The production function in business: fundamentals and analysis for management

562 Pages·1962·55.091 MB·English

by  Howard L. Timms

THE PRODUCTION
FUNCTION
IN BUSINESS
Fundamentals
and Analysis
for Management
HOWARD L TIMMS, pe,dba
Professor of Management, Indiana University
RICHARD D. IRWIN, INC.
1962 a Homeivood, Illinois
9
9
9
6
1
1
b
1.
c
u
7/
2
0
2
et/
n
e.
dl
n
a
h
dl.
h
p://
htt
T /
M
G
7
2
0:
1
5
2
2-
0e
2-gl
1o
0o
2g
n d-
op
s) e#
es
ngelss_u
Ae
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
LOAN STACK
© 1962 BY RICHARD D. IRWIN, INC.
ALL RIGHTS RESERVED. THIS BOOK OR ANY PART THEREOF MAY NOT BE
REPRODUCED WITHOUT THE WRITTEN PERMISSION OF THE PUBLISHES
First Printing, June, 1962
Second Printing, August, 1963
Library of Congress Catalogue Card No. 62-16522
PRINTED IN THF. UNITED STATES OF AMERICA
9
9
9
6
1
1
b
1.
c
u
7/
2
0
2
et/
n
e.
dl
n
a
h
dl.
h
p://
htt
T /
M
G
7
2
0:
1
5
2
2-
0e
2-gl
1o
0o
2g
n d-
op
s) e#
es
ngelss_u
Ae
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
TSg
â–¡ PREFACE
Producing goods and services to fill the needs of man commands a
great deal of his interest, energy, and creative ability. The manager of
production is faced with increasing worldwide demand for output of all
kinds. Along with this, increasing worldwide competition makes the pro-
duction manager's task of producing outputs efficiently an increasingly
important one. Finally, significant developments in analytical methods
call for emphasis on modern analysis in the study of production.
Several analytically oriented texts on production have appeared in re-
cent years, superseding the earlier texts that dealt primarily with descrip-
tion of how production is performed in factories. This is a healthy devel-
opment. Unfortunately, however, most of these texts assume that the
student has a functional knowledge of production of sufficient depth and
breadth to permit him to abstract and build meaningful analytical models.
After a number of years of teaching the first course in production at both
the undergraduate and graduate levels, using the older descriptive texts
and then the newer analytical texts, I have concluded that this is not the
case with9 most students, including the better ones.
9
If the so-c9alled scientific method has any meaning, wt learn from its
6
first step,11 i.e., observation, that one cannot proceed with the second step,
b
i.e., build 1.an hypothesis, in an informational vacuum. One cannot abstract
from nothucing, or even from very little! For some time I believed that the
difficulty 7/experienced by students in dealing with the economic problems
2
of produc20tion stemmed solely from their mathematical immaturity. An
increasinget/ number of capable students with excellent mathematical back-
n
grounds de.ispelled this belief. They too had difficulty abstracting and
building udlseful analytical models.
n
I am now haconvinced that what is needed in a first course in production
is not a tedl.xt that inundates the student with mathematical technique, but
h
rather onep:// that provides functional material organized in a manner that is
useful forhtt analysis, and then moves into a treatment of analysis. In short,
tfuhnec btieognianT / ln iinnfgo rsmtuadteionnt ,o pfr porpoedrulyc toiorgna mniuzestd ,b feo rp rhoimvid teod h waviteh ssoumffiectihenintg
M
from whicGh he may abstract in recognizing and analyzing complex prob-
lems.7
2
This tex0:t is written for the teaching of analysis in a first course in the
1
managem5 ent of the production function in all types of business. It is not
2
concerned2- with the nuances of sophisticated analytical technique. It is
0912-0gle
1o
0o
2g
n d-
op
s) e#
es
ngelss_u
Ae
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
vi Preface
concerned primarily with helping the student develop an understanding
of the major professional problems that arise in the management of pro-
duction to the end that he may apply modern analytical techniques more
meaningfully. Nothing is more ludicrous than the beginning production
student flailing away with powerful mathematical techniques at problems
that he really doesn't understand. This text is designed to provide the
understanding of production problems that is necessary for intelligent
analysis.
