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Introduction to Production Management
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Outline
• Introduction to production planning• Definition and classification of production systems• Decisions and performance measure for
production systems.• Product and process life cycle concepts• Changing challenges in production management• Goods vs. services and their shares in the
Economy.• Productivity
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Essential functions in any organization
1.1. MarketingMarketing – generates demand
2.2. ProductionProduction/Manufacturing/Manufacturing/operations/operations – creates the product
3.3. Finance/accountingFinance/accounting – tracks how well the organization is doing, pays bills, collects the money
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Production/Manufacturing
Production/manufacturing is the process of converting raw materials or semi-finished products into finished products that have value in the market place. This process involves the contribution of labor, equipment, energy, and information.
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The Production System
Production System
Raw materials
Energy
Labor
Equipment
Information
Finished products
Scrap
Waste
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Inventory
Inventory is both an input and output of the production process. Inventory can be in the form of raw materials, semi-finished, and finished products.
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The Inventory System
Supply source Demand source
Inventory
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The Production-Inventory System
Raw materials
Suppliers Fabrication
Component partsinventory
Assembly
Finished goods inventory
Distribution and sales
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The Supply Chain
2nd tier suppliers1st tier
suppliers
Assembly/ Manufacturing
Distribution centers
Retailers
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Supply Chain Management
Supply Chain Management (SCM) is the set of functions concerned with the effective utilization of limited resources that may reside with one or more independent firms and the management of material, information, and financial flows within and between these firms, so as to satisfy customer demands and create profits for all firms.
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Production Planning and Inventory Control
Production planning and inventory control is the subset of SCM functions that focus on managing production operations and inventory throughout the supply chain.
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Examples of Decisions
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Examples of Decisions
What should we produce, how much, and when (forecasting)?
How much can we produce (capacity planning)?
How much do we have and how much do we need (inventory management)?
When should we produce (production planning and scheduling)?
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Examples of Performance Measures
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Cost (are products being created at minimum or acceptable cost?)
Quality (what are the specifications of the products? What percentages of shipped products meet specification?)
Variety (how many types of products are - or can be – simultaneously produced?)
Service (how long does it take to fulfill a customer order? how often are quoted lead times met?)
Examples of Performance Measures
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Flexibility (how quickly can existing resources be reconfigured to produce new products?)
Worker satisfaction (are workers and managers throughout the supply chain happy and motivated?)
Safety (are work environments safe for workers and the surrounding community?)
Environmental impact (how environmentally friendly are the supply chain processes and the products?)
Examples of Performance Measures (continued…)
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Classification of the Production Process
Production quantity
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Significant Events in production Management
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Classification of the Production Process
Production quantity– Mass production – Batch production – Job shop production
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Classification of the Production Process
Production quantity– Mass production – Batch production – Job shop production
Product variety
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Classification of the Production Process
Production quantity– Mass production – Batch production – Job shop production
Product variety– Single product or product line
– Family of similar products
– One-of-a-kind products
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Mass Production Systems
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Mass Production Systems
Low product variety
High production volumes
Specialized labor
Dedicated equipment
High reconfiguration costs
Make-to-stock production
Example; Sugar production, Automobile assembly lines
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Batch Production Systems
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Batch Production Systems
Medium product variety Products are made in larger lots Products are made to stock Programmable/reconfigurable equipment Significant setup costs Example: Apparel or Pharmaceuticals production
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Job Shops
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Job Shops
High product variety Products are made in small lots Products are made to order Flexible equipment and labor Small setups Example; Metal parts or PCBs production
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Classification of Production Systems (continued…)
Order fulfillment
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Classification of Production Systems
(continued…) Order fulfillment
– Make-to-stock systems (MTS)– Make-to-order systems (MTO)– Hybrid MTO/MTS
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Classification of Production Systems
(continued…) Order fulfillment
– Make-to-stock systems (MTS)– Make-to-order systems (MTO)– Hybrid MTO/MTS
Resource configuration
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Classification of Production Systems
(continued…) Order fulfillment
– Make-to-stock systems (MTS)– Make-to-order systems (MTO)– Hybrid MTO/MTS
Resource configuration– Product layout – Process layout– Cellular layout– Fixed position layout
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Product layout
• Product layouts are found in flow shops (repetitive assembly and process or continuous flow industries).
