OPERATIONS:

1. OPERATIONS: Producing Goods and Services

2. Learning Objectives • 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.

3. Learning Objectives, continued • 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.

4. The Role of Production Operations in SCM Manufacturing and service production supplies a economic utility called form utility. Effective production operations are supported by and support 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.

5. Figure 14.1The Production Process Source: Brian J. Gibson, Ph.D.

6. The Role of Production Operations in SCM, continued • 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.

7. Figure 14.2Total Cost of Manufacturing Source: Adapted from Bowersox, Closs & Cooper, Supply Chain Logistics Management, 3rd ed. (2010)

8. The Role of Production Operations in SCM, continued • 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.

9. Operations Strategies and Planning • 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.

10. Figure 14.3Evolution of Production Strategies Source: Adapted from Manufacturing Strategy: An Adaptive Perspective (SAP 2003)

11. Table 14.1TPS Seven Deadly Wastes Source: Ohno, Toyota Production System: Beyond Large Scale Production (1988)

12. Operations Strategies and Planning, continued • Production Strategies, continued • 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

13. Operations Strategies and Planning, continued • Production Planning • 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

14. Figure 14.4Production Planning Activities Source: Adapted from Wisner, Tan, & Leong, Principles of Supply Chain Management, 2nd ed. (2009)

15. Operations Strategies and Planning, continued • Production Planning, continued • 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

16. Production Execution Decisions • 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.

17. Production Execution Decisions, continued • Production Process Layout, continued • 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 • 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

18. Production Execution Decisions, continued • Production Process Layout, continued • 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.

19. Figure 14.5Facility Layout Matrix Source: Adapted from Jacobs & Chase, Operation and Supply Chain Management: The Core (2008)

20. Production Execution Decisions, continued • 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.

21. 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.

22. Production Metrics, continued • 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.

23. Production Technology • 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.

24. Table 14.3MES Key Functionality Source: Manufacturing Execution Solutions Association International, MES Functionality & MRP to MFS Data Flow Possibilities, (2011)

25. Summary • 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.

26. Summary, continued • 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. • Within the make-to-order method, companies can leverage assemble-to-order, build-to-order, or engineer-to-order options, based on product complexity and weakness.

27. Summary, continued • 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. • Packaging plays important roles in the smooth transfer of finished goods from the plant to the distribution center and customer locations. • Sustainability is a key consideration in packaging selection, and companies are turning to recyclable and reusable materials for exterior and interior packaging. • Production KPIs must be linked to corporate goals and objectives, customer requirements, and overall performance of the production operation.

28. Summary, continued • Critical 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.