It was stated earlier that the text is concerned with production in all
types of business institutions. The concept of a production function, or
an "operations" function, in every business, not just manufacturing firms,
will be challenged by people who are institutionally oriented rather than
functionally oriented. Industrial engineers, whose practice increasingly
takes them into all kinds of business firms, will have no difficulty with this
concept. Neither will professors of the analytical school of production.
The task of providing functional information that is meaningful for pro-
duction in all types of firms, and at the same time useful for analysis, is a
difficult o9ne. I do not claim to have done this job perfectly, or even as
9
well as it 9could be done with more time. However, it seemed better to get
6
the tex11t into users' hands than to work at this task any longer. Perhaps
b
wider use1. will provide the clues to doing the job better.
Part I of thuce text provides the bulk of the functional description gen-
eralized fo7/r all types of business. It is not very interesting reading for the
2
analyst im20patient to wield his mathematical tools. Part I could be called
"conceet/ptual foundations for the management of production." Bowman
n
and Fete.ter state on page 397 of their excellent text, Analysis for Produc-
tion Manadlgement (rev. ed.: Richard D. Irwin, Inc., 1961), "One of the
n
first stepsha in the analysis [of a problem of production management] is the
constructdl.ion of some sort of schematic model. A model of this type may
h
help to frap://me the whole problem and help to channel properly the obser-
vation of httthe situation." Part I of this text is full of schematic models that
hdeulcpin tgo ofruaT / tmpuet sth ine walhl oklien dms aonf afigremrsia.l problem, and its components, of pro-
M
The abstrGact and generalized nature of a number of chapters in Part I
makes it d7 ifficult to teach and difficult for some students to maintain a
2
high level0: of interest. To counter this, I have found that the use of a com-
1
plex ca5 se problem as a focus of discussion while taking up Part I is very
2
helpful. In2- my courses I have used the J. I. Case Company case, some
50 pages 2-0of description of thegle affairs of a multiproduct, multiplant firm
employing1 all types of producotion, and including a credit division that
0o
produces n 2services rather thand-g goods, and owning all organizations in its
channels oof distribution excpept dealers. No more than one quarter of a
semesteres) is required for discuse#ssion of Part I in conjunction with such a
cwoitmh ptlheex aAngelb sctarsaec.t iAnfgt earn tdh ims,o sdtess_uueld beunitlsd ianrge tmreuacthe dm ionr Pea wrtisll iInI,g I IaI,n adn adb IlVe to cope
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
Preface vii
than they were previously when we moved very quickly into analytical
methodology.
Parts II, III, and IV of the text are concerned with analysis of the major
economic problems of production management. While the manufacturing
firm is taken as the model quite frequently in these parts, a positive at-
tempt is made to generalize the material for all types of firms by present-
ing it in the framework and terms developed in Part I. Furthermore, con-
siderably more functional treatment is provided in these parts than is
done in the newer texts on analytical methodology in production. The
reason, again, is to help the student with the observation step of the scien-
tific method so that he may build meaningful models more confidently.
If Parts II through IV are unique in any way, it is because I have made
a positive attempt to integrate the decision processes developed for the
major production problems. Texts stressing analytical methodology in
production tend to treat more or less disconnected decision processes.
This is the result of stressing analytical technique rather than managerial
decision making. Educators are becoming increasingly aware that a week-
ness of bu9siness courses is their failure to integrate managerial decision
9
processes9.
