Production Planning and Control

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Production Planning and Control
Professor JIANG Zhibin Department of Industrial
Engineering Management Shanghai Jiao Tong
University
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Textbook

• Steven Hahmias, Production and Operations and d
  Analysis, Tsinghua University Press

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Chapter 1 Production System and Operations
Strategy

• Contents
• Basic Conception of Production Operations
  Management
• Production System and Its Classification
• Organization of Production System
• Operations Management Operations Strategy
• The Classical View of Operations Strategy
• Strategic Initiatives-Reengineering
• Matching Process and Product Life Cycles
• Capacity Growth Planning

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1.1 Basic Conception of Production and
Operations Management

• Tasks of an enterprise

• Through production activities,
• with less inputs,
• obtain more product outputs ,
• to gain economic and social benefits

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The Production Activities of Enterprises

• 1. Decision activities
• 2. Technology activities
• 3. Supply activities
• 4. Production activities
• 5. Sales activities
• 6. Financial activities

Production activities
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The Task of Production Operations Management

• Since the production activities in enterprises
  are dependent mutually and connected tightly,
  enterprise can hardly achieve its purpose
  without correctly organizing them.
• The Task of Production and Operation
  Managements
• Organizing the production activities reasonably,
  making good use of the resources efficiently for
  the purposes as follows
• Complete the product production
• Achieve the business objective
• Reduce cost, improve quality, and reduce
  production time (cycle)
• Promote production systems flexibility.

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1.2 Production System

• System view
• An enterprise is a large system.
• A production system is a subsystem of the whole
  enterprise system, and its main function is
  producing products
• A production system uses operations resources to
  transforms inputs into some desired outputs.

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Production System
 

• management

Feedback

• Supplier

customer
Decision
Resource People, Plants, Parts, Process, PPC
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Example inputs-transformation -outputs of
Production system
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Elements of Production System

• 1. Structure Elements the framework of
  production system
• Technology, e.g. Process Technology and
  combination of equipment
• Facility, e.g. scale and layout of Facilities
• Capacity, e.g. The capacity and flexibility of
  production
• Integration,e.g. inner-integration,outer-integrati
  on
• 2. Non-structure elements elements that support
  and control
• system function
• Personnel organization
• Production planning
• Production control
• Production inventory
• Quality management

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Classification of Production System

• Classified based on production process
  continuity
• Continuous flow production system
• Discrete production system
• Classified based on customization
• make to stock
• produce to order
• Classified based on industry
• manufacturing industry
• service industry

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Continuous Flow Production System

• Characteristics
• 1. The production process is relatively steady.
• 2. Customers are usually organizations (including
  commercial organization) , few customer sorts
• 3. The standardization of products is high
• 4. Few product sorts
• 5. The facility is highly automated, highly
  specialized and expensive
• 6. The facility failure can bring in great loss,
  so the equipment maintenance is very important

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Continuous Flow Production System

• Typical industry Chemistry industry, plastics,
  pharmacy, chemical fertilizer, fossil oil,
  metallurgy, spinning, beverage.
• The key of Continuous flow production system
  Emphasize on aggregate production planning and
  facility maintenance.

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Discrete Production System

• Characteristics
• Discrete products, affected by customers greatly,
  the markets is not so steady.
• The construction of products is complex, many
  parts and components.
• Production process is required to cooperate with
  many departments.
• Short product life cycle, products are changed
  quickly (since customers demands change
  continually).
• High customization proportion
• Production and operations management are complex.
• Many methods in IE aimed at this type of
  production.

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Discrete Production System

• Difficulties
• Different type of products needs different
  production process, needs different layout of
  equipments. Product change, layout changes
• The production proportion of different type of
  products often changes, so workforce organizing,
  equipments arranging , production scheduling are
  very difficult and needs to adjust continuously.
• The requirement of production capacity is
  dynamic, the load-balance and the synchronization
  of production process are very difficult but
  necessary.
• Annual plan for production is usually inaccurate,
  however, the short plans such as monthly and
  weekly plans are the keys.