• Flow shops produce high-volume, highly standardized products that require highly standardized, repetitive processes.
• In a product layout, resources are arranged sequentially, based on the routing of the products.
• Two types of lines are used in product layouts: paced (moving) and unpaced.
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Product layout
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Process Layout
• Process layouts are found primarily in job shops, or firms that produce customized, low-volume products that may require different processing requirements and sequences of operations.
• Process layouts are facility configurations in which operations of a similar nature or function are grouped together.
• Their purpose is to process goods or provide services that involve a variety of processing requirements.
• Example; A machine shop; general-purpose machines are grouped together by function (e.g., milling, grinding, drilling, hydraulic presses, and lathes)
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Process Layout
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Cellular Layout
• Cellular manufacturing is a type of layout where machines are grouped according to the process requirements for a set of similar items (part families) that require similar processing.
• These groups are called cells.
• A cellular layout is an equipment layout configured to support cellular manufacturing.
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Cellular Layout
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Fixed position layout
• A fixed-position layout is appropriate for a product that is too large or too heavy to move.
• Fixed-position layout examples include construction (e.g., buildings, dams, and electric or nuclear power plants), shipbuilding, aircraft, aerospace, farming, drilling for oil, home repair, and automated car washes
• For services, other reasons may dictate the fixed position (e.g., a hospital operating room where doctors, nurses, and medical equipment are brought to the patient).
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Fixed position layout
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Classification of Production Systems (continued…)
Inputs/outputs
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Classification of Production Systems (continued…)
Inputs/outputs– Discrete production systems (discrete inputs and outputs - cars, computers, machine tools, etc)
– Continuous production systems (continuous inputs and outputs - chemicals, textiles, food processing, pharmaceuticals)
– Hybrid systems (Discrete inputs/continuous outputs or continuous inputs/discrete outputs - steel, plastics, recycling)
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ContinuousFlow
AssemblyLine
Batch
JobShop
LowVolume,One of a
Kind
MultipleProducts,
LowVolume
Few MajorProducts,
HigherVolume
High Volume,
HighStandard-
ization
PCBs, Metal parts
ApparelPharmaceuticals
AutomobileAssembly
Burger King
SugarRefinery
Flexibility (High)Unit Cost (High)
Flexibility (Low)Unit Cost (Low)
Product-Process Matrix
Nahmias (2009)
Mas
s pr
oduc
tion
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Manufacturing Strategies
Manufacturing strategy and lead time
Arnold, Chapman, & Clive: Intro Materials Management, 6th ed.
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Manufacturing Strategies
• Engineer-to-order– Customer’s requirements determines the design of the product.
High customization– Normally no inventory is held– Long lead time (includes design lead time)– Example: Manufacturing of special purpose machines
• Make-to-order– Manufacturing starts after the customer orders– Mixture of standard products and custom designed products– Inventory is mostly in the form of raw material– Shorter lead time than engineer-to-order– Manufacturing of a meal in a restourant
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Manufacturing Strategies
• Assemble-to-order– Product is made from standard components– Delivery lead time is further reduced– Inventory is held as components– Customer only selects component options– Example: Car assembly plants
• Make-to-stock– No customer involvement in product design– Manufacturer satisfies demand from a finished good inventory– Production is planned based on inventory levels.– Example: Diaper/paper towel production
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Changing Challenges in Production Management
Traditional Approach
Reasons for Change
Current Challenge
Ethics and regulations not at the forefront
Public concern over pollution, corruption, child labor, etc.
