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ISE 216/ IE 222ISE 216/ IE 222PRODUCTION SYSTEMS PRODUCTION SYSTEMS

ANALYSISANALYSIS

INTRODUCTIONINTRODUCTION

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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

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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

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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

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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

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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

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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

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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

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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)

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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

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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.””

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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!

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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..

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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

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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

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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

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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

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Continuous flow ->

<- Job Shop

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Modern Times (1936)Modern Times (1936)

Assembly line

By Charlie Chaplin By Charlie Chaplin

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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

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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

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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

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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.

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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

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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

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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.

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Capacity Leading and Capacity Leading and Lagging DemandLagging Demand