6
In order to11 treat explicitly the integrated nature of managerial decision
b
making, b1.oth within production and between production and other basic
functions ucof the business, I was tempted to employ economist Alfred
Marshall'7/s technique of using a "representative firm" through the entire
2
text. H20owever, to do so would have tended to defeat the purpose of gen-
eralizing tet/he material for all types of business. Nevertheless, I implicitly
n
use the tee.chnique of a representative firm at various points where it is use-
ful in devdleloping the desired integration.
n
One last phaoint on integration: it tends to foster redundancy. Professors
may objecdl.t to this. But the text is not written for them; it is written for
h
young pep://ople who have not yet developed an understanding of the inte-
grated nahttture of managerial decision making. Some 100 figures are pro-
veiddleyd t htroo huT / eglhpo duet vtehleo pte txhis tu.nderstanding, and they are referred to repeat-
M
No texGt of moderate size can accomplish all that should be done. If this
text pro7 vides the exposure to analysis that older descriptive texts lacked,
2
and provi0:des the information organized for analytical purposes and the
1
integratio5 n of decision processes that the newer analytical texts slight,
2
then it mu2-st fall down somewhere.
First, th2-0e text does not pglerovide description of production just for the
sake of de1scription. There areo no chapters describing production proc-
0o
esses andn 2 equipment. I was ted-gmpted to include a chapter on automation
and particoularly one on compputers. But I resisted this temptation because
they woules) d have been little mse#ore than descriptive chapters replete with
pauhtootmogartaepAngeldh ms. aRcahtihneers, laotg picoainlltyess_us atrhisroeus gith oisu ttr ethaete tde xsuffti cwiehnetrley tfhoer tshueb jsetcut- of
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
viii Preface
dent to recognize its role and significance to the production manager and
his problems. Concerning electronic data processing, at many points
throughout the text the analytical material is developed in such a manner
as to show how and why the use of EDP is desirable or even mandatory.
Finally, the text does not go as deeply or extensively into mathematical
methodology as some professors would like. There simply isn't room to
do this, and to do so would merely duplicate several fine books that stress
this. As an offset, extensive footnote references and supplementary read-
ings are provided that enable the professor to make the course as heavily
mathematical as he desires. In addition to selected supplementary read-
ings, I use Bowman and Fetter's Analysis for Production Management for
this purpose—not very heavily at the undergraduate (junior year) level,
quite heavily at the graduate level. Appropriate footnote references from
Bowman and Fetter are provided to facilitate this.
The student should bring to the course using this text the following
preparation: principles of economics, preferably a full year in which the
pure theory of production is included, and principles of accounting, pref-
erably a f9ull year in which the elements of cost accounting are included.
9
It is helpfu9l but not necessary for the student to have had principles of
6
managem11ent or general theory of managing. The student should have
b
had math1.ematics through the elements of integral calculus—not neces-
sarily theuc full traditional curriculum for the physical scientist, but the
newer cur7/riculum for the social scientist as recommended by the Madow
2
Committe20e of the Social Science Research Council (a 10-hour sequence
at Indianaet/ University). Finally, elementary mathematical statistics and
n
probabilite.y theory should be included in the student's background.
If the studdlent has not had calculus, but has had a good grounding in
n
algebra ahand geometry, he can get along quite well and profit greatly from
the texdl.t. However, he will need some outside assignments, e.g., in linear
h
programmp://ing. Fortunately, the first exercise in linear programming ap-
pears in Chtthapter 14, about one third of the way through our semester
cgoraumrsme.i nTghT / ,i sf oprr owvhidicehs rteimfeere tnoc aesss aigren poruotvsiiddee dp.r Ueppa troa tPioanrt iInI olifn tehaer tperxo-t,
M
few problGems are offered for solution. Thus there is time during the early
part of th7 e course to assign outside work to bolster the background of
2
students.0:
1
One last o5 bservation about the text. Texts that stress analytical meth-
2
odology a2-nd particularly mathematical analysis in production tend to
leave the2-0 student with the imglepression that everything is known about
solving co1mplex problems, oand conversely that practicing managers who
0o
don't sn 2olve all their problemd-gs algorithmically must be poor managers.
This is, ofo course, a decidedlyp incorrect impression, one that would not
be worthyes) of a well-educated se#person. Throughout the treatment of ana-
lwyhtiyc aaln md ehAngeltohwod tohleo gmye inth soodlovlionggess_uy p iasr dtiicfufilcaurl tp aronbdl einm ms,a In hya cvaes mesa idmep ito scsleibalre
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
Preface ix
to apply in practice—thus pointing out the research frontiers of the sub-
ject. Hopefully this should have the additional effect of challenging
scholarly students to go further in their study of production.
