MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

FACULTY OF MECHANICAL ENGINEERING DEPARTMENT OF MACHINERY

MET0150 PRODUCTION ENGINEERING

1.1. PRODUCTION ENTERPRISE

Lecturers: Ass. Prof. Kristo Karjust and Prof. Rein Kttner

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

1. Production Enterprise 1.1. Organisation and Management of Production Enterprise

1.1.1. Organisational forms of Production Enterprises
Realisation of so-called "business chain" is basis for organisational structure of manufacturing enterprise. Business chain links supporting, realising and helping segments (see Fig 1.1) altogether. The links are first of all market researches, product development, realisation of manufacturing process, transportation of manufactured goods, and offering service and repair works. Market research helps to estimate selling potential, market segmentation, possibilities of market entry and market dynamics. It creates moderately detailed picture of sales potential and elaborates strategies for future market entries. However, also other segments of the business chain are important. It must be reminded, that every chain is as strong as strong is its weakest link.

Fig. 1.1 Business chain

ARE

THE LINKS OF YOUR ENTERPRISE BUSINESS CHAIN STRONG? ARE THE WEAKEST PROPERTIES OF YOUR CHAIN?

WHICH HAVE

YOU LONG-TERM AND SHORT-TERM STRATEGIES FOR ENHANCING THE LINKS AND INCREASING THE QUALITY AND STRENGTH OF WHOLE CHAIN?

Business chain is realised as a special form of organisation and management, represented typically by (see Fig. 1.2): functional organisation structure, product based structure, division based structure, matrix structure. 2

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

All organisational structure variants have their place in economy and may be, of course, modified in great extent, depending on size of organisation, personnel knowledge and skills, management future vision, traditions, business goals, etc. It can be said that every enterprise has its structure, giving a face also for enterprise and determining inner communication and development of processes. Basic structures (Fig. 1.2) have own general application fields and priorities. Functional structure is characteristic in case of permanent production and industrial engineering. It is in certain extent classic hierarchic structure, where are own activity-centred subdivisions, what can be divided into smaller structural units. Depending on current situation (enterprise, activities) the structure can grow horizontally or in depth. In the first case top management has typically lots of subdivision in direct subordination. In second case the "important" fields (also managers)) are pointed out, and all closely connected activities are concentrated in separate subdivisions. Product based structure is characterised in unification of support processes and organisation of manufacturing in product-centred manner. On this logic are based also mother-daughter enterprises. Daughter enterprises are dealing with manufacturing and orders handling in their concrete field, while mother enterprise deals with general management. Divisions based structure is typical for organisations having lots of workers and big production output volume. Activities are (as a rule) depart also in geographical dimension. Matrix structure is naturally very flexible and project-centred. Typically this kind of structure is used for continuously varying production orders, whereas repeating of the orders is not sure. Such a organisation demands wide knowledge and skills of employees. The employees are not fixed to certain working places, but the project teams are completed depending on character of order (production amount, duration, complexity of product). The goal of application is shortening execution of orders. Enterprise is a set of subdivision, that must answer to service purposes due to strategy. Strategy of action sets the nature of business chain, e.g. links belonging into the chain. For example, if the enterprise is oriented to subcontracting, then as a rule R&D department is not needed. Enterprise concentrated to bargain and sale has logically logistics department. The purpose of logistics department can be transportation of semi finished pieces in the enterprise and sending of finished products to clients. Location of subdivisions in organisation and connections between them constitute structure of organisation. Thus in development of organisation is extremely important too solve the following questions: selection of model structure; specification of structure regarding to own needs; appointing activity goals and tasks for subdivisions, consolidation of tasks (dubbing of tasks must be avoided); setting connections and information flows between subdivisions (investigation of information sources, information transmitting, gathering reports of performing a task).

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

Structure of enterprise must answer to activities of the enterprise in real time and space and enable flexible realisation of processes to realise strategy of enterprise and fulfil planned tasks. Organisation is a monolithic system, what must be managed skilfully, promptly and effectively. Functional subdivisions (departments, bureaus, laboratories) must know their tasks, they must have all the needed information and their activity (quiescence) cannot prevent other subdivisions to fulfil their determined tasks to a date. Management is a basis for functioning organisations or systems. Management systems are sets of pre-conditions, based on gathered information, targeted to retain or improve functioning of organisation or system.

Fig. 1.2 Different forms of organization and management

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

1.1.2 The Meaning of Management

There is no generally accepted definition of "management" as an activity, although the classic definition is the same that of Henri Fayol said. His general statement about management still remains valid after fifty years and has only been adapted by more recent writers, as shown below: "To manage is to forecast and plan, to organize, to command, to coordinate and to control." H. FAYOL (1916) "Management is a social process..... the process consists of ........ planning, control, coordination and motivation." E F L BRECH (1957) "Management is an operational process initially best dissected by analysing the managerial functions." "The five essential managerial functions are: planning, organizing, staff finding, directing and leading, and controlling" KOONTZ and O'DONNELL (1976) Management is a process that enables organizations to achieve their objectives by planning, organizing and controlling their resources, including gaining the commitment of their employees (motivation). Management takes into consideration six activities: a) b) c) d) e) f) Technical activities e.g. production; Commercial activities e.g. buying and selling; Financial activities e.g. securing capital; Security activities e.g. safeguarding property; Accounting activities e.g. providing financial information; Managerial activities e.g. planning and organizing.

