Business Policy & Strategy: Chapter Nine

Production

Murdick, Moor, Babson & Tomlinson Sixth Edition, 2000

Production Vs. Productivity

Production is the transformation of organizational resources into products.

Productivity is how efficient you are at transforming the resources.

Strategies for increasing Production

DETERMINE IF LONG TERM or SHORT TERM DEMAND EXISTS

Hire more qualified employees (if long term);

add shifts for short term increases or hire temporary workers

Training Make products easier to assemble Upgrade equipment/build plants Automation and robotics

Production/Operations Management

Selecting, designing, operating, controlling and updating of production systems.

Capacity, location, product, process, layout, and human resources.

JIT inventory controls, maintenance, costs, materials, master scheduling and aggregate planning.

THE BIG IDEA

To get out the right quantity of the product at the right time at the lowest cost.

For global firms, economies of scale is a primary factor locating near low cost labor, or raw materials.

Economies of Scale

If you increase the volume produced, the fixed costs which are constant are spread over a greater number of units, therefore the total cost per unit drops as you remember that TC=FC+VC. With a lower cost per unit, firms can increase market share by lowering price or increase profits by matching other prices!

Policies

Plant location, additions, renovations Equipment purchases Purchasing policies Transportation costs of raw materials

and finished goods should be analyzed

Inventory policy for finished goods Quality levels to be maintained

Typical Production Problems

Absenteeism & Turnover Bottlenecks Floor plan Equipment Sales fluctuate Quality

Typical Production Problems

Sales dept. requesting immediate production on items with long lead time

Lack of time-studies and methods

Special Orders

Five Major Systems of Analysis

Manufacturing Organization Production Planning Production Operation Production Control Relationship with Other

Components

Manufacturing Organization

P rod uc t E n g in ee ring

S h op W o rker

F ore pe rson

G en era l F ore pe rson

S up er in te nd en t M an a ge r F ac i lit ies

M an a ge r M a n ufac tu r ing

Production Planning and Control

E q u ip m e nt an d p roce ssesT im e e stim a ti ingS ch ed u lingO pe ra tio ns la you t a nd R o uting

P rodu ction P lan n ing

D ispa tch ingP rog re ss m o n ito r ingC o rre ctiv e a ction

P rod u ction C o n tro l

S to re M a na ge m e ntP urcha sin g an d S ta nd ard iza tionR e ce iv ing

In ve n to ry C o n tro l

M an ag e r P ro du ctio n P la nn ing an d C o ntro l

Types of Production

Product based- equipment and people are fixed according to operations (old automotive plants)

Process based- goods in process transported to proper department.(Employee and machine grouping -petroleum refining)

Material based- materials do not move. People and machines brought to work in progress. (e.g. Shaft Nursery Lawn care)

Checklist for Analysis

Demand Plant Equipment Layout Procurement H.R.

Methods Maintenance Planning/

Scheduling Assigning Work Inventory Control Housekeeping

Demand

Constant, seasonal, irregular Sales forecasts- are they

constantly too high or too low? Production Vs. Sales- is production

department second guessing the sales department?

Plant

Centralized- to suppliers, market, transportation etc.?

Expansion- is there room? Storage- appropriate? Conditions- security, roads, waste

etc. Climate- general livability Underutilized? Adequate- in another

five years?

Equipment

Specifications Maintenance- periodic,

breakdown,continuous Size of maintenance

crew/downtime Safety equipped OSHA requirements

Layout

Minimize handling Space utilization efficiency (SUE) Aisle space problems Storage space problems Safety problems Compliance with laws Temperature, light, noise, facilities

Procurement

Minimize inventory levels-holding costs, carrying costs, shortage costs and quantity discounts

Lead-time constant and short Control of quality and quantity of

incoming supplies Purchase Order Requisition System

Human Resource Management

Clearly stated policies- hiring, layoff, disciplinary action, promotions

Turnover rate All employees treated equally Incentive plans

Work Methods and Measurement

Methods developed for each operation

Type of measurement employed Union attitude towards methods of

measurement

Maintenance/Replacement

Policy for equipment maintenance Records maintained Balanced against downtime

Production Planning & Scheduling

Formal system in place Rush/Priority Orders Smooth Demand Eliminate Bottlenecks Maintain High

Productivity

Assigning/Dispatching Work

Assigned in accordance with availability

Priorities Indicated Formal system of

communication with forepersons

Controlling Inventories

Economic order EOQ

Economic runs- just the right amount and time

High cost items

Consumer returns excessive?

Incentive for cost reductions

Service level in-house or outsourced?

Housekeeping

Painted regularly Windows and floor cleaned

daily Warning signs clear Roads and parking maintained