Post on 01-Jan-2016
1-1
ISE 216/ IE 222ISE 216/ IE 222PRODUCTION SYSTEMS PRODUCTION SYSTEMS
ANALYSISANALYSIS
INTRODUCTIONINTRODUCTION
1-2
What is Production and What is Production and Operations Management?Operations Management?
Planning and control of systems that Planning and control of systems that use facilities to transform inputs into use facilities to transform inputs into outputs (goods and services).outputs (goods and services).
Transformation
Input OutputGoods & Services
ResourcesMaterialsLaborFacilitiesInformationEnergyTime
ManufacturingTransportationRetailingWarehousing
1-3
ExampleExample
System Input Facilities Transformation function
Output
Automobile factory
Raw materials
Tools, equipment, workers
Fabrication and assembly of cars
Cars
University High school graduates
Teachers, books, classrooms
Importing knowledge and skills
Educated individuals
Department store
Shoppers Displays, stock of goods, sales clerks
Attract shoppers and fill orders
Sales to satisfied customers
1-4Manufacturing sector Manufacturing sector vs. vs.
Service sectorService sector
Manufacturing Service
Durable good Intangible product (mostly perishable)
Can be inventoried No inventories
Quality measurable Quality difficult to measure
Low customer contact High customer contact
Capital intensive Labour intensive
1-5
Chapter 1. Chapter 1. Strategy and CompetitionStrategy and Competition
1-6Topic Areas in Operations Topic Areas in Operations AnalysisAnalysis
ForecastingForecasting Aggregate PlanningAggregate Planning Inventory Control: Deterministic EnvironmentsInventory Control: Deterministic Environments Inventory Control: Stochastic EnvironmentsInventory Control: Stochastic Environments Supply Chain Management Supply Chain Management Production Control Systems: MRP and JITProduction Control Systems: MRP and JIT Operations SchedulingOperations Scheduling Project SchedulingProject Scheduling Facilities PlanningFacilities Planning Quality and AssuranceQuality and Assurance Maintenance and ReliabilityMaintenance and Reliability
1-7
Operations (product design, manufacturing,
product quality, process efficiency, customer service,
inventory management,...)
Finance
Marketing
Functional Areas of the Firm
1-8DecisionDecision Horizons for Horizons for Operations Operations Strategy Strategy
1. Long Term1. Long Term Locating and Sizing New FacilitiesLocating and Sizing New Facilities Finding New Markets for ProductsFinding New Markets for Products Mission Statement: meeting quality objectivesMission Statement: meeting quality objectives
2. Intermediate Term2. Intermediate Term Forecasting Product DemandForecasting Product Demand Determining Manpower NeedsDetermining Manpower Needs Setting Channels of DistributionSetting Channels of Distribution Equipment Purchases and MaintenanceEquipment Purchases and Maintenance
3. Short Term3. Short Term PurchasingPurchasing Shift SchedulingShift Scheduling Inventory ControlInventory Control
1-9
Operations StrategyOperations Strategy
“… “… is about getting the work done is about getting the work done quicklyquickly, , efficiently, without error, efficiently, without error, and at low cost.”and at low cost.”
Operations and Supply Management – The Core, Jacobs & ChaseOperations and Supply Management – The Core, Jacobs & Chase
1-10
Operations StrategyOperations StrategyExampleStrategy Process
Customer Needs
Corporate Strategy
Operations Strategy
Decisions on Processes and Infrastructure
More Product
Increase Org. Size
Increase Production Capacity
Build New Factory
1-11History of POMHistory of POM (Production Operations Management)(Production Operations Management)
Industrial Revolution 1850-1890.Industrial Revolution 1850-1890. Factories tended to be small. Boss had total Factories tended to be small. Boss had total
control. Little regard for workers safety or control. Little regard for workers safety or workers rights. workers rights.
Production Manager Position 1890-1920.Production Manager Position 1890-1920. Frederick Taylor champions the idea of Frederick Taylor champions the idea of
“scientific management”. “scientific management”. As complexity grows specializations take As complexity grows specializations take
holdhold.. Inventory Control ManagerInventory Control Manager Purchasing ManagerPurchasing Manager Scheduling SupervisorScheduling Supervisor Quality Control ManageQuality Control Managerr
1-12
Global CompetitionGlobal Competition
Global competition is heating up to an unprecedented Global competition is heating up to an unprecedented
degree. It appears that several factors favor the degree. It appears that several factors favor the
success of some industries in some countries:success of some industries in some countries:
Germany: printing presses, luxury cars, chemicalsGermany: printing presses, luxury cars, chemicals Switzerland: pharmaceuticals, chocolateSwitzerland: pharmaceuticals, chocolate Sweden: heavy trucks, mining equipmentSweden: heavy trucks, mining equipment United States: personal computers, software, entertainmentUnited States: personal computers, software, entertainment Japan: automobiles, consumer electronicsJapan: automobiles, consumer electronics
1-13
Porter’s ThesisPorter’s ThesisFamed management guru, Michael Porter, has developed Famed management guru, Michael Porter, has developed
a theory to explain the determinants of national a theory to explain the determinants of national
competitive advantage. These include:competitive advantage. These include: Factor Conditions (Land, Labor,(Land, Labor, Capital, etc.)Capital, etc.) Demand Conditions
(local marketplace may be more sophisticated/demanding than (local marketplace may be more sophisticated/demanding than world marketplace)world marketplace) –Japan in electronics –Japan in electronics
Related and Supporting Industries – Italy in footwear Firm Strategy, structure, rivalry
(e.g.: Germans are strong technically, Italian family structure, (e.g.: Germans are strong technically, Italian family structure, Japanese management methods)Japanese management methods)
1-14
Time-Based CompetitionTime-Based Competition Due to Due to Blackburn(1991).Blackburn(1991).