1.1.2.1 Management Schemes

Management is a basis for functioning of technical-economic organisations or systems. Term "Management system" can be understood as a predetermined set of procedures, based on received information and targeted to preserving, improving and repairing functioning of some object or system.

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

Historical stages of management systems elaboration are shown in Fig. 2.3. The main direction of development has been bringing of decisions and responsibilities closer to production or realisation process. It assumes steady increase of competency, whereas responsiveness increases as well. General principles of management systems elaboration are: 1) to determine the purpose of management; 2) to elaborate concept of management, trying to minimise number of administrative levels; 3) to predict possible influences and counterinfluences in creation and realisation of managerial structure, trying to guarantee sufficient flexibility for considering the influences; 4) management system has to be adaptive, i.e. able to change its structure and functions according to achieved experiences and results, but also in case of structural and functional changes. Typical general management structure is hierarchical management structure. The hierarchical management system is quite usable in case of relatively stabile systems. An example of such management structure for management and coordination of work in enterprise has shown in Fig. 1.4. Next to managerial levels are presented also main tasks to be solved or executed the levels are created for. Nowadays practical life is characterised in high speed, accompanied by continuous changes in economics structures. Therefore are required from management systems also great flexibility and adaptivity. Nomenclature of producible products is usually large, at the same time times of preparation and execution of production process must be short. When preparing a new product it has to be continuously improved, control the quality in all stages of production and design, and altogether has to be extremely flexible and fast responding in client's requirements and wishes. In such situations hierarchical decision-making systems are not justifying themselves. Therefore in 21st century are well justified so-called project groups realised systems the activities for management of design and manufacturing. One of such practical example with scheduled activities is shown in Fig. 1.5. It is a typical matrix structure, where administrative levels and activities are subdivided by verticals and horizontal both. Such net structures are characterised in plurality of links. Their development is so-called autonomous (intelligent) management schemes, where in addition to plurality of links are additionally considered with dynamics of links and relationships or flexible deformation according to specific needs (see Fig. 1.3). Development of intelligent management systems and elaboration of corresponding theory is very important nowadays.

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

Fig. 1.3 Development of organisation in management of enterprise

Fig. 1.4 Hierarchical management scheme

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

1.1.2.2 Key Issues in Strategic Management

Strategic management is about reconciling the often conflicting forces present in the formulation and implementation of strategy, in the development of agreed goals or objectives, in the adoption of a viable structure and in meeting the demands of the external world.

Fig. 1.5 Strategic management scheme Source: Thompson, Arthur & Stricland, A.J. (1990), Strategic Management: Concepts and Cases, Richard D. Irwin

1.1.2.3 Mamagement by Objectives (MbO)

Humble sees MbO as a means of integrating organizational goals, such as profit and growth, with the needs of individual managers to contribute to the organization and to their own self-development. A system of management by objectives, therefore, seeks to achieve a sense of common purpose and common direction amongst the management of an organization in the fulfilment of business results. The most important features of MbO are: i. it focuses on results (system outputs) rather than on activity (system process), ii. it develops logically from the corporate planning process by translating corporate and departmental objectives into individual manager-objectives, iii. it seeks to improve management performance.

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

THE MbO CYCLE

Fig. 1.6 THE MbO CYCLE Most organizations tend to set long-term objectives in the following areas: i. Profitability ii. Market Share iii. Sales Volume iv. Production v. Research & Development vi. Stock/Inventory Levels vii. Use of resources (financial, manpower & physical) Humble, J.W. Improving Business Results, McCraw Hill

1.1.2.4 Communications in Enterprises

a) b) c) d) What do we need to communicate? When should we communicate? To whom should we communicate? How should we communicate?

The Flow of Communications in Enterprises The communications network of most organizations consists of vertical lines of communication providing upwards and downwards means of transmitting information, with a few integrating mechanisms such as committees built across these lines. Some organizations

MET0150_Production Engineering Organisation and Management Kristo Karjust, Rein Kttner

also provide lateral lines of communications, which are seen as having equal importance with the vertical. Vertical communication. The greatest tendency in most organizations is for communication to be through of in terms of vertical interaction. In particular, management communicates policies, plans, information and instructions downwards, and employees communicate ideas, suggestions, comments and complaints upwards. The downwards communication is achieved by means of the management chain, while the upwards communication is achieved by work-group meetings, by joint consultation machinery and by grievance procedures. Vertical communication tends to be dominated by what flows in the downward direction. Lateral communication. The flow of information across the organization is rarely comparable with the vertical flow. However, every organization has to make some arrangements for coordinating the efforts of more than one department or section, and this may be done by means of interdepartmental meetings or committees. This is a rational and controlled approach to the problem of integration. It represents about the least that organizations can do to set up lateral lines of communication. Where an organization is more organic in its operation, it tends to make greater use of lateral flows of information between people in the same speciality or working on similar tasks.

Fig. 1.7 COMMUNICATION NETWORKS

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