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Difference between Continuous Flow and Discrete
Production
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Difference in the Facility and Manufacturing
Aspects
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Discrete Production System

• Discrete production systems
• Mass production
• Multi-products and low volume production
• One of a kind production

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Mass Production

• Only one or a few types of products are produced
  repeatedly in a long period. e.g. watches,
  bicycles, TV, refrigerator, DVD, screw
• Characteristics
• High productivityworkers are designated to a
  work with high specialization,and also equipments
  and process are high specialized.
• Skilled workers workers repeat the same
  operations
• Simple production planning and scheduling once
  a production line is set up properly, it will
  keep going on some rhythm.
• The products quality is easy to be guaranteed.
• Low production cost.
• Management emphasis facility maintenance worker
  management and quality management

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Multi-product and Low Volume Production

• Characteristic
• Low volume, low production stability
• The high productivity special equipments can not
  be used
• There are many products in production at the same
  time so that the management is very complex. e.g.
  bus , elevator.
• Management Emphasis
• Optimize product mix to pursue the largest
  economic benefits while satisfying the market
  demand and production resources constraints.
• Use the GT production cell, and production line,
• Improve the connection between processes.
• Arrange reasonably the product kind, quantity and
  interval to produce products in batches and in
  turns.
• Control and balance WIP, logistic and product
  inventory

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One of a Kind Production

• Start to organize production after receiving
  order. e.g. shipbuilding, airplane making,
  generating electricity equipment
• Characteristics
• many kind of products, different kind needs
  different production process.
• every order has only one or several quantity,
  with difference delivery time.
• general equipments are required, which need a
  long adjustment period with low efficiency to
  different product
• workers are also required to be generalists.
• Management effective cooperation among different
  activities (manufacture, distribution, design,
  process and purchase)
• to decide reasonable delivery date,
• to improve the flexibility of manufacture system
• to improve the generalization of parts.

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Classified based on customization

• Make to Stock
• Characteristic
• production based on the forecasting
• mass production, in big batch
• high product inventory
• high productivity
• simple production organization
• Disadvantage
• high risk of excess inventory or out of stock

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Produce to Order

• Characteristics
• produce based on the order
• different product has different specification,
  quantity, quality and delivery time
• nearly zero inventory
• delivery time is the key
• multi-product and low volume production
• complex production organization and management
• high customer satisfaction
• According to the level of customization, it can
  be further classified into assembly to order,
  make to order and engineer to order.

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Production for Order- Assembly to Order (ATO)

• First produce semi-finished products (parts and
  components) in advance,
• Then assemble them into different products
  according to customer order. e.g. automobile
  manufacturing
• The most mature production mode, the production
  of parts and components are like make to stock
  with following properties
• high standardization and generalization parts or
  components
• big production batch
• high productivity
• in many cases, use flow production line

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Production for Order- Make to Order (MTO)

• All products have been designed in advance
• Later according to customer orders, buy raw
  materials and parts, components, and
• Then manufacture and assembly them into products
  the customer requires.
• Some raw materials and standard parts are
  prepared based on the forecasting
• Forecasting should be paid great attention

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Production for Order- Engineer to Order (ETO)

• First design products according to customers
  requirement after receiving order, then purchase,
  and then make them.
• Long production cycle
• Pay more attention to reducing design cycle
• Standard and general parts should be used as much
  as possible
• Using CAD, CAPP.

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Production for Order
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Product Type and Production Batch
many
ATO
MTO
Product type
MTS
ETO
few
large
small
Production batch
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Classified based on industry -Service Industry

• Characteristics
• Product is service, and it can not be stored.
• Labor denseness, and low labor productivity.
• The standard of quality customer satisfaction
  degree.
• Some service is included in the manufacture
  industry, e.g. sales, field support
  (service-after-sales) and accounting.