High ethical and social responsibility; increased legal and professional standards
Local or national focus
Growth of reliable, low cost communication and transportation
Global focus, international collaboration
Lengthy product development
Shorter life cycles; growth of global communication; CAD, Internet
Rapid product development; design collaboration
Figure 1.5
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Changing ChallengesTraditional Approach
Reasons for Change
Current Challenge
Low cost production, with little concern for environment; free resources (air, water) ignored
Public sensitivity to environment; ISO 14000 standard; increasing disposal costs
Environmentally sensitive production; green manufacturing; sustainability
Low-cost standardized products
Rise of consumerism; increased wealth; individualism
Mass customization
Figure 1.5
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Changing ChallengesTraditional Approach
Reasons for Change
Current Challenge
Emphasis on specialized, often manual tasks
Recognition of the employee's total contribution; knowledge society
Empowered employees; enriched jobs
“In-house” production focus; low-bid purchasing
Rapid technological change; increasing competitive forces
Supply-chain partnering; joint ventures, alliances
Large lot production
Shorter product life cycles; increasing need to reduce inventory
Just-In-Time performance; lean; continuous improvement
Figure 1.5
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The Product Life-Cycle
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• Demand for new products goes trough an identifiable cycle called product life cycle – Start-up
• Market for the product developed,High manufacturing cost, Design problems corrected,Low competiton
– Rapid growth• Demand picks up quickly, standardization in
manufacturing and cost reduction, competition starts. Right pricing strategies to establish the product in the market
The Product Life-Cycle
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The Product Life-Cycle
– Maturation• Demand stabilizes, management should protect
and improve market share and brand loyalty through competitive pricing, focus on cost reduction.
– Stabilization or decline• Market gets saturated by the competitiors and/or
product becomes obsolete. Reduced investment in promotions and new manufacturing technologies
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The Product and Process Life CycleM
anu
fact
uri
ng
Co
st
Automation, economies of scale and learning effects
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Characteristics of Goods
• Tangible product• Consistent product
definition• Production usually
separate from consumption
• Can be inventoried• Low customer
interaction
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Characteristics of Service• Intangible product• Produced and consumed
at same time• Often unique• High customer interaction• Inconsistent product
definition• Often knowledge-based• Frequently dispersed
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Goods and ServicesAutomobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/investment management
Consulting service/teaching
Counseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%| | | | | | | | |
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120 –
100 –
80 –
60 –
40 –
20 –
0 –| | | | | | |
1950 1970 1990 2010 (est)1960 1980 2000
Em
plo
ymen
t (m
illi
on
s)
Manufacturing and Service Employment
Figure 1.4 (A)
Manufacturing
ServiceService
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Manufacturing Employment and Production
Figure 1.4 (B)
40 –
30 –
20 –
10 –
0 – | | | | | | |1950 1970 1990 2010 (est)
1960 1980 2000
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
Em
plo
ymen
t (m
illi
on
s)
In
dex
: 19
97 =
100
Ind
ex:
1997
= 1
00
Manufacturingemployment
(left scale)
Industrial Industrial productionproduction
(right scale)(right scale)
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Industry and Services as Percentage of GDP
Services Manufacturing
Au
stra
lia
Can
ada
Ch
ina
Cze
ch R
ep
Fra
nce
Ger
man
y
Ho
ng
Ko
ng
Jap
an
Mex
ico
Ru
ssia
n F
ed
So
uth
Afr
ica
Sp
ain
UK
US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −
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Development of the Service Economy
Figure 1.4 (C)
United States
Canada
France
Italy
Britain
Japan
W. Germany
1970 2010 (est)
| | | | |
40 50 60 70 80Percent
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Service sector in Turkey• Hizmet Sektörü, Türkiye’de istihdam açısından en fazla
çalışanın olduğu alandı. Bu alanda 2008 yılı Mart ayı TÜİK rakamlarına göre istihdam edilmiş olan toplam 20.752.000 kişinin toplam 10.258.000’i, yani istihdamdaki nüfusun % 49,4’ü çalışıyordu.
