This article uses the automotive industry as an example to illustrate how production management contributes to cost savings and efficient operations for companies. It covers the importance and role of production management in all stages of the supply chain, including subcontractor selection, component assembly, quality control, and distribution chain optimization.
Imagine you are reading this and you are starting a company that makes cars. What should this company have, and how should it be run so that it can compete in the fierce automotive market? Production management, a branch of industrial engineering, is the discipline that can answer these questions.
Production management is a very large part of industrial engineering, and it encompasses a variety of methods to help companies that provide products or services minimize costs and operate more efficiently. Because it deals with the entire production activity of a company, its importance is directly related to the survival of the company. Especially in the global marketplace, production management has become more than just a way to reduce costs; it is a key strategy that enables innovative product development and rapid market response.
For manufacturing-based companies that produce products, the entire process of purchasing raw materials, making products, and finally selling products is known as the supply chain. This supply chain is not just the flow of physical materials or parts, but also the flow of information and money. Therefore, production management is all about following this supply chain and managing every part of the company’s activities so that it can produce the maximum amount of output with the least amount of resources.
You can get a better idea of the scope of production management by thinking about the activities along the supply chain of an automobile company, from assembling a car to selling it. To assemble a car, you first need to buy parts from subcontractors. You need to consider which subcontractors to choose, the quality and price of the parts, and the reliability of their supply. You also need to decide in what order to assemble the parts, how much labor to use, and on what schedule to complete the product. Quality control is more than just determining whether a product is defective; it’s about meeting customer needs and maintaining brand value.
These finished products are stored in warehouses with raw materials until they are sold. At this point, you need to manage your inventory effectively to reduce costs. Excessive inventory can tie up funds, and conversely, a lack of inventory can lead to an inability to meet customer demand. Inventory management is therefore more than just a cost-saving measure; it directly affects customer satisfaction and the credibility of your business.
It is equally important that the products sold are delivered to the consumer in the shortest possible time at the lowest possible cost through an effective distribution network. The choice of distribution network is a critical factor in determining a company’s service level and customer satisfaction, and production management is the use of scientific methodologies studied in industrial engineering to achieve higher productivity in all these activities.
Production management starts with establishing effective relationships with subcontractors and partners. These relationships aren’t just about signing contracts, they’re about building a collaborative system that maximizes mutual benefit. Production management also involves using mathematical models to select the best locations for factories, forecasting demand, and calculating the storage capacity of warehouses. It provides rational and effective answers to problems such as managing inventory and calculating the least-cost distribution plan. It uses methods such as optimization and linear programming to turn complex situations in the real world into simplified mathematical models and calculate the answers mathematically, resulting in more specific and scientific answers than traditional business administration.
For example, when a car company is looking to build a new assembly plant, they use math to determine the best location. The company would look at a shortlist of candidate locations and assign a score to each of several factors to consider: distance to suppliers, distance to customers, cost of labor, climate, ease of air distribution, access to ports, and so on. When multiplied by the weights the company values, the location with the highest score would be the most logical choice. This example is simple, but it illustrates one of the methods used in production management.
In recent years, it has become more common for multinational companies to locate production plants in areas with low-cost labor and to conduct business globally, so production management is also studying a broader range of business activities to reflect this. For example, unlike conventional supermarkets that distributed goods with warehouses only in the U.S., Amazon, which operates globally, is faced with the question of where to locate its distribution warehouses. Production management plays an important role in maximizing competitiveness through global supply chain optimization, not just in selecting a location for a factory.
In today’s fiercely competitive marketplace, only companies that can efficiently and effectively manage production can compete and survive. Production management is a concept that originated in the manufacturing industry – the manufacturing and distribution of products. However, it has recently gained traction in the service industry, where it is applied to systems that combine services and products. For example, the principles of production management can be applied to managing intangible products such as IT services. As such, production management is becoming an essential part of adapting to ever-changing market conditions and staying competitive.