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Service Industry

• Types of Service Industry
• High-touch typehotel, clinic, restaurant, and
  shop
• low-touch typeaccounting, warehouse management,
  planning and scheduling, wholesale, equipment
  maintenance, transportation.
• Service Industry Management in many aspects,
  methods in manufacturing industry can be used
  here, e.g.
• Fast food restaurant group technology
• Hospital logistic management

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1.3. The Organization of Production System

• A production system is usually divided into basic
  units, e.g. workshop, workshop section, and
  working team, and all these units can be
  organized on the following three basic
  principles
• Process focused
• Product focused
• Group technology

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The Organization of Production System

• Principle of process focused organize the
  production units according to a production
  process kind.
• Within one production unit, the same type of
  workers complete the same processes using the
  same type equipments. e.g.
• machining workshop,
• lathe section,
• drill section,
• heat treatment workshop,
• anneal section,
• assembly workshop.

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Principle of Process focused

• Advantages
• (1) high equipment utilization rate, the failure
  of individual equipment will bring little
  influence on production
• (2) an employee do some fixed operations, which
  helps to improve his/her skills
• (3) Units have high flexibility to produce
  various of products

• Disadvantages
• long conveying routes
• great amount in-process inventory
• WIP needs long waiting time, which increase the
  production time
• frequent cooperation and interdependency among
  production units, make management very
  difficulty

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The Organization of Production System

• Principle of product focused the produce unit is
  organized according to a product kind ( or a part
  or a component kind)
• Within one production unit, one products
  production( all processes) is completed by
  different type workers using different type
  equipments
• It can also be called as closed-production-unit.
  e.g. automobile assembling line, TV assembling
  line .

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Product focused

• Advantages
• (1) the handling distance in production
  process can be reduced greatly
• (2) the in-process inventory can be
  reduced greatly.
• (3) can sue the advanced organization
  modeproduction line.
• (4) the cooperation among production
  departments can be reduced, and hence management
  can be simplified.
• (5) clear quality responsibility and cost
  responsibility
• Disadvantages
• (1) low equipment utilization rate
• (2) the whole production unit can be
  influenced once an equipment breakdown
• (3) low production flexibility

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The Organization of Production System
Process focused
Product focused
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The Organization of Production System

• Group Technology (Manufacturing cell)- allocate
  different equipments into a production cell to
  work on a product family that have similar shapes
  and process requirements.
• Within one cell, the production of a product
  family can be completed by different type workers
  using different type equipments.

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The Organization of Production System

• Advantages
• (1)better human relations. A work team complete
  a whole task.
• (2)improved operator expertise. Worker only make
  limited type parts,repetition means quick
  learning.
• (3)Less work-in-process (WIP) inventory and
  material handling. A cell include several
  production stages, like a production line.
• (4)faster production setup. similar products,
  fewer tool changes, so fewer setup.
• GT production cell overcomes some disadvantages
  of process specialization production

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Process Specialization vs. GT Manufacturing Cell
Process Specialization
Warehouse
Warehouse
Customer
Group Cell
Warehouse
Warehouse
Interval Flow Line
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1.4 Operations Management Operation Strategy

• Operations Management
• To design, operate, assess and improve production
  system.
• The core of Operations Management is the
  management of production systems-production
  planning control

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1.4. Operation Management Operation Strategy
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1.4. Operation Management Operation Strategy

• Business Strategy is concerned with setting broad
  policies and plans for using production resources
  of a firm to best support its long-term
  competitive goals.
• It defines
• The market where the enterprise compete
• The level of investment
• The measures of allocating resources to and
  integrating separate business
• Functional area strategies for different
  departments, including
• The marketing strategy
• The financial strategy
• The operational strategy

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1.4. Operation Management Operation Strategy

• Operation Strategy
• The means by which a firm configures its
  resources to achieve its competitive goals
• For manufacturing firms, it involves all
  decisions concerning the production, storage, and
  distribution of goods
• Key operational decisions include
• Where to locate new manufacturing facilities
• How large these facilities should be
• What processes to use for manufacturing and
  moving goods through the system and
• What workers to employ.