It is impossible to acknowledge all the contributors, direct and indirect,
to this text. Footnote references acknowledge contributions of a special
nature and those of a general nature where they are known. I cannot close
without expressing my gratitude to colleagues at Indiana University, es-
pecially those who helped most by relieving me of chores to provide the
time to write. To Dean Arthur M. Weimer and Professor John F. Mee
must go special thanks for their inspiration, guidance, encouragement,
and patience. To my hard-working graduate assistant, Michael Hotten-
stein, go special thanks for providing review questions and problems.
Bloomington, Indiana
January, 1962
Howard L. Timms
9
9
9
6
1
1
b
1.
c
u
7/
2
0
2
et/
n
e.
dl
n
a
h
dl.
h
p://
htt
T /
M
G
7
2
0:
1
5
2
2-
0e
2-gl
1o
0o
2g
n d-
op
s) e#
es
ngelss_u
Ae
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
9
9
9
6
1
1
b
1.
c
u
7/
2
0
2
et/
n
e.
dl
n
a
h
dl.
h
p://
htt
T /
M
G
7
2
0:
1
5
2
2-
0e
2-gl
1o
0o
2g
n d-
op
s) e#
es
ngelss_u
Ae
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
â–¡ CONTENTS
CHAPTER PAGE
Figures xv
PART I. FUNDAMENTALS OF PRODUCTION
1. The Production Function in Business 3
~^ Production—Functional Definition. Production—Economic Definition.
Operational Definition of Production. Historical Background of Pro-
duction. Production Problems. A Major Production Problem—Com-
munications. Analysis of Production Problems. Background for Analy-
sis—Functional Description. Summary.
Managing Production 14-~
s—The Nature of Managing. Business Philosophy: The Business Firm:
A Welfare Instrument. The Business Firm: A Profit-Making Instru-
ment. The Business Firm: A Social Organization. The Business Firm:
A Servosystem. Summary. The Management Process: Definition of
Management. Functions of Management. Summary.
3. Analysis and Decision Making 26
The Nature of Managerial Problems: Environmental Problems.
Operating9 Problems. Summary: Production Problems. Analyzing
9
Manageri9al Problems: The Generalized Decision Process. The De-
6
cision Pro11cess in Problems with Few Alternatives. Some Criticisms of
b
Formal 1.Analysis. The Decision Process in Problems with Numerous
Alternativuces. The Scientific Method of Analysis: Observation. Build-
ing the H7/ypothesis. Testing the Hypothesis. Developing the Decision
2
Rule. App20lying the Decision Rule. Judgment in Decision Making—
Heuristiet/c Thinking. Some Criticisms of the Scientific Method. Sum-
n
mary: Anae.lyzing Managerial Problems.
4. Modedlls for Decision Making 46
n
The Verhabal Model. The Mathematical Model. Physical Models. Sche-
matic Moddl.els. A Financial Model. The Break-Even Chart. Converting
h
a Model top:// Another Form. Uncertainty. Summary.
^ST^httBasic Functions of Production 5T
âS€umm”aT / r'yâ. P€rod”uctP Proladnuncitniogn. Oinu Atpllu Tt yopf eGso oofd Bs. Susiunmesms.ary—Production of Goods.
M
6. DecisioGn Making in Production 70
The Produ7 ct Planning Function: Deciding Output Specifications. The
2
Conversio0:n and Acquisition Functions: Deciding Types of Input and
1
Their Use5 (Conversion Operations). Deciding the Output Level.
2
Schedu2-ling the Conversion and Acquisition of Inputs. Deciding the
Lead Time2-0s of Production. Sgleome Additional Abstractions. Summary—
Conversio1n and Acquisition Founctions.
