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Chapter 14 Operations—Producing Goods and Services Learning Objectives • After reading this chapter, you should be able to do the following: • Discuss the strategic value-adding role operations plays in the supply chain. • Explain the concept of a transformation process and its application to goods and services. • Appreciate the tradeoffs and challenges involved in production operations. • Understand the primary production strategies and types of planning. • Discuss the primary assembly processes and production methods for goods creation. • Describe the various production process layouts. • Explain the role of productivity and quality metrics for improving operations performance. • Know how information technology supports efficient production of goods and services.
Introduction • Operations focus on the “make/build” portion of the supply chain. • Production facilities must interact with supply chain functions. • Operations create the outputs that are distributed through supply chain networks.
The Role of Production Operations in Supply Chain Management • Manufacturing and service production supplies a economic utility called form utility. • An effective production operation is supported by and also supports the supply chain. • Supply chain tradeoffs must be understood and made.
Production Process Functionality • No two processes are organized exactly alike or perform to the same level. • Process functionality helps the success of an organization. • Assemble-to-order methods tend to be more complex, be more labor intensive, and require longer processing time than the mass-production-oriented, make-to-stock operations.
Production Tradeoffs • Processes that can produce a range of products are said to have economies of scope. • Low-volume production runs of a wide variety of products are required to meet changing customer demand. • Tradeoffs between production processes for goods and the costs involved in manufacturing them must also be understood. • Production and supply chain costs vary for make-to-stock, assemble-to-order, and build-to-order products.
Production Challenges • Intensified competition, more demanding customers, and relentless pressure for efficiency as well as adaptability • Competitive pressures for many established manufacturers and service providers • Customers’ demand for choice and rapidly changing tastes
Production Strategies • In the era of mass production, operations strategy focused on reduction, efficiency, and scale. • The push-based strategy works well for supply chains that focus on the immediate delivery of off-the-shelf, low-cost, standardized goods. • Lean production tries to have materials arrive at the needed location just in time for rapid processing and flow through the system. • Lean production relies on pull-based systems to coordinate production and distribution with actual customer demand.
Production Strategies • Machine flexibility • general purpose machines and equipment staffed by cross-trained workers provide the ability to produce different types of products • Routing flexibility • provides managers with a choice between machines for a part’s next operation • Offshoring • activity be relocated to a contract manufacturer in another country • Adaptive manufacturing • provides companies with the ability to replace planning and replanning with execution based on real-time demand
Production Planning • Three planning timeframes: • Long-range plans • covering a year or more, focus on major decisions regarding capacity and aggregate production plans • Medium-range plans • span 6 to 18 months and involve tactical decisions regarding employment levels and similar issues • Short-range plans • ranging from a few days to a few weeks
Production Planning • Resource requirements planning (RRP) • long-run, macro-level planning tool • Rough-cut capacity plan (RCCP) • checks the feasibility of the master production schedule • Capacity requirements planning (CRP) • checks the feasibility of the materials requirement plan • Aggregate production plan (APP) • long-range materials plan that translates annual business plans, marketing plans into production plan • Master production schedule (MPS) • medium-range plan that is more detailed than the APP
Assembly Processes • (MTS), make to order • (ATO), assemble-to-order • (BTO), build-to-order • (ETO), engineer-to-order
Production Process Layout • facility layout • involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility. • successful layout is one that does the following: • Reduces bottlenecks in moving people or materials • Minimizes materials-handling costs • Reduces hazards to personnel • Utilizes labor efficiently • Increases morale and ease of supervision • Utilizes available space effectively and efficiently • Provides flexibility • Facilitates coordination and face-to-face communication
Production Process Layouts • Project layout • fixed location layout where the product remains in place for the duration of production • Workcenter • process-focused layout that groups together similar equipment or functions • Manufacturing cell • process-focused layout that dedicates production areas to a narrow range of products that are similar in processing requirements • Assembly line • product-focused layout in which machines and workers are arranged according to the progressive sequence of operations • Continuous process facilities • similar to assembly lines, with product flowing through a predetermined sequence of stops.
Packaging • design issues can affect labor and facility efficiency • can provide another level of product differentiation • design impacts ability to use space and equipment • ease of handling during materials handling and transportation • protecting the goods in the package
Production Metrics • use of measurements and key performance indicators (KPIs) • Using KPIs that are too narrow • Encouraging wrong outcomes • Focusing on issues that are not key priorities • should be properly aligned with corporate objectives
Production Metrics • Total cost • all money spent on manufacturing must be summarized and the total compared to the previous period • Total Cycle Time • total cycle time is a measure of manufacturing performance that is calculated by studying major purchased components and determining the total days on hand of each one • Delivery performance • is the percentage of customer orders shipped when the customer requested them to be shipped
Production Metrics • Quality • This may vary by company but it must focus on quality from the perspective of the customer. • Safety • The standard metrics of accident/incident frequency, severity, and cost are important to monitor, with continuous improvement (i.e., reduction) as the goal.
Manufacturing Execution Systems (MES) • central software used to monitor and control production operations • linked to other enterprise tools like ERP systems, product life cycle management tools, and scheduling and planning systems
Summary • The key concept from this chapter is the critical and codependent link between production operations and logistics. Just as a heart and arteries need to work together to move blood through your circulatory system, production and logistics must work in concert to move product through the supply chain. For their part, production managers must coordinate demand information, inputs, and resources to transform them into outputs (products and materials) that are desired by customers. The faster and more flexible the transformation processes, the more responsive the production operation can be to changing conditions and disruptions. This, in turn, makes the supply chain more dynamic and competitive. • Additional topics from the chapter include the following: • Production operations include all activities and processes involved in changing the composition of a good or service—component fabrication, product assembly, and service request execution—for the purpose of creating form utility. • Numerous tradeoffs must be made regarding production: volume versus variety, responsiveness or efficiency, make or outsource, and focusing on a limited number of competitive dimensions. • Intensified competition, more demanding customers, and relentless pressure for efficiency as well as adaptability are driving significant changes across many manufacturing industry settings.
Summary (cont.) • There have been significant development and shifts in production strategy. Organizations have advanced from forecast-driven mass production to demand-driven lean, flexible, and adaptive approaches • Capacity planning and materials planning are used to balance inputs, capacity (resources), and outputs so that customer demand can be fulfilled without creating waste. • Most manufacturers use a combination of four production methods—make-to-stock, assemble-to-order, build-to-order, and engineer-to-order—to satisfy demand for their products. • Facility layout involves the arrangement of machines, storage areas, and other resources within the four walls of a manufacturing or an assembly facility. • Facility layout is influenced by the product characteristics, production strategy, and assembly process employed by the organization.
Summary (cont.) • Packaging plays important roles in the smooth transfer of finished goods from the plant to the distribution center and customer locations. • Production KPIs must be linked to corporate goals and objectives, customer requirements, and overall performance of the production operation. • Relevant production KPIs address total cost, total cycle time, delivery performance, quality, and safety. • Manufacturing execution systems software solutions improve an organization’s ability to manage production operations and make them more responsive to disruptions, challenges, and changing marketplace conditions.