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1.4. Operation Management Operation Strategy

• Operation Strategy
• Service firms also require an operation strategy
• Disney theme parks continuing record of success
  is partly due to its careful attentions to detail
  in every phases of its operations.
• It has hundreds IE engineers in all theme parks
  over the world.
• Establishing operating hours and monthly sales
  goals optimizing bus routes for 250K daily guest
  trips implementing meter-based maintenance
  scheduling for ride vehicles and building
  queuing and simulation models for call centers,
  theme park rides, and resort front desks.

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1.4. Operation Management Operation Strategy

• American companies lesson
• Years ago, the American big three (General Motor,
  Ford Motor Co., and Chrysler Group) placed too
  much emphasis on marketing and finance (leveraged
  buyouts, mergers, and stock prices) and too
  little on operations (making and delivering the
  products)
• The enormous success of Japanese auto makers
  motivated the American big three to close their
  inefficient plants and change the way things are
  done
• Today, the best American auto makers compete
  their Japanese counterpart s by quality and
  efficiency.

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1.4. Operation Management Operation
Strategy-Framework

• Two Traditional Strategic Dimensions-
• Lower Cost
• New entrants to a market operate on low cost
  strategy
• Examples
• Korean automakers Hyundai and Daewoo
• Discount outlets Costco
• Retailers Wal-Mart
• May be successful over short term, but risky in
  long run-low cost
• Customers will finally abandon products that are
  in poor quality regardless of low cost
• Many manufacturers of low-cost PC clones poplar
  in 1980s are long gone.

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1.4. Operation Management Operation Strategy

• Two Traditional Strategic Dimensions
• Product Differentiation-Differentiate a
  companys products from its competitors.
• Providing uniqueness to buyers BMW--high
  performance, well made carseven high price
• Product differentiation within a firm to capture
  different market segments
• GM-a successful case successfully captured
  different market segments at the same time by
  forming five different distinct divisions.
• Henry Ford as opposite case Insisted on
  providing only a single models, which almost led
  the company to bankrupt.

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1.4. Operation Management Operation Strategy

• Other Strategic Dimensions
• Quality
• Delivery speed
• Delivery reliability
• Flexibility

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1.4. Operation Management Operation Strategy
Ferrari F50
Geo Prism

• Both Geo Prism and Ferrari and are quality
  products
• Consumers buying these products at greatly
  different prices are both looking for good
  quality but for fundamentally different
  objectives.

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1.4. Operation Management Operation Strategy

• Other Strategic Dimensions
• Quality
• Delivery speed
• Delivery reliability
• Flexibility

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1.4. Operation Management Operation Strategy

• Other Strategic Dimensions
• Quality
• Delivery speed
• Delivery reliability
• Flexibility

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1.4. Operation Management Operation Strategy

• Other Strategic Dimensions
• Quality
• Delivery speed
• Delivery reliability
• Flexibility

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1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Decision Time Horizons refer to the length of
  time required for the strategy to have impact on.

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1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Impacts of Short-term OS are measured in terms of
  days or even hours
• Include purchasing, production personnel
  scheduling policies for control of quality and
  maintenance function, short-term inventory
  control, production scheduling, and so on.

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1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Impacts of medium-range OS are measured in terms
  of weeks and months
• Include demand and requirement forecasting,
  employment-planning (size mix), decisions on
  the distribution of goods, setting up targets for
  inventory and service level

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1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Strategy is usually associated with long-term
  decision
• Include choosing the timing, the location, and
  the scale of new manufacturing facilities
  addressing groundwork for building proper channel
  for sales and distribution and setting up
  service objects
• Require information about the forecast for new
  and exiting products, the changing patterns of
  marketplaces , and changes in costs of
  availability of resources.

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1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Effects of time horizons on strategy
• Impact on decision
• The uncertainties on decisions
• Penalty for wrong decisions.

Example The Gap (1) Short time horizons involve
many decisions, each of whose impact may be
small, but cumulatively can make difference.
Manager at the Gap store restock shelves and
reorder every days. Small errors in sales data
and personal judgment required for reordering mix
of items may result in out-of-stock or wasted
shelf space.
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The Classic View of Operation Strategy - Decision
Time Horizons

• Effects of time horizons on strategy
• Impact on decision
• The uncertainties on decisions
• Penalty for wrong decisions.

