with other third-party applications.  This allows it to become part of an end-to-end ecosystem for managing business practices.  Its real-time flow and integration of data from production can be tied to finance systems, billing systems, quality management, and others to offer seamless integration and a more holistic visualization of manufacturing and its total impact on business.
  • Customizable – Agility and flexibility are important in today’s hyper-competitive markets.  And production management software is customizable to allow companies to leverage flexibility to only use the functionality they need.  This allows manufacturers to only use the needed functionality, reducing clutter in the user experience, and improving efficiency.  It can be utilized specifically for production but is flexible and agile to incorporate modules for CRM, inventory control, supply chain management, and procurement.  This is highly valuable for SMBs whose staff often performs tasks and duties across several departments or functional areas and who need a comprehensive production management system tied to a larger suite of functions.

For manufacturing, production management is the systemized deployment of techniques and methods that allow managers to control production and deliver the lowest cost, highest quality finished goods in pursuit of business objectives.  It can be implemented in any size factory and enhanced through the use of production management software.

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