• 1998 temel fiyatlarına göre sabit fiyatlarla sektörlerin GSYH’ya katkısı açısından Hizmet Sektörü 2007 yılında % 56,90’lık bir oranla en büyük paya sahipti. Yani Hizmet Sektörü hem istihdam açısından, hem de ekonomideki katkı payı açısından Türkiye ekonomisinde en önemli yere sahipti. (*2)
• http://sey.ydicagri.org/pdfs/sey_III_hizmetler.pdf
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Productivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs
(resources such as labor and capital)
The objective The objective of all production managers of all production managers is to improve productivityis to improve productivity
High productivity is the source of high High productivity is the source of high living standards in the developed living standards in the developed
countries.countries.
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• Measure of process improvement
• Represents output relative to input
• Only through productivity increases can our standard of living improve
Productivity
Productivity =Units produced
Input used
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Productivity Calculations
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000
250
Labor ProductivityLabor Productivity
One resource input - single-factor productivity
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Multi-Factor Productivity
OutputLabor + Material + Energy + Capital + Miscellaneous
Productivity =
- Also known as total factor productivity
- Output and inputs are often expressed in dollars
Multiple resource inputs - multi-factor productivity
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Collins Title Company
The company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day.
The company recently purchased a computerized title-search system that will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
=Old labor
productivity8 titles/day
32 labor-hrs
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
8 titles/day
32 labor-hrs=
Old labor productivity = .25 titles/labor-hr
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
32 labor-hrs=
Old labor productivity
=New labor
productivity
= .25 titles/labor-hr
14 titles/day14 titles/day
32 labor-hrs32 labor-hrs
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
32 labor-hrs=
Old labor productivity = .25 titles/labor-hr
14 titles/day
32 labor-hrs=
New labor productivity = .4375 titles/labor-hr
75% increase
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
=Old multifactor
productivity8 titles/day
$640 + 400
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400=
Old multifactor productivity = .0077 titles/dollar
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400=
Old multifactor productivity
=New multifactor
productivity
= .0077 titles/dollar
14 titles/day14 titles/day
$640 + 800$640 + 800
75% increase
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Collins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/day
New System:New System:
8 titles/day
$640 + 400
14 titles/day
$640 + 800
=Old multifactor
productivity
=New multifactor
productivity
= .0077 titles/dollar
= .0097 titles/dollar
26% increase
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Measurement problems in productivity
1.1. QualityQuality may change while the quantity of inputs and outputs remains constant
2.2. External elementsExternal elements may cause an increase or decrease in productivity
3. 3. Precise unitsPrecise units of measure may be lacking. (Not all automobiles require the same inputs)
4. 4. Measuring productivity in serviceproductivity in service sector is difficult.
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Relevant Societies to Production Management (US)• Institute of Industrial Engineers• APICS, the American Production and
Inventory Control Society• American Society of Quality (ASQ)• Institute for Supply Management (ISM)• Project Management Institute (PMI)• Council of Supply Chain Management
Professionals• Charter Institute of Purchasing and Supply
(CIPS)
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HW11. Read an article on one of the following topics (or on any topic related to production
management) and summarize your understanding (no more than a page and a half). Make sure that article is written after 2005. The article should be a none-technical type. Submit both your summary and a copy of the article. Check out the magazines of the societies listed before .1. Forecasting
2. Advanced production planning
3. Lean manufacturing
4. Mass customization and an application
5. Collaborative forecasting and replenishment planning
6. Inventory management
7. Capacity planning
8. Sustainable Manufacturing
9. Product life cycle and strategy
10. Supply chain management in Walmart or in Seveneleven Japan
11. Business Analytics
12. Customer relationship management
13. Assemble to order systems
14. Production activity control
15. Lot sizing in manufacturing
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HW1
• For the following products, describe briefly what kind of production system (i.e. Mass, batch, jobshop, MTO, MTS, inventory, lead time, manufacturing strategy) fits best– Ipod, ovens with some custom designed
features, standard but expensive wood carving machine with high demand variability, printed circuit boards for differen needs that change from a customer to the next, contruction of a university building.