• (2) Buyers in San Francisco headquarters of the
  Gap decide on what lines of clothes to stock for
  the coming seasonsMedium-range decision.
• Less information available than store mangers for
  the decision
• The decisions may have greater impact
• They have to judge fashion trends and the color
  preference.
• Penalty A line that does not sell must be on
  sale at lower price.

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1.5. The Classic View of Operation Strategy -
Decision Time Horizons

• Effects of time horizons on strategy
• Impact on decision
• The uncertainties on decisions
• Penalty for wrong decisions.

(3) Top management must make long decisions,
possibly (a) the number, location, and size of
distribution centers (b) terms and conditions of
long-term contracts with suppliers(c)
arrangements for firm-wide supply chain
logistics (4) selection of management
personnel. More uncertainties Demographic change
makes decision on location and sizing for DCs
wrong a long-term contract with a oversea plant
may have opposite results, e .g. quotas, tariffs.
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1.5. The Classic View of Operation Strategy -
Focus
Notion of focus in manufacturing strategy was
first put forward by Skinner. Five key
characteristics (1) Process technologies (2)
Market demand (3) Product volumes (4) Quality
levels (5) Manufacturing tasks

• Process Technologies
• A natural means of focusing operation of one
  plant
• New unproven process technologies should be
  limited to one per factory
• The number of different mature process
  technologies should be kept to the level that the
  plant manager can oversee efficiently.

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1.5. The Classic View of Operation Strategy -
Focus
Notion of focus in manufacturing strategy was
first put forward by Skinner. Five key
characteristics (1) Process technologies (2)
Market demand (3) Product volumes (4) Quality
levels (5) Manufacturing tasks

• Market demands
• Marketplace usually determines the focus of a
  product or line of products
• Indications of market on plant focus are
• Price-It has been always a key product
  differentiation factor
• Lead time-It should be shortened for quick
  production and distribution of product fight
  against competitors.
• Reliability-Its specifications differ by market
  segment, even for identical products.

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1.5. The Classic View of Operation Strategy -
Focus
Notion of focus in manufacturing strategy was
first put forward by Skinner. Five key
characteristics (1) Process technologies (2)
Market demand (3) Product volumes (4) Quality
levels (5) Manufacturing tasks
Product volumes-The production volumes within a
single plant should be similar for the production
systems to be able to operate smoothly, neither
under nor- over utilized.
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1.5. The Classic View of Operation Strategy -
Focus
Notion of focus in manufacturing strategy was
first put forward by Skinner. Five key
characteristics (1) Process technologies (2)
Market demand (3) Product volumes (4) Quality
levels (5) Manufacturing tasks

• Quality level
• Keep similar quality level for products produced
  in a single plant in order establish a consistent
  quality control standards
• Quality control standard are results of several
  factors the statistical control techniques, the
  monitoring procedures, and workers training,
  procedure, and attitudes.

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1.5. The Classic View of Operation Strategy -
Focus
Notion of focus in manufacturing strategy was
first put forward by Skinner. Five key
characteristics (1) Process technologies (2)
Market demand (3) Product volumes (4) Quality
levels (5) Manufacturing tasks

• Manufacturing tasks
• Productivity of a plant producing a wide line of
  different products are affected by frequent setup
  and reconstructing of production lines.
• The number of distinct manufacturing tasks at one
  location should be limited so that workers may
  concentrate on perfecting exiting processes.

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1.5. The Classic View of Operation Strategy -
Evaluation

• Dimensions for evaluating production/operations
  strategy
• Cost-if pricing is a key to market
  differentiation and competitiveness, the cost of
  product delivered to the customer becomes a
  major means of strategy evaluation.
• Quality-when product quality is a major
  determinant of product success in marketplace, or
  high reliability is required to meet product
  specifications, quality should be a dimension for
  strategy evaluation
• Profitability- Strategies that achieve short-term
  profitability may not necessarily be in the best
  interests of the firm in the long term
• Customer satisfaction-Maintaining a satisfied and
  loyal customer base is important for the success
  of a firm. Customers satisfaction not only in
  product but also in efficient and cost-effective
  service after sale are both essential.