Being not only the first to Being not only the first to market but the first to volume market but the first to volume producproducerer as well gives a firm as well gives a firm a decided advantage. a decided advantage.
1-15How Do Firms Differentiate How Do Firms Differentiate Themselves from Themselves from
Competitors?Competitors? Low Cost Leaders:Low Cost Leaders:
WalMart and Costco in RetailingWalMart and Costco in Retailing Korean automakers (Hyundai, Kia, etc.)Korean automakers (Hyundai, Kia, etc.) EE--machines personal computersmachines personal computers
High Quality (and price) LeadersHigh Quality (and price) Leaders:: Mercedes Benz automobilesMercedes Benz automobiles Rolex WatchesRolex Watches
(some firms do both: Chevrolet and (some firms do both: Chevrolet and Cadillac)Cadillac)
1-16Along What Other Along What Other Dimensions Do Firms Dimensions Do Firms
Compete?Compete? Delivery Speed, Delivery ReliabilityDelivery Speed, Delivery Reliability
Federal Express, United Parcel ServiceFederal Express, United Parcel Service FlexibilityFlexibility
Solectron: provides manufacturing services Solectron: provides manufacturing services to many different companies.to many different companies.
ServiceService Nordstrom bases its reputation on providing Nordstrom bases its reputation on providing
a high quality of service to customersa high quality of service to customers
1-17
Business Process Re-engineeringBusiness Process Re-engineering
The process of taking a cold hard look at the way that The process of taking a cold hard look at the way that things things
are done. Term coined by Hammer and Champy in are done. Term coined by Hammer and Champy in their 1993 their 1993
book.book.
““Business process reengineeringBusiness process reengineering ( (BPRBPR) is ) is the analysis and redesign of workflows the analysis and redesign of workflows within and between enterprises in order to within and between enterprises in order to optimize end-to-end optimize end-to-end processesprocesses and and automate non-value-added tasks.automate non-value-added tasks.””
1-18
Business Process Re-engineeringBusiness Process Re-engineering
Classic Example: Classic Example: IBM Credit CorporationIBM Credit Corporation. The . The approval approval process process was taking from was taking from 6 days to 2 weeks 6 days to 2 weeks ..
It It had been broken down to a series of multiple steps, had been broken down to a series of multiple steps, each having substantial delays. each having substantial delays.
The process was re-engineered so that a single The process was re-engineered so that a single specialist would handle a request from beginning to specialist would handle a request from beginning to end. end.
The result was that turnaround time was slashed to an The result was that turnaround time was slashed to an average of 4 hours!average of 4 hours!
1-19
Just-In-TimeJust-In-Time
JIT is a production control system that grew JIT is a production control system that grew out of Toyota’s kanban system. out of Toyota’s kanban system.
It is a philosophy of production control (also It is a philosophy of production control (also known as lean production) that attempts to known as lean production) that attempts to reduce inventories to an absolute minimum. reduce inventories to an absolute minimum.
It has become pretty much a standard way of It has become pretty much a standard way of thinking in many industries (especially the thinking in many industries (especially the automobile.)automobile.)
JIT will JIT will be be discussdiscusseded in in ISE 315ISE 315..
1-20
Product and Product and ProductionProduction
ProductProduct: : an item that satisfies the an item that satisfies the market’s/costumer’s needmarket’s/costumer’s need
ProductionProduction: : the act of making productsthe act of making products ManufacturingManufacturing ServiceService
I-20
1-21
Importance of Importance of manufacturingmanufacturing
Manufacturing in the developed Manufacturing in the developed countries has declined, but it is still countries has declined, but it is still crucialcrucial
Certain industries relate to national securityCertain industries relate to national security Employment opportunityEmployment opportunity Manufacturing firms are lifeblood for Manufacturing firms are lifeblood for
financial service and consulting companiesfinancial service and consulting companies Harbor for InnovationHarbor for Innovation
1-22
Product Life CycleProduct Life Cycle
The life cycle may be short (clothing) or long (commercial
aircraft).