0o
xin 2d-g
op
s) e#
es
ngelss_u
Ae
California, Los hitrust.org/acc
sity of ww.hat
erw
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP
THE PRODUCTION FUNCTION IN BUSINESS
CHAPTER PAGE
((f 7.V\Types of Production 92
Manufacturing Business—Model for Study of Production. Production
to Order and for Stock—Certainty of Product Specifications. Influence
of Sales Volume on Production. Production of Goods to Order: Job-
bing of Goods to Order—Manufacturing Firms. Jobbing to Order in
Marketing Firms. Continuous Production of Goods to Order—Manu-
facturing Firms. Continuous Production to Order in Marketing Firms.
Intermittent Production of Goods to Order—Manufacturers. Intermit-
tent Production to Order in Marketing Firms. Summary—Production
of Goods to Order. Production of Goods for Stock: Jobbing Produc-
tion of Goods for Stock—Manufacturers. Jobbing for Stock in Market-
ing Firms. Continuous Production of Goods for Stock—Manufacturers.
Continuous Production for Stock in Marketing Firms. Intermittent
Production of Goods for Stock—Manufacturers. Intermittent Produc-
tion for Stock in Marketing Firms. Summary—Production of Goods for
Stock. Production in Service Businesses: Types of Production in Fi-
nancial F9irms. Types of Production in Transportation Firms. Types of
9
Productio9n in Professional Service Firms. Types of Production in
6
Miscellane11ous Service Firms. Summary—Types of Production in Serv-
b
ice Firm1.s. Relationship between Standardization of Product and Sales
Volumeuc.
Ji. i Org7/anizing for Production 128
2
Principles20i qfjOjrganizing: Purposes of Organizing. Definition of Or-
gaTilzirlgTet/rJivlslorrot Business Work. Geographical Division of Work.
n
Division oe.f Work on the Basis of Similarity. Types of Staff Organiza-
tion Unitsdl. Organization of Production—Nonmanufacturing Firms:
n
Functiohanal Organization of Production Management. Summary—Man-
agement dl.Organization in Nonmanufacturing Firms. Organization of
h
Productiop://n—Manufacturing Firms: Functional Organization of Pro-
duction inhtt Manufacturing Firms. Line Management Structure for Pro-
dVucatiroiann. tST / s int aMffa Mnuafnaacgtuerminegn: tI nSdutsrturicatlu Ere inng Pinroedeuricntgio. nO. rOgragnaiznaiztaiotnio fnor
M
ProductioGn to Order. Organization for Continuous Production. Pur-
chasing fo7 r Manufacturing. Summary—Organization for Production
2
in Manufa0:cturing Firms.
1
,' /5
2
i 9. Model2-s for Production Management 163
\^ S2-0chematic Model ofgle Production Management. Product Planning. Types
^, of Ca1pacity. Amounts of oCapacity. Effective Use of Capacity. Efficient
0o
. 7 ' Usn 2e of Capacity. Leveld-gs of Decision Making in Production.
PART 2. CoAPACITY FOR PRpODUCTION
10. Produes) ct Planning 177se#
MFajuorn cDteiocAngelnisailo Anss pine cPtrso odfu Pcrto Pdlauess_unctn iPnlagn: nTionpg :M Fanaugnecmtioennst Dofe Pcrisoidouncst. Plan-
nnP1Srii1nno.gg dcA..ua mEPclerto o oPujcCalifornia, Los eflna ocOtnn top noEfeim nrCgaiacct.psioo anoncofsi mtP. yrNiâocds.ua €Ectuthitrust.org/acc rP”ecla oonnfSn oPimnrogcicda:s ulM eco atf2i noF1an6g Ceinamapela nDctie toysfi.g PSnr.o Ddeuyqncutae mPnltaiicansl- oDfeci-
sTCihaoepnoasrc oyit nyo fCersity of D Ianepvtaeecrsmittmyin ePanrtotio.je nPc.rtosg. rParmwww.hatojmecitn gE Bcounsoinmeiscss âOpe€rat”ionEs. Sxupmamnsairoynâ of €Cap”acity.
nivp://
hristina A. (Ugitized / htt
Cdi
stie, ogle-
hriGo
d for Cmain,
eo
neratblic D
eu
GP