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1.5. The Classic View of Operation Strategy -
Consistency

• Strategy is the composite of all company policies
  that affect manufacturing
• Each may aim at optimizing a different
  objectives, resulting in a complex situation in
  which management and labors assure adversarial
  positions.
• Causes for the common inconsistencies
• Professionalism-inconsistent goals of different
  professionals.
• Product proliferation-a firm that produces a
  smaller number of products tends to be more
  profitable, however become less profitable as
  more products are produced within a single plant.
• Changes in manufacturing tasks-the objectives
  that made sense when the plant was constructed no
  longer make sense after the plants function has
  changed.
• The manufacturing task was never made explicit.

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1.5. The Classic View of Operation Strategy -
Review
68
1.5 Strategic Initiatives-Reengineering the BP

• Business Process Reengineering (BPR) is not a
  specific technique, instead , it is the ideal
  that business processes can be changed and
  improved.
• BPR became popular after the publication of a
  book by Hammer and Champy in 1993
• BPR can add remarkably values to corporations
  when implemented intelligently
• Example
• IBM Credit Corporation, a wholly owned subsidiary
  (affiliated company) of IBM, if independent, may
  rank among 100 Fortune service companies
• Responsible for presenting credits to new
  customers buying IBM equipments

69
1.5 Strategic Initiatives-Reengineering the BP
Request
Check credit
Modify the documents

• Six days and four peoples(exclusive of the
  salesperson) are involved in handling each
  request
• Only 90 minutes are actually required for dealing
  with the request
• Other time are wasted either on transiting the
  request and in query.

Form a quote letter
Determine interest rates
70
1.5 Strategic Initiatives-Reengineering the
BPStrategic Initiatives-Reengineering the BP

• The six-day treatment is shortened to only four
  hrs
• Only one personnel is required
• A hundredfold increase in the deals handled

Request
Check credit
Modify the documents
Determine interest rates
Form a quote letter
71
1.5 Strategic Initiatives-Reengineering the BP

• General principles for BPR (suggested by Hammer
  and Champy)
• Several jobs are combined into one
• Reducing a complex process with many steps into a
  simpler one with fewer steps.
• It is BPRs most dramatic successes
• Five steps are combined into only one step in
  the case
• Workers make decisions In order to reduce the
  number of levels of reporting, workers should be
  allowed for making decision, rather than
  previously managed.

72
1.5 Strategic Initiatives-Reengineering the BP

• General principles for BPR (Cont.)
• The steps in the process are performed in a
  natural way process steps should not be
  performed in a rigid linear sequence, but in an
  order that make sense in the context of the
  problem being solved.
• Processes should have multiple versions
  adaptability may be obtained by designing a
  flexible process that can react to different
  conditions, rather than by designing multiple
  independent processes
• Work is performed where it make the most sense
  one of BPRs principle is neither to carry out
  the idea of division of labor too far nor to
  carry out the idea of centralization too far.

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1.5 Strategic Initiatives-Just-in-Time (JIT)

• JIT is both a manufacturing process on one hand
  and broad-based operation strategy on the other
  hand
• It is a philosophy to treat inventory in the
  plant, relationship with suppliers, and
  distribution strategy
• The core of its philosophy is to eliminate waste
  by efficient scheduling of incoming orders,
  work-in-process (WIP) inventories, and finished
  goods inventories.
• Its advantages over conventional systems
• Reduced cost resulted from eliminating WIP
• Enabled quick detection of quality
• Tightened up relationship with suppliers

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1.5 Strategic Initiatives-Time-Based Competition

• Professor Terry Hill (the London School of
  Business) Classified competitive factors into
  qualifiers and order winners.
• Qualifiers make a firm possible to win orders,
  but not sure to do
• Order winners are factors that determine who will
  get the sale among the set of qualifiers.
• Quality has become an order qualifier rather than
  an order winner as previously.
• Time-based competition is a key factor leading to
  success or failure.
• Time-based competition focus on entire
  value-delivery system, attempts to transform an
  organization into one that focus on the total
  time needed for delivering a product or a
  service.
• The goal is not to design the best way to perform
  a task, but to either eliminate the task
  altogether or perform it in parallel with other
  tasks in order to reduce overall system response
  time.