Some generalizations:
Products go through growth, maturity and decline phases.
Product profits follow a growth, stabilization and decline pattern.
Products need a different marketing, production planning, inventory management and financial strategy at each stage.
1-23The Product & The Product & ProcessProcess Life- Life-Cycle CurvesCycle Curves
Man
ufa
ctu
rin
g C
ost
1-24
PROCESS FLOW STRUCTURESPROCESS FLOW STRUCTURES
Job shopJob shop Production of small batches of a large number of Production of small batches of a large number of different products.different products. Airplane manufacturers, Commercial Airplane manufacturers, Commercial pprinting firms.rinting firms.
Batch shopBatch shop Production of a relatively stable line of products Production of a relatively stable line of products typically in batches. typically in batches.
Electronic devices, Bakery.Electronic devices, Bakery.
Assembly LineAssembly Line Production of discrete parts moving from Production of discrete parts moving from workstation to workstation at a controlled rate.workstation to workstation at a controlled rate. Automobile manufacturer, home electronics manufacturer.Automobile manufacturer, home electronics manufacturer.
Continuous FlowContinuous Flow Conversion or further processing of Conversion or further processing of undifferentiated materials. undifferentiated materials. Petroleum refinery, Beverage factoryPetroleum refinery, Beverage factory
1-25
Continuous flow ->
<- Job Shop
1-26
Modern Times (1936)Modern Times (1936)
Assembly line
By Charlie Chaplin By Charlie Chaplin
1-27
ContinuousFlow
AssemblyLine
Batch shop
JobShop
LowVolume,One of a
Kind
MultipleProducts,
LowVolume
Few Major
Products,HigherVolume
High Volume,
HighStandar
d-izationCommercial
PrinterFrench
RestaurantHeavy
Equipment
AutomobileAssembly
Burger King
SugarRefinery
Flexibility (High)Unit Cost (High)
Flexibility (Low)Unit Cost (Low)
Product Process MatrixProduct Process Matrix
1-28
Characteristic Job Shop Assembly Line
Product Large variety & low volume
Low variety & high volume
Equipment type & layout
General purpose by function
Specialized equipment by use in production line
Flexibility High Relatively low
Material handling Mobile Conveyor, relatively fixed
Worker skills High Low
Job Shop vs. Assembly LineJob Shop vs. Assembly Line
1-29
Characteristic Job Shop Assembly Line
Product documentation
High: drawings & work orders
Low: due to standard items
Work load Variable Stable
Costs High unit costjob cost system
High overhead cost (fixed cost)product cost sys.
Forecasting Product family Individual item
Job Shop vs. Assembly LineJob Shop vs. Assembly Line
1-30
Capacity StrategyCapacity StrategyCapacity: the number of units that the Capacity: the number of units that the
plant can produce in a given time.plant can produce in a given time. AmountAmount. When adding capacity, what is the . When adding capacity, what is the
optimal amount to add? optimal amount to add? Too little means that more capacity will have to be Too little means that more capacity will have to be
added shortly afterwards. added shortly afterwards.
Too much means that capital will be wasted.Too much means that capital will be wasted.
TimingTiming. What is the optimal time between . What is the optimal time between adding new capacity?adding new capacity?
TypeType. Level of flexibility, automation, layout, . Level of flexibility, automation, layout, process, level of customization, outsourcing, process, level of customization, outsourcing, etc. etc.
1-31
Capacity StrategyCapacity Strategy
IIssuesssues in capacity expansion in capacity expansion
Finite plant lifetimeFinite plant lifetime
Demand patternsDemand patterns
Technological developmentsTechnological developments
Government regulationsGovernment regulations
Overhead costsOverhead costs
Tax incentivesTax incentives
1-32
Break-even Curves for the Make Break-even Curves for the Make or Buy Problemor Buy Problem
Cost to Buy = c1x
Cost to make=K+c2x
K
Break-even quantity
1-33
Three Approaches to Three Approaches to Capacity StrategyCapacity Strategy
Policy A:Policy A: Try not to run short. Here capacity Try not to run short. Here capacity must lead demand, so on average there will must lead demand, so on average there will be excess capacity.be excess capacity.
Policy B:Policy B: Build to forecast. Capacity additions Build to forecast. Capacity additions should be timed so that the firm has excess should be timed so that the firm has excess capacity half the time and is short half the capacity half the time and is short half the time.time.
Policy C:Policy C: Maximize capacity utilization. Maximize capacity utilization. Capacity additions lag demand, so that Capacity additions lag demand, so that average demand is never met. average demand is never met.
1-34
Capacity Leading and Capacity Leading and Lagging DemandLagging Demand