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1.5 Strategic Initiatives-Competing on Quality

• Quality is one of the two leading factors (the
  other one is time management)
• Malcolm Baldrige Awards (USA) and Daming Prize
• Quality means different things in different
  contexts
• A high-quality product perform well as it was
  designed
• Products will perform as they are designed to
  perform, if there is litter variation in
  manufacturing process
• Is it possible for a poorly designed product to
  perform well?
• Is is possible for a well designed to perform
  poorly?
• Many success stories in US manufacturing shows
  that firms can compete successfully on the
  quality dimension.
• Ford Motor with Taurus
• Stanley Work of New Britain
• PC clones Compaq Computer and Dell Computer
• Motorola

76
1.6. Matching Process and Product Life Cycles

• Product Life Cycle-the time duration from the
  time when a product is put into market to time
  when it disappear in the market
• A typical product life cycle consist of four
  major segments
• Start up
• Rapid growth
• Maturation and
• Stabilization or decline

77
1.6. Matching Process and Product Life Cycles (2)
78
1.6. Matching Process and Product Life Cycles

• The Product life cycles-in different phases,
  different competition strategy may be adopted
• Start up-the competition is generally not a
  problem concern on improvement of the production
  and marketing functions
• Rapid growth-begin to see competition establish
  the product as firmly as possible in the
  marketplaces by alternative pricing patterns,
  improvement and standardization in manufacturing
• Maturation-maintain and improve the brand
  loyalty increase market share through
  competitive pricing save cost by improving
  production control and product distribution
• The final phase-the shape depends on the nature
  of the product indefinite continuing growth
  (household goods, processed foods, and auto)/same
  strategy as Phase 3 natural decline/squeezing
  out the most from the product or product line.

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1.6. Matching Process and Product Life Cycles

• The Process Life Cycle-three major stages of the
  manufacturing process life cycle
• Early stage-job shop a varied mix of relatively
  low-volume orders being responsive to changes in
  the product design little control over
  suppliers
• Middle stage-some automation batch process and
  some transfer lines(assembly lines) more control
  over suppliers unit cost decline
• Last stage-automated process and standardized
  production process few manufacturing innovation
  continuous flow operation.

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1.6. Matching Process and Product Life Cycle

• The Product-Process Matrix (PPM) was developed
  by Hayes Wheel Wright in 1979
• Link product and process life cycles in two
  dimensions

• The Four Stages in the evolution of the
  manufacturing process in term of process
  structure
• Job Shop
• Batch Production
• Assembly Line and
• Continuous Flow (for process industries, such as
  chemical plant).

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1.6. Matching Process and Product Life Cycles

• The Four Phases in product Life Cycles in
  term of production volume and the number of
  product types
• low volume , one-of-a kind
• low volume, multiple products
• fewer majors products, higher volume and
• few products, high volume.

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1.6. Matching Process and Product Life Cycles

• To match appropriate industry in its mature phase
  with the appropriate process.
• It provides means of assessing if a firm is
  operating in the proper conditions as shown in
  the diagonal in PPM, that is, if the process is
  properly matched with product structure
• Firms choosing to operate on off the diagonal
  should clearly understand the reason for doing so.

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1.6. Matching Process and Product Life Cycles(6)
Located in the upper left corner are Companies
that specializes in one-of-a-kind jobs in which
manufacturing has the characteristics of a
jumbled flow shop. Production is in relatively
small lots, and the shop is organized for maximum
flexibility.
Ship Building
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1.6. Matching Process and Product Life Cycles(6)
Farther down the diagonal are firms that still
require a great deal of flexibility but produce a
limited line of standardized items. A
disconnected line would provide enough
flexibility.
Coffee bar
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Matching Process and Product Life Cycles
The 3nd class down the diagonal are firms that
produce a line standardized products for a
larger-volume market. The assembly line would be
an appropriate process technology.
86
Matching Process and Product Life Cycles
The lower right-hand portion are appropriate for
products involving continuous flow line, which
are characterized by low cost, standardization of
product, high sale volume, and inflexibility of
the production process.
87
1.6 Matching Process and Product Life Cycles

• To identify the proper match of the production
  processes with the phases of the product life
  cycle.

• In the start-up phase of product development, the
  company would typically be positioned on the
  upper left-hand corner of the matrix
• As the market for the product matures, the firm
  would move down the diagonal to achieve economies
  of scale
• Finally, the firm would settle at the position on
  the matrix that would be appreciate based on the
  characteristics of the product.

88
1.7 Capacity Growth Planning -a long-term
strategy problem

• Capacity of a plant is the number of units that
  it may produce in a given time
• Factors to be considered for capacity strategy
• Predicated patters of demand
• Costs of constructing and operating new
  facilities
• New process technology
• Competitors strategy
• Each time a company considers expanding existing
  productive capacity, it must compare all the
  possibility-Whether to do by modifying the
  existing facility? May be cheaper, however may be
  penny wise and pound foolish.

89
1.7 Capacity Growth Planning -a long-term
strategy problem

• Issues needed to be considered for constructing a
  new pant
• When to construct? Two affecting
  factors-construction lead times and changing
  patterns
• Where to build? Near suppliers or market
  outlets? Where labor cost or tax lower?
• What size? Underutilized or shortage of capacity.

90
1.7 Capacity Growth Planning -a long-term
strategy problem

• Economies of Scale and Economies Scope
• Economies of Scale is considered the primary
  advantages of expanding existing capacity.
• Economies of Scope, introduced by Panzer and
  Willig, is defined as the cost savings obtained
  from combining the production of two or more
  product lines at s single location because of
  sharing some equipment and personnel.
• Economies of Scope can support investment in new
  technology-FMS and CIMS result in efficiencies
  brought about by variety, rather than volume.
• Trade off between combining product lines at a
  location and lack of focus.

91
1.7 Capacity Growth Planning -a long-term
strategy problem

• Make or Buy A Classical Capacity Expanding
  Problem.
• Buy a part from supplier at cost of c1 /unit
  or produce by itself at lower cost of c2 /unit,
  but with investment K, c2ltc1?
• Total Cost for buy x units parts c1x
• Total Cost for producing x units parts Kc2x
• The break-even quantity solves Kc2xc1x
• Giving xK/(c1-c2)
• Break-even curves (as shown in the next page) are
  useful for getting quick ballpark estimate of
  desired capacity addition.

92
1.7. Capacity Growth Planning -a long-term
strategy problem
93
1.7 Capacity Growth Planning -a long-term
strategy problem

• Dynamic Capacity Expanding Policy
• The dynamics of changing demand pattern determine
  when a firm should invest in new capacity. The
  two objectives in capacity planning
• Maximizing market share
• Maximizing capacity utilization.
• Discussion
• Maximization of capacity utilization may incur
  shortages when demand is higher than the
  anticipated
• Increase productive capacity by producing to
  inventory and letting inventory to absorb demand
  fluctuation, resulting in obsolete inventories.
• Have excess capacity to cope with sudden increase
  in demand.

94
1.7. Capacity Growth Planning -a long-term
strategy problem
x Time interval between introduction of two
successive new plants
95
1.7 Capacity Growth Planning -a long-term
strategy problem

• Issues in Plant Location-Factors relevant to
  location decisions
• Sizes of the plant- required acreage, space for
  building structure
• Product lines to be produced
• Process technology to be used
• Labor force requirements-the numbers and the
  specification of particular skills
• Transportation need- near major interstate
  highway or rail lines
• Utilities requirement-special needs for power,
  water, sewage, fossil fuels such natural gas.
• Environment issues-limitation for the plants that
  produce significant wast products
• Interaction with other plants
• International considerations-domestically or
  oversea? Labor costs, tariffs, import quotas,
  market responsiveness.
• Tax